-----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, G7/Fbr14aHliPXisMzKRXg0Zms7OfaR71SxHkIg3ROCUVc2noH4WwC9kWpg/mdjw OYF594hEvbmgpU+A5T5cRw== 0000950129-98-001348.txt : 19980401 0000950129-98-001348.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950129-98-001348 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 29 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROUP 1 AUTOMOTIVE INC CENTRAL INDEX KEY: 0001031203 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 760506313 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13461 FILM NUMBER: 98579917 BUSINESS ADDRESS: STREET 1: 950 ECHO LANE STREET 2: STE 350 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7134679260 MAIL ADDRESS: STREET 1: 950 ECHO LANE STREET 2: STE 350 CITY: HOUSTON STATE: TX ZIP: 77024 10-K 1 GROUP I AUTOMOTIVE 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER: 1-13461 GROUP 1 AUTOMOTIVE, INC. (Exact name of Registrant as specified in its charter) DELAWARE 76-0506313 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 950 ECHO LANE, SUITE 350, HOUSTON, TEXAS 77024 (Address of principal executive offices) (Zip code) Registrant's telephone number including area code (713)467-6268 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Securities Exchanges on which Registered ------------------- ----------------------------- COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 2 The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $90,296,000 as of March 27, 1998 (based on the last sale price of such stock as quoted on the New York Stock Exchange). At such date there was no non-voting stock outstanding. As of March 27, 1998, there were 16,101,209 shares of Registrant's Common Stock, par value $.01 per share, outstanding. Documents incorporated by reference: Proxy Statement of Group 1 Automotive, Inc. for the Annual Meeting of Stockholders to be held on May 28, 1998, which is incorporated into Part III of this Form 10-K. 2 3 TABLE OF CONTENTS PART I............................................................................................................... 4 Item 1. Business.................................................................................................. 4 Item 2. Properties................................................................................................ 14 Item 3. Legal Proceedings......................................................................................... 16 Item 4. Submission of Matters to a Vote of Security Holders....................................................... 17 PART II.............................................................................................................. 17 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .................................... 17 Item 6. Selected Consolidated Financial Data .................................................................... 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .................... 19 Item 8. Financial Statements and Supplementary Data .............................................................. 30 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ..................... 31 PART III ............................................................................................................ 31 Item 10. Directors and Executive Officers of the Registrant ...................................................... 31 Item 11. Executive Compensation .................................................................................. 31 Item 12. Security Ownership of Certain Beneficial Owners and Management .......................................... 31 Item 13. Certain Relationships and Related Transactions .......................................................... 31 PART IV ............................................................................................................. 32 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........................................ 32
3 4 PART I ITEM 1. BUSINESS GENERAL Group 1 Automotive, Inc. ("Group 1" or the "Company") was founded to become a leading operator and consolidator in the highly fragmented automotive retailing industry. Simultaneously with the closing of its initial public offering ("IPO") in November 1997, Group 1 acquired four automobile dealership groups ("Founding Groups") comprised of 30 automobile dealership franchises. During the first quarter of 1998, the Company closed acquisitions which comprise four additional automobile dealership franchises. The Company's automobile dealership franchises are located in Florida, Georgia, Oklahoma and Texas, and sell new and used cars and light trucks, provide maintenance and repair services, sell replacement parts and arrange related financing, insurance and extended service contracts. BUSINESS STRATEGY Group 1 plans to achieve its goal of becoming a leading consolidator, while maintaining its high operating standards, in the automotive retailing industry, by (i) emphasizing growth through acquisitions and (ii) implementing an operating strategy that focuses on decentralized dealership operations, nationally centralized administrative functions, the expansion of higher margin businesses, a commitment to customer service and the implementation of new technology initiatives. By complementing the Founding Groups' industry leaders, management talent and proven operating capabilities with a corporate management team which is experienced in achieving and managing long-term growth in a consolidation environment, the Company believes that it is in a strong position to execute this strategy. GROWTH THROUGH ACQUISITIONS Group 1 has implemented an aggressive, yet disciplined, acquisition program by pursuing (i) large, profitable and well managed "platform" acquisitions in large metropolitan and high-growth suburban geographic markets that the Company does not currently serve and (ii) smaller "tuck-in" acquisitions that will allow the Company to increase brand diversity, capitalize on regional economies of scale and offer a greater breadth of products and services in each of the markets in which it operates. In this regard, the Company has obtained a $125 million credit facility, of which a portion will be used, in combination with the Company's common stock, for acquisitions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Information and Certain Risks and Uncertainties that Could Affect Future Operating Results". ENTERING NEW GEOGRAPHIC MARKETS. Group 1 intends to expand into geographic markets it does not currently serve by acquiring large, profitable and well established megadealers that, like the Founding Groups, are leaders in their regional markets. The Company will target new platform megadealers having superior operational and financial management personnel which the Company will seek to retain. Group 1 believes that the retention of existing high quality management will enable acquired megadealers to continue to operate effectively with management personnel who understand the local market while allowing the Company to source future acquisitions more effectively and expand its operations without having to employ and train untested new personnel. Moreover, Group 1 believes that the Company will be well positioned to pursue larger, well established acquisition candidates as a result of its depth of management, the Company's capital structure and the reputation of the principals of the Founding Groups as leaders in the automotive retailing industry. EXPANDING WITHIN EXISTING MARKETS. Group 1 plans to acquire additional dealerships in each of the markets in which it operates, including acquisitions that increase the brands, products or services offered in that market. Group 1 believes that these acquisitions facilitate the Company's operating efficiencies and cost savings on a regional level in areas such as facility and personnel utilization, vendor consolidation and advertising. 4 5 RECENT ACQUISITIONS. The Company has signed definitive purchase agreements related to eight dealership acquisitions. Three of these acquisitions are new platforms and will expand the Company's geographic diversity to include Georgia, New Mexico and South Florida. Certain of the remaining acquisitions are tuck-ins which will complement the Company's platform operations in Austin and Beaumont, Texas and in South Florida. These acquisitions will bring the Company's total number of dealership franchises to 58 and the number of brands represented to 24. The closing of each of these acquisitions is subject to customary closing conditions, including manufacturer approval and the completion of due diligence. The aggregate consideration paid, or to be paid, in completing these acquisitions, including real estate acquired and excluding the assumption of an estimated $92.5 million of inventory financing, is $80.2 million in cash and 3,450,358 shares of Group 1 Common Stock. As part of certain of the acquisitions the Company has committed, for a limited period of time, to certain sellers, that they will realize an agreed upon minimum price upon the sale of the Common Stock received in the acquisitions. If the Company is called upon to perform under this arrangement, the cash payment will result in an increase in Goodwill on the balance sheet of Group1. No Common Stock issued in the acquisitions is permitted to be sold for a minimum of one year from the date of its issuance. Additionally, in certain transactions, the sellers may earn contingent consideration ("Earnouts") based on an increase in earnings before taxes of their operations, as defined. Currently, the future amounts payable are not determinable. When made, the contractual provisions governing the payments will result in approximately one-half of the payments being made in Group 1 Common Stock and one-half in cash. The Earnout amounts, if earned, will result in increases in Goodwill on the balance sheet of Group 1. In connection with these acquisitions, certain of the former owners involved in the management of the dealerships will execute long-term employment agreements with the Company that contain post-employment non-competition covenants. Generally, the real estate and facilities comprising the acquired dealerships are leased from affiliates of the former stockholders of the acquired companies under long-term leases, with fair market value rental rates. OPERATING STRATEGY Group 1 has implemented an operating strategy that focuses on decentralized dealership operations, nationally centralized administrative functions, expansion of higher margin businesses, commitment to customer service and new technology initiatives. Group 1 has formed an operations committee comprised of the chief operating officers of the Founding Groups and the general managers of the dealerships in order to identify and share best practices. Group 1 intends to incorporate the key officers and management of the Company's future acquisitions into this operations committee. Group 1 believes that this operations committee will promote the widespread application of the Company's broad strategic initiatives, facilitate the integration of the future acquisitions and improve operating efficiency and overall customer satisfaction. DECENTRALIZED DEALERSHIP OPERATIONS. Group 1 believes that decentralizing the Company's dealership operations on a regional, or platform, basis enables it to provide superior customer service and a focused, market-specific responsiveness to sales, service, marketing and inventory control. Local presence and an in-depth knowledge of customers' needs and preferences are important in generating internally-driven market share growth. By coordinating certain operations on a platform basis, the Company believes that it will achieve cost savings in such areas as vendor consolidation, facility and personnel utilization and advertising. Group 1 has created incentives for the Company's entrepreneurial management teams and sales forces at the regional level through the use of stock options and/or cash bonus programs. NATIONALLY CENTRALIZED ADMINISTRATIVE FUNCTIONS. The consolidation of purchasing power on a centralized basis in the area of financing should result in significant cost savings. For example, all of the Company's floorplan financing has benefited from interest rate reductions. Furthermore, Group 1 expects that significant cost savings can be achieved through the consolidation of administrative functions such as risk management, employee benefits and employee training. For example, Group 1 has negotiated 5 6 insurance coverage that will result in annual cost savings to the Company of approximately 25 to 30 percent from the costs incurred by the Founding Groups prior to their being acquired by Group 1. EXPAND HIGHER MARGIN ACTIVITIES. The Company is focusing on expanding higher margin businesses such as used vehicle retail sales, parts and service and finance and insurance. While each of the Company's platforms operates independently in a manner consistent with its specific market's characteristics, each platform will pursue an integrated strategy to grow each of these higher margin businesses to enhance profitability and stimulate internal growth. With a competitive advantage in sourcing and attractive lease financing, new vehicle franchises are especially well positioned to capitalize on industry growth in used vehicle sales. In addition, each of the Company's dealerships offer an integrated parts and service department, which provides an important source of recurring higher margin revenues. The Company also has the opportunity on each new or used vehicle sold to generate incremental revenues from the sale of extended service contracts, credit insurance policies and finance and lease contracts. Each of these business areas is a focus of internal growth. COMMITMENT TO CUSTOMER SERVICE. The Company is focused on providing a high level of customer service to meet the needs of an increasingly sophisticated and demanding automotive consumer. The Company's dealerships strive to cultivate lasting relationships with its customers, which the Company believes enhances the opportunity for significant repeat and referral business. For example, the dealerships regard their service and repair activities as an integral part of their overall approach to customer service, providing an opportunity to foster ongoing relationships with their customers and deepen customer loyalty. The Company's dealerships will continuously review their selling processes in their effort to satisfy their customers. DEALERSHIP OPERATIONS Each platform has an established management structure that promotes and rewards entrepreneurial spirit, individual pride and responsibility and the achievement of team goals. The general manager of each dealership is ultimately responsible for the operation, personnel and financial performance of the dealership. The general manager is complemented with a management team consisting of a new vehicle sales manager, used vehicle sales manager, parts and service managers and finance managers. Each dealership is operated as a distinct profit center, in which dealership general managers are given a high degree of autonomy. The general manager and the other members of the dealership management team, as long-time members of their local communities, are typically best able to judge how to conduct day- to-day operations based on the team's experience in and familiarity with its local market. NEW VEHICLE SALES. The Company currently represents 20 American and Asian brands of economy, family, sports and luxury cars and light trucks and sport utility vehicles. The following table sets forth for 1997, certain information relating to the brands of new vehicles sold at retail by the Company on a pro forma basis assuming that the acquisitions of the Founding Groups occurred on January 1, 1997. These results may not be indicative of the Company's post-combination results: NUMBER OF NEW PERCENTAGE OF MANUFACTURER VEHICLES SOLD AT RETAIL TOTAL -------------- ---------------------- ------------- Toyota ................. 5,938 25.6% Nissan ................. 4,518 19.5 Honda ................... 2,868 12.4 Chevrolet ............... 1,597 6.9 Lexus ................... 1,279 5.5 GMC ..................... 998 4.3 Acura ................... 874 3.8 Dodge ................... 814 3.5 Mitsubishi............... 810 3.5 Pontiac ................. 700 3.0 Isuzu ................... 696 3.0 Chrysler ................ 578 2.5 6 7 Jeep ...................... 516 2.2 Mazda ...................... 291 1.3 Mercury .................... 204 0.9 Other ...................... 520 2.1 ---------------------- ------------- Total 23,201 100.0% ====================== ============= The dealerships new vehicle retail sales include traditional new vehicle retail lease transactions and lease-type transactions, both of which are arranged by the dealerships. New vehicle leases generally have short terms, which brings the consumer back to the market sooner than if the purchase were debt financed. In addition, leases provide the dealerships with a steady source of late-model, off-lease vehicles for its used vehicle inventory. Generally, leased vehicles remain under factory warranty for the term of the lease, which allows the dealerships to provide repair service to the lessee throughout the lease term. The dealerships seek to provide customer-oriented service designed to meet the needs of its customers and establish lasting relationships that will result in repeat and referral business. For example, the dealerships strive to: (i) employ more efficient selling approaches; (ii) utilize computer technology that decreases the time necessary to purchase a vehicle; (iii) engage in extensive follow-up after a sale in order to develop long-term relationships with customers; and (iv) extensively train their sales staffs to be able to meet the needs of the customer. The dealerships continually evaluate innovative ways to improve the buying experience for their customers. The Company believes that its ability to share best practices among its dealerships gives it an advantage over smaller dealerships. The dealerships acquire substantially all their new vehicle inventory from the automobile manufacturers ("Manufacturers"). Manufacturers allocate a limited inventory among their franchised dealers based primarily on sales volume and input from dealers. The dealerships finance their inventory purchases through revolving credit arrangements known in the industry as floorplan facilities. USED VEHICLE SALES. The Company sells used vehicles at each of its franchised dealerships. Sales of used vehicles have become an increasingly significant source of profit for the dealerships. Consumer demand for used vehicles has increased as prices of new vehicles have risen and as more high quality used vehicles have become available. Furthermore, used vehicles typically generate higher gross margins than new vehicles because of their limited comparability and the somewhat subjective nature of their valuation. The Company intends to continue growing its used vehicle sales operations by maintaining a high quality inventory, providing competitive prices and extended service contracts for its used vehicles and continuing to promote used vehicle sales. Profits from sales of used vehicles are dependent primarily on the ability of the dealerships to obtain a high quality supply of used vehicles and effectively manage that inventory. The Company's new vehicle operations provide the used vehicle operations with a large supply of high quality trade-ins and off-lease vehicles, which are the best sources of high quality used vehicles. The dealerships supplement their used vehicle inventory with used vehicles purchased at auctions. Each of the dealerships generally maintains a 45 to 60 day supply of used vehicles and offers to other dealers and wholesalers used vehicles that they do not retail to customers. Trade-ins may be transferred among dealerships to provide balanced inventories of used vehicles at each of the Company's dealerships. Group 1 believes that the acquisitions of additional dealerships will expand the internal market for transfers of used vehicles among the Company's dealerships and, therefore, increase the ability of each of the Company's dealerships to offer the same brand of used vehicles as it sells new and to maintain a balanced inventory of used vehicles. Group 1 intends to develop integrated computer inventory systems that will allow it to coordinate vehicle transfers between the Company's dealerships, primarily on a regional basis. The dealerships have taken several steps towards building client confidence in their used vehicle inventory, one of which includes their participation in the Manufacturers' certification processes which are available only to new vehicle franchises. This process makes these used vehicles eligible for new vehicle benefits such as new vehicle finance rates and extended Manufacturer warranties. In addition, the dealerships offer extended warranties covering the used vehicles that they sell. 7 8 Group 1 believes that franchised dealership strengths in offering used vehicles include: (i) access to trade- ins on new vehicle purchases, which are typically lower mileage and higher quality relative to trade-ins on used car purchases, (ii) access to late-model, low mileage off-lease vehicles, and (iii) the availability of Manufacturer certification programs for the Company's higher quality used vehicles. This supply of high quality trade-ins and off- lease vehicles reduces the Company's dependence on auction vehicles, which are typically a higher cost source of used vehicles. PARTS AND SERVICE SALES. The Company provides parts and service at each of its franchised dealerships primarily for the vehicle makes sold at that dealership. The Company performs both warranty and non-warranty service work. Historically, the automotive repair industry has been highly fragmented. However, the Company believes that the increased use of advanced technology in vehicles has made it difficult for independent repair shops to retain the expertise to perform major or technical repairs. Additionally, Manufacturers permit warranty work to be performed only at franchised dealerships. Hence, unlike independent service stations, or independent and superstore used car dealerships with service operations, the Company's franchised dealerships are qualified to perform work covered by Manufacturer warranties. Given the increasing technological complexity of motor vehicles and the trend toward extended manufacturer and dealer warranty periods for new vehicles, Group 1 believes that an increasing percentage of repair work will be performed at the Company's franchised dealerships, each of which have the sophisticated equipment and skilled personnel necessary to perform such repairs and offer extended service contracts. The Company attributes its profitability in parts and service to a comprehensive management system, including the use of variable rate pricing structures, cultivation of strong customer relationships through an emphasis on preventive maintenance and the efficient management of parts inventory. In charging for their mechanics' labor, the dealerships use variable rate structures designed to reflect the difficulty and sophistication of different types of repairs. The percentage mark-ups on parts are similarly priced based on market conditions for different parts. The Company believes that variable rate pricing helps the dealerships to achieve overall gross margins in parts and service superior to those of certain competitors who rely on fixed labor rates and percentage markups. The dealerships seek to retain each purchaser of a vehicle as a customer of the dealership's parts and service departments. The dealerships have systems in place that track their customers' maintenance records and notify owners of vehicles purchased or serviced at the dealerships when their vehicles are due for periodic services. The dealerships regard service and repair activities as an integral part of their overall approach to customer service, providing an opportunity to foster ongoing relationships with the dealership's customers and deepen customer loyalty. The dealerships' parts departments support their respective sales and service departments. Each of the dealerships sells factory-approved parts for vehicle makes and models sold by that dealership. These parts are either used in repairs made by the dealership or sold at retail to its customers or at wholesale to independent repair shops and other franchised dealerships. Currently, each of the dealerships employs its own parts manager and independently controls its parts inventory and sales. Dealerships that sell the same new vehicle makes have access to each other's computerized inventories and frequently obtain unstocked parts from other dealerships. OTHER DEALERSHIP REVENUES. Other dealership revenues consist primarily of finance and insurance income. The dealerships arrange financing for their customers' vehicle purchases, sell extended service contracts and arrange selected types of credit insurance in connection with the financing of vehicle sales. The dealerships place heavy emphasis on finance and insurance ("F&I") and offer advanced F&I training to their finance and insurance managers. Typically, the dealerships forward proposed financing contracts to Manufacturers' captive finance companies, selected commercial banks or other financing parties. The dealerships receive a financing fee from the lender for arranging the financing and are typically assessed a charge-back against a portion of the financing fee if the contract is terminated prior to its scheduled maturity for any reason, such as early repayment or default. As a result, the dealerships must arrange financing for a customer that is competitive (i.e., the customer is more likely to accept the financing terms and the loan is less likely to be refinanced) and affordable (i.e., the loan is more likely to be repaid). The Company does not own a finance company and, generally, does not retain 8 9 significant credit risk after a loan is made. At the time of a new vehicle sale, the dealerships offer extended service contracts to supplement the Manufacturer warranty. Additionally, the dealerships sell primary service contracts for used vehicles. Currently, the dealerships primarily sell service contracts of third party vendors, for which they recognize a commission upon the sale of the contract. The dealerships also offer certain types of credit insurance to customers who arrange the financing of their vehicle purchases through the dealerships. The dealerships sell credit life insurance policies to these customers, which policies provide for repayment of the vehicle loan if the obligor dies while the loan is outstanding. The dealerships also sell accident and health insurance policies, which provide payment of the monthly loan obligations during a period in which the obligor is disabled. AGREEMENTS WITH MANUFACTURERS PUBLIC ENTITY AGREEMENTS As a condition to granting their consent to the acquisition of the Founding Groups, American Honda Motor Co., Inc. ("American Honda"), General Motors Corporation ("GM"), Toyota Motor Sales, U.S.A., Inc. ("Toyota Motor"), Nissan North America, Inc. ("Nissan North America"), American Isuzu Motors, Inc. ("American Isuzu"), Ford Motor Company ("Ford Motor") and Mitsubishi Motor Sales of America, Inc., ("Mitsubishi Motor") imposed restrictions on the Company. These restrictions include restrictions on (i) the acquisition of more than a specified percentage of the Company's Common Stock (5% in the case of American Honda; 20% in the case of GM, Toyota Motor, Nissan North America and American Isuzu, and 50% in the case of Ford Motor and Mitsubishi Motor) by any one person who in the opinion of the Manufacturer is unqualified to own a dealership of such Manufacturer or has interests incompatible with the Manufacturer, (ii) certain material changes in the Company or extraordinary corporate transactions such as a merger or sale of a material amount of assets; (iii) the removal of a dealership general manager without the consent of the Manufacturer; (iv) the use of dealership facilities to sell or service new vehicles of other Manufacturers; (v) in the case of GM, the advertising or marketing of non-GM operations with GM operations; (vi) in the case of Ford Motor, mandatory binding arbitration of any dispute between the Company and Ford Motor concerning Ford Motor's franchise agreements; (vii) in the case of Nissan Motor, a decrease in ownership of the Company's Common Stock to below 169,750 or 739,239 shares by Charles M. Smith or Robert E. Howard II, respectively, directors of the Company, at any time during the five-year period following the Company's execution of the new Nissan Motor franchise agreement; (viii) in the case of GM and Mitsubishi Motor, any change in control of the Company's Board of Directors; and (ix) in the case of Ford Motor, any change in the Company's Board of Directors or management. Toyota Motor policies currently applicable to Group 1 limit the number of dealerships which may be owned by any one group to seven Toyota and three Lexus dealerships nationally and restricts the number of dealerships that may be owned to (i) the greater of one dealership, or 20% of the Toyota dealer count in a "Metro" market (multiple Toyota dealership markets as defined by Toyota Motor), (ii) a specified number (ranging from three to five) in any Toyota region (currently 12 geographic regions), provided that if a calculation based on retail sales of all Toyota dealerships owned in a region by Group 1 is less than 9% of a calculation based on retail sales of all Toyota dealerships in the region, the number of Toyota dealerships that may be acquired is increased for each region up to seven dealerships, and (iii) two Lexus dealerships in any one of the four Lexus geographic areas. Toyota Motor further requires that at least nine months elapse between acquisitions of Toyota or Lexus dealerships. Similarly, it is currently the policy of American Honda to restrict any company from holding more than seven Honda or more than three Acura franchises nationally and to restrict the number of franchises to (i) one Honda dealership in a "Metro" market (a metropolitan market represented by two or more Honda dealers) with two to 10 Honda dealership points, (ii) two Honda dealerships in a Metro market with 11 to 20 Honda dealership points, (iii) three Honda dealerships in a Metro market with 21 or more Honda dealership points, (iv) no more than 4% of the Honda dealerships in any one of the 10 Honda geographic zones, (v) one Acura dealership in a Metro market (a metropolitan market with two or more Acura dealership points), and (vi) two Acura 9 10 dealerships in any one of the six Acura geographic zones. Toyota Motor and American Honda also prohibit ownership of contiguous dealerships and the dualing of a franchise with any other brand without their consent. Because the Company intends to pursue "platform" acquisitions in large metropolitan markets that the Company does not currently serve, as well as "tuck-in" acquisitions that will increase brand diversity, the Company's acquisition program will not be dependent on its ability to acquire multiple dealerships of any one Manufacturer in any given Metro market. Therefore, the Company does not believe that the foregoing restrictions on ownership of contiguous dealers impose significant limitations on its acquisition program. American Honda also requires that 50% of the outstanding Common Stock of the Company be owned at all times by persons approved by American Honda. Because the Company intends to finance future acquisitions by issuing shares of Common Stock as full or partial consideration for acquired dealerships, such restriction could have the effect of limiting the Company's ability to implement its acquisition program. The Company's agreement with American Honda ("Honda Agreement") also requires American Honda's approval prior to any future public offering of Common Stock of the Company, and provides that American Honda shall have the right to approve the acquisition of more than 5% of the Common Stock of the Company by any individual or entity, and any subsequent acquisition of more than 10%, if such acquisition is reasonably deemed to be detrimental to the interests of American Honda. The Honda Agreement provides that any such acquisition may be reasonably deemed to be detrimental to the interests of American Honda if the acquiring entity (a) competes with American Honda or its parent, subsidiaries or affiliates in the manufacturing, marketing or selling of automobile products or services, or owns a substantial economic interest in an entity that so competes (not including any dealership that sells products of a competing manufacturer); (b) has criminal affiliations or a criminal record; (c) has inadequate experience in the automotive sales and service business; (d) has an unacceptable credit rating; (e) has unacceptable customer satisfaction index ("CSI") scores; or (f) has had prior unsatisfactory relationships with American Honda. An institutional investor may acquire up to 10% of the Common Stock of the Company without the consent of American Honda, unless such institutional investor (a) is owned or controlled by or has a substantial economic interest in an entity that competes with American Honda; (b) has criminal affiliations or a criminal record; or (c) has acquired, or has a reasonable likelihood of acquiring a controlling interest in the Company. The Company will be required to notify American Honda with respect to any such acquisition or proposed acquisition, and if American Honda does not approve of such acquisition, the Company will be required to use its best efforts to prevent such acquisition or, if such acquisition has already occurred, to reacquire the shares so transferred. The inability of the Company to prevent such acquisition or to reacquire the shares will be deemed to be a material breach of the Honda Agreement. In addition, pursuant to the Honda Agreement, each stockholder of the Founding Groups has agreed not to sell, transfer or in any manner encumber any of the shares of Common Stock of the Company acquired by them pursuant to the acquisitions, or enter into any agreement or other arrangement providing for the voting of such shares of Common Stock, without the prior written approval of American Honda. In the event of any transfer of shares of Common Stock in violation of such restriction, the Company will be required to inform American Honda, and if American Honda does not approve such transfer, the inability of the Company either to reacquire the shares or arrange for the retransfer of such shares to a person approved by American Honda will be deemed to be a material breach of the Honda Agreement. The Honda Agreement also provides that, in the event a controlling interest in the Company or any subsidiary of the Company that owns any Honda and Acura dealerships is acquired or threatened to be acquired by an entity not approved by American Honda, American Honda will be entitled to claim material breach of the Honda Agreement and exercise its rights upon the occurrence thereof. In addition, American Honda's policy on public ownership of Honda and Acura dealerships requires that individuals or entities that acquire, own or control more than 5% of the Common Stock of the Company must provide American Honda with copies of all filings made to the Securities and Exchange Commission, all comparable filings made to state agencies and annual audited financial statements. Ford Motor currently limits the number of dealerships to the greater of (a) 15 Ford and 15 Lincoln Mercury dealerships, or (b) the number of dealerships with total retail sales of new vehicles in the immediately preceding calendar year that would equal not more than 5% of total Ford and Lincoln Mercury vehicles sold at retail in the United States during that year, which number for each of Ford and Lincoln 10 11 Mercury dealerships treated separately may not exceed (a) one Ford dealership in those market areas as defined by Ford Motor from time to time by Ford Motor for its dealership network having two or less authorized Ford dealerships in them, or (b) 33 1/3% of the dealerships in any market area, as defined from time to time by Ford Motor for its dealership network, having more than three authorized Ford dealerships in them (estimated by the Company to be approximately 400 dealerships assuming that each Ford and Lincoln Mercury dealership in the United States had the same revenues). GM has limited the number of GM dealerships that the Company may acquire prior to October 1999, to 10 additional GM dealership locations (any one dealership, however, may include a number of different GM franchises, such as a combination of GMC, Pontiac and Buick franchises). In addition, GM limits the maximum number of GM dealerships that the Company may acquire to 50% of the GM dealerships, by franchise line, in a GM-defined geographic market area (currently approximately 10,000 dealerships). However, Group 1's current agreement with GM does not include Saturn dealerships and the Company's future acquisition of a Saturn dealership will be subject to GM approval on a case-by-case basis. FRANCHISE AGREEMENTS Each of the dealerships operates pursuant to a franchise agreement between the applicable Manufacturer and the 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 the 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 the dealerships is owned, directly or indirectly, by Group 1, at the subsidiary level. A number of Manufacturers prohibit the acquisition of a substantial ownership interest in Group 1 or transactions that may affect management control of Group 1, in each case without the approval of the Manufacturer. Most franchise agreements expire after a specified period of time, ranging from one to five years, and Group 1 expects to renew any expiring agreements in the ordinary course of business. The typical franchise agreement 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, 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 following discussion of state court and administrative holdings and various state laws is based on management's beliefs and may not be an accurate description of the state court and administrative holdings and various state laws. 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 11 12 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. For example, under Texas law, despite the terms of contracts between manufacturers and dealers, manufacturers may not unreasonably withhold approval of a transfer of a dealership. It is unreasonable under Texas law for a manufacturer to reject a prospective transferee of a dealership who is of good moral character and who otherwise meets the manufacturer's written, reasonable and uniformly applied standards or qualifications relating to the prospective transferee's business experience and financial qualifications. In addition, under Texas and Oklahoma law and the laws of other states, franchised dealerships may challenge manufacturers' attempts to establish new franchises in the franchised dealers' markets, and state regulators may deny applications to establish new dealerships for a number of reasons, including a determination that the Manufacturer is adequately represented in the region. Texas and Oklahoma law limit the ability of manufacturers to terminate or fail to renew franchises. In addition, other laws in Texas and elsewhere limit the ability of manufacturers to withhold their approval for the relocation of a franchise or require that disputes be arbitrated. In addition, a manufacturer's license to distribute vehicles in Texas and Oklahoma may be revoked if, among other things, the manufacturer has forced or attempted to force an automobile dealer to accept delivery of motor vehicles not ordered by that dealer. In Oklahoma, a manufacturer's license to operate in the state may be revoked or suspended upon a finding that a manufacturer has coerced or intimidated a dealer or acted dishonestly or failed to act in accordance with reasonable standards of fair dealing. COMPETITION The automotive retailing industry is 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 vehicle serviced. In the new vehicle area, the dealerships compete with other franchised dealers in their marketing areas. The dealerships do not have any cost advantage in purchasing new vehicles from the Manufacturers, and typically rely 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 or lease of new vehicles from independent leasing companies, on-line purchasing services and warehouse clubs. In used vehicles, the dealerships compete with other franchised dealers, independent used car dealers, automobile rental agencies, private parties and used car "superstores" for supply and resale of used vehicles. Used car "superstores" have recently opened in certain markets in which the dealerships compete. In addition, the Company expects that additional used car "superstores" will open in other markets in which it operates. Group 1 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 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. Group 1 believes that its dealerships are competitive in all of these areas. The dealerships compete against franchised dealers to perform warranty repairs and against other automobile dealers, franchised and independent service center chains and independent garages for non-warranty repair and routine maintenance business. The dealerships compete with other automobile dealers, service stores and auto parts retailers in their parts operations. Group 1 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 dealerships prices. 12 13 GOVERNMENTAL REGULATIONS A number of regulations affect the Company's business of marketing, selling, financing and servicing automobiles. The Company is also subject to laws and regulations relating to business corporations generally. Generally, the Company must obtain a license in order to establish, operate or relocate a dealership or provide certain automotive repair services. These laws also regulate the Company's conduct of business, including its advertising and sales practices. The Company's financing activities with its customers are subject to federal truth in lending, consumer leasing and equal credit opportunity regulations as well as state and local motor vehicle finance laws, installment finance laws, insurance laws, usury laws and other installment sales laws. Some states regulate finance fees that may be paid as a result of vehicle sales. Penalties for violation of any of these laws or regulations may include revocation of certain licenses, assessment of criminal and civil fines and penalties, and in certain instances, create a private cause of action for individuals. The Company believes that the dealerships comply substantially with all laws and regulations affecting their business and do not have any material liabilities under such laws and regulations and that compliance with all such laws and regulations will not, individually or in the aggregate, have a material adverse effect on its capital expenditures, earnings, or competitive position. ENVIRONMENTAL MATTERS The Company is subject to a wide range of federal, state, and local environmental laws and regulations, including those governing discharges to the air and water, the storage of petroleum substances and chemicals, the handling and disposal of wastes, and the remediation of contamination arising from spills and releases. As with automobile dealerships generally, and parts, service and collision service center operations in particular, the Company's business involves the generation, use, handling and disposal of hazardous or toxic substances or wastes. Operations involving the management of hazardous and nonhazardous wastes are subject to requirements of the federal Resource Conservation and Recovery Act and comparable state statutes. Pursuant to these laws, federal and state environmental agencies have established approved methods for storage, treatment, and disposal of regulated wastes with which the Company must comply. The Company's business also involves the use of aboveground and underground storage tanks. Under applicable laws and regulations, the Company is responsible for the proper use, maintenance and abandonment of regulated storage tanks owned or operated by it, and for remediation of subsurface soils and groundwater impacted by releases from such existing or abandoned aboveground or underground storage tanks. In addition to these regulated tanks, the Company owns, operates, or has otherwise abandoned other underground and aboveground devices or containers (e.g., automotive lifts and service pits) that may not be classified as regulated tanks, but which are capable of releasing stored materials into the environment, thereby potentially obligating the Company to remediate any soils or groundwater resulting from such releases. The Company is also subject to laws 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 Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of the hazardous substances released at such sites. Under CERCLA, these "responsible parties" may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances. Further, the Federal Water Pollution Control Act, also known as the Clean Water Act, and 13 14 comparable state statutes prohibit discharges of pollutants into regulated waters without authorized National Pollution Discharge Elimination System (NPDES) and similar state permits, require containment of potential discharges of oil or hazardous substances, and require preparation of spill contingency plans. The Company expects to implement programs that address wastewater discharge requirements as well as containment of potential discharges and spill contingency planning. Environmental laws and regulations have become very complex and it has become very difficult for businesses that routinely handle hazardous and non-hazardous wastes to achieve and maintain full compliance with all applicable environmental laws. Like virtually any network of automobile dealerships and vehicle service facilities, from time to time the Company, including any future acquisitions, can be expected to experience incidents and encounter conditions that will not be in compliance with environmental laws and regulations. However, none of the Founding Groups have been subject to any material environmental liabilities in the past and the Company does not anticipate that any material environmental liabilities will be incurred by the Founding Groups in the future. In addition, to minimize the risk of environmental liability related to acquired dealerships, the Company generally obtains environmental studies on such dealerships as a condition to their acquisition. Furthermore, the Company is in the process of establishing an environmental management program that is intended to reduce the risk of noncompliance with environmental laws and regulations. Nevertheless, environmental laws and regulations and their interpretation and enforcement are changed frequently and the Company believes that the trend of more expansive and more strict environmental legislation and regulations is likely to continue. Hence, there can be no assurance that compliance with environmental laws or regulations or the future discovery of unknown environmental conditions will not require additional expenditures by the Company, or that such expenditures would not be material. EMPLOYEES As of December 31, 1997, the Company employed 1,556 people, of whom approximately 193 were employed in managerial positions, 529 were employed in non-managerial sales positions, 612 were employed in non-managerial parts and service positions and 222 were employed in administrative support positions. Group 1 believes that its relationships with its employees are favorable. None of the Company's employees are represented by a labor union. Because of its dependence on the Manufacturers, however, the Company may be affected by labor strikes, work slowdowns and walkouts at the Manufactures' manufacturing facilities. ITEM 2. PROPERTIES Set forth in the table below is certain information relating to the properties that the Company uses in its business.
OCCUPANT LOCATION USE LEASE/OWN -------- -------- --- --------- Bob Howard Automall.... 13300 N. Broadway New and used vehicle Lease; expires in 2027 and is Extension, sales; service; F&I cancelable at the Company's option Oklahoma City, Oklahoma in 2007 and at the end of each subsequent five year period 13220 N. Broadway New and used vehicle Lease; expires in 2027 and is Extension, sales; service; F&I cancelable at the Company's option Oklahoma City, Oklahoma in 2007 and at the end of each subsequent five year period 715 W. Memorial Road, Storage and make Lease; expires in 1999 Oklahoma City, Oklahoma ready facility
14 15
OCCUPANT LOCATION USE LEASE/OWN -------- -------- --- --------- Bob Howard Chevrolet........... 13130 N. Broadway New and used vehicle Lease; expires in 2027 and is Extension, sales; service; F&I cancelable at the Company's option Oklahoma City, Oklahoma in 2007 and at the end of each subsequent five year period Bob Howard Toyota..... 13200 N. Broadway New and used vehicle Lease; expires in 2027 and is Extension, sales; service; F&I cancelable at the Company's option Oklahoma City, Oklahoma in 2007 and at the end of each subsequent five year period Bob Howard Honda/Acura......... 14137 N. Broadway New and used vehicle Lease; expires in 2001 Extension, sales; service; F&I Edmond, Oklahoma 3700 S. Broadway Collision service Lease; expires in 1999 Extension, center Edmond, Oklahoma Bob Howard Dodge ..... 616 W. Memorial Road, New and used vehicle Lease; expires in 2001 Edmond, Oklahoma sales; service; F&I Bob Howard Nissan .... 13241 N. Broadway Ext. New and used vehicle Lease; expires in 2006 Oklahoma City, Oklahoma sales; service; F&I Sterling McCall Toyota.............. 9400 Southwest Freeway New and used vehicle Lease; two leases which expire in Houston, Texas sales; service; F&I 2027 and are cancelabe at the Company's option in 2007 and at the end of each subsequent five year period 9400 Southwest Freeway Service Owned Houston, Texas Sterling McCall Lexus............... 10422 Southwest Freeway New and used vehicle Lease; expires in 2027 and is Houston, Texas sales; service; F&I cancelable at the Company's option in 2007 and at the end of each subsequent five year period 10610 Wilcrest Collision services Lease; expires in 2027 and is Houston, Texas center cancelable at the Company's option in 2007 and at the end of each subsequent five year period 10430 Southwest Freeway New vehicle sales Lease; expires in 2000 with an Houston, Texas option to extend until 2005 Courtesy Nissan....... 1777 North Central Expwy. New and used vehicle Lease; expires in 2013 Richardson, Texas sales; service; F&I 421 Industrial Boulevard Storage and make Lease; expires in 2000 Richardson, Texas ready facility Mike Smith Autoplaza.. 1515 I-10 South New and used vehicle Lease; expires in 2027 and is Beaumont, Texas sales; service; F&I cancelable at the Company's option in 2007 and at the end of each subsequent five year period Town North ........... 9150 U.S. Highway 183 New and used vehicle Owned Austin, Texas sales; service; F&I 9112 U.S. Highway 183 New and used vehicle Owned Austin, Texas sales; service; F&I
15 16
OCCUPANT LOCATION USE LEASE/OWN -------- -------- --- --------- 9008 United Drive Used vehicle sales Lease; expires in 2001 Austin, Texas 9094 U.S. Highway 183 Storage Facility Lease; expires in 2001 Austin, Texas 9400 United Drive Storage Facility Lease; expires December 31, 1997 Austin, Texas and automatically renews for successive one year terms unless notice given by either party 8908 McCann Street Storage Facility Lease; month to month; may be Austin, Texas terminated by either party with 30 days written notice Round Rock Nissan..... 3050 North IH 35 New and used vehicle Lease; expires in 2027 and is Austin, Texas sales; service; F&I cancelable at the Company's option in 2007 and at the end of each subsequent five year period Acura Southwest....... 10455 Southwest Freeway New and used vehicle Owned Houston, Texas sales; service; F&I A.J. Foyt Honda/Isuzu......... 22575 Highway 59 N New and used vehicle Owned Kingwood, Texas sales; service; F&I 22577 Highway 59 N New and used vehicle Owned Kingwood, Texas sales; service; F&I Elgin Ford............ 1213 North Highway 290 New and used vehicle Owned Elgin, Texas sales; service; F&I World Ford Hollywood 3101 N. State Road #7 New and used vehicle Lease; renewable, through 2028, Hollywood, Florida sales; service; F&I at the Company's option in 2008 and at the end of each subsequent five year period N. State Road #7 Storage facility Lease; renewable, through 2028, Hollywood, Florida at the Company's option in 2008 and at the end of each subsequent five year period World Ford Kendall.... 15551 S. Dixie Highway New and used vehicle Lease; renewable, through 2028, Miami, Florida sales; service; F&I at the Company's option in 2008 and at the end of each subsequent five year period 9828 Southwest 168th Collision services Lease; renewable, through 2028, Street center at the Company's option in 2008 Miami, Florida and at the end of each subsequent five year period Perimeter Ford........ 6407 Barfield Road New and used vehicle Lease; renewable, through 2028, Atlanta, Georgia sales; service; F&I at the Company's option in 2008 and at the end of each subsequent five year period
ITEM 3. LEGAL PROCEEDINGS From time to time, the Company's dealerships are named in claims involving the manufacture of automobiles, contractual disputes and other matters arising in the ordinary course of business. Currently, no legal proceedings are pending against or involve the Company that, in the opinion of management, 16 17 could be expected to have a material adverse effect on the business, financial condition or results of operations of the Company. Because of their vehicle inventory and nature of business, automobile dealerships generally require significant levels of insurance covering a broad variety of risks. The Company's insurance includes an umbrella policy with a $50 million per occurrence limit as well as insurance on its real property, comprehensive coverage for its vehicle inventory, general liability insurance, employee dishonesty coverage and errors and omissions insurance in connection with its vehicle sales and financing activities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 29, 1997, during the fourth quarter of the fiscal year covered by this report, two matters were submitted to a vote of the stockholders. By a unanimous consent of the stockholders, the 1998 Employee Stock Purchase Plan and the second amendment to the 1996 Stock Incentive Plan were adopted. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "GPI". There were 136 holders of record of the Common Stock as of March 6, 1998. Since the Company's Common Stock began trading on the NYSE after its initial public offering in October 1997, the high and low sales prices per share have been $13 15/16 and $7 3/4, respectively through December 31, 1997. On March 27, 1998, the last reported sales price was $10 13/16 per share. 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, capital requirements, general business conditions and other factors. Pursuant to financing agreements with floorplan lenders and the Credit Facility, the Company is required to maintain a certain minimum working capital and a certain aggregate net worth and is prohibited from making substantial disbursements outside the ordinary course of business, including limitations on the payment of cash dividends. 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. Group 1 has entered into agreements to purchase all of the outstanding capital stock or purchase certain assets and assume certain liabilities of various automobile dealerships for cash and shares of Group 1 Common Stock. The following is a summary of the four transactions in which stock has been or is to be issued: DATE OF AGREEMENT ACQUISITION SHARES ------------------- ------------------------- --------- December 17, 1997 Carroll Automotive Group 1,428,158 December 18, 1997 Maxwell Automotive Group 805,929 February 25, 1998 Johns Automotive Group 875,000 March 11, 1998 Luby Chevrolet 341,271 The Carroll Automotive Group acquisition closed on March 16, 1998, and the remaining acquisitions are pending as of the date of this report. Group 1 is relying on Regulation D under the Securities Act of 1933, as amended as an exemption from registration of the Common Stock to be issued in the acquisitions. Group 1 believes it is justified in relying on such exemption since there are only 17 18 thirteen stockholders of the groups who will receive shares of Group 1 Common Stock, each of whom is an "accredited investor" under Regulation D. USE OF PROCEEDS The Company's Registration Statement on Form S-1 (Registration No. 333-29893), as amended, initially filed with the Securities and Exchange Commission on June 24, 1997, became effective concurrent with the commencement of the IPO on October 29, 1997. The Company closed the IPO on November 4, 1997. In the IPO, the Company registered for sale 5,148,136 shares of Common Stock at an aggregate offering price of approximately $61.8 million, for the account of the Company, and 371,864 shares of Common Stock at an aggregate offering price of approximately $4.5 million, for the account of the selling stockholder. Included in the 5,148,136 shares sold by the Company were 720,000 shares sold pursuant to the underwriter's over-allotment option. All of the shares registered for the account of the Company and for the account of the selling stockholder were sold in the IPO for approximately $61.8 million and approximately $4.5 million, respectively. The managing underwriters were Goldman, Sachs & Co., Merrill Lynch & Co. and NationsBanc Montgomery Securities, Inc. The underwriter's discount paid by the Company in connection with the IPO totaled $4.3 million and expenses paid by the Company were approximately $5.7 million. The net proceeds to the Company after giving effect to the underwriter's discount and IPO expenses were approximately $51.8 million. Of the net proceeds to the Company, $5.4 million was used to pay the cash portion of the purchase price of the acquisitions, which included $2.3 million paid to Robert E. Howard II, an officer, director and significant stockholder of the Company. Approximately $35.4 million of the net proceeds have been utilized to repay indebtedness with the remaining proceeds being used for working capital purposes. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Group 1 acquired the Founding Groups on November 3, 1997. For financial statement presentation purposes, however, the Howard Group, one of the Founding Groups, has been identified as the accounting acquiror. As such, the financial data as of December 31, 1993, 1994, 1995 and 1996, and for each of the four years in the period ended December 31, 1996 represent the historical financial data of the Howard Group on a stand-alone basis. The financial data as of and for the year ended December 31, 1997, includes the operations of Group1 Automotive, Inc., the parent company, and the Founding Groups, excluding the Howard Group, beginning October 31, 1997, the effective closing date of the acquisitions for accounting purposes. The Howard Group is included for the entire year ended December 31, 1997. The following selected historical financial data as of December 31, 1995, 1996 and 1997, and for each of the four years in the period ended December 31, 1997, have been derived from audited financial statements. The following selected historical financial data as of December 31, 1993 and 1994 and for the period ended December 31, 1993, have been derived from unaudited financial statements, which have been prepared on the same basis as the audited financial statements and, in the opinion of the Company, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. 18 19
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- ------- -------- --------- (in thousands) INCOME STATEMENT DATA: Revenues............................... $167,252 $227,259 $254,003 $281,492 $403,967 Cost of sales.......................... 146,239 197,642 219,907 241,898 349,366 -------- -------- -------- -------- -------- Gross profit......................... 21,013 29,617 34,096 39,594 54,601 Goodwill amortization.................. - 21 27 37 170 Selling, general and Administrative expenses.............. 16,610 24,232 26,139 30,731 44,210 -------- -------- -------- -------- -------- Income from operations............... 4,403 5,364 7,930 8,826 10,221 Other income (expense): Interest expense, net................ (1,433) (2,452) (3,471) (3,168) (3,986) Other income (expense), net.......... (28) 9 (80) (69) 156 -------- -------- -------- -------- -------- Income before income taxes........... 2,942 2,921 4,379 5,589 6,391 Provision for income taxes............. 367 768 744 382 573 -------- -------- -------- -------- -------- Net income............................. $2,575 $2,153 $3,635 $5,207 $5,818 ======== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1993 1994 1995 1996 1997 -------- ------- -------- ------- ---------- (in thousands) BALANCE SHEET DATA: Working capital.......................... $ 2,435 $ 2,356 $ 4,708 $ 6,436 $ 50,209 Inventories.............................. 23,180 34,699 39,573 47,674 105,421 Total assets............................. 32,955 51,124 61,641 72,874 213,149 Total debt, including current portion.... 21,199 31,601 37,320 42,887 67,858 Stockholders' equity..................... 3,637 5,346 8,620 12,210 89,372
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Group 1 was founded to become a leading operator and consolidator in the highly fragmented automotive retailing industry. The Company owns automobile dealership franchises located in Texas and Oklahoma. Additionally, the Company provides maintenance and repair services at its dealerships and collision service centers. From 1995 to 1997, the Founding Groups' pro forma revenues increased by $172.9 million, or 23.7%, to $902.3 million from $729.4 million. During this period, pro forma gross profit increased $27.1 million, or 27.1%, to $127.1 million from $100.0 million, to 14.1% from 13.7% of revenues. Group 1 expects that a significant portion of its future growth will be derived from acquisitions of additional dealerships. The Company has diverse sources of revenues, including: new car sales, new truck sales, used car sales, used truck sales, manufacturer remarketed vehicle sales, parts sales, service sales, collision repair services, finance fees, insurance commissions, extended service contract sales, documentary fees and after-market product sales. Sales revenues include sales to retail customers, other dealers and wholesalers. Other dealership revenue includes revenue from the sale of financing, insurance and extended service contracts, net of a provision for anticipated chargebacks and documentary fees charged to customers. The Company's gross profit will vary as the Company's merchandise mix (the mix between new vehicle sales, used vehicle sales, parts and service sales, collision repair services and other dealership revenues) changes. The gross margin realized by the Company on the sale of its products and services generally varies between approximately 7.5% and 60.0%, with new vehicle sales generally resulting in the lowest gross margin and parts and service sales generally resulting in the highest gross margin. Revenues from other dealership revenues contribute a disproportionate share of gross, operating and pre- 19 20 tax margins. When the Company's new vehicle sales increase or decrease at a rate greater than the Company's other revenue sources, the Company's gross margin will respond inversely. Factors such as seasonality, weather, cyclicality and manufacturers' advertising and incentives may impact the Company's merchandise mix and, therefore influence the Company's gross margin. Selling, general and administrative expenses consist primarily of compensation for sales, administrative, finance and general management personnel, rent, marketing, insurance and utilities. Interest expense consists of interest charges on interest-bearing debt, including floorplan inventory financing, net of interest income earned. The Founding Groups had been managed, until they were acquired by Group 1, as independent private companies and their results of operations reflect different tax structures (S Corporations and C Corporations) which influenced, among other things, their historical levels of owners' compensation. These owners and certain key employees agreed to certain reductions in their compensation and benefits in connection with the organization of the Company. Group 1 is integrating certain functions and installing practices that have been successful at other franchises and in other retail segments ("best practices"). This integration of functions and installation of best practices may present opportunities to increase revenues and reduce costs but may also necessitate additional costs and expenditures for corporate administration, including expenses necessary to implement the Company's acquisition strategy. These various costs and possible cost-savings and revenue enhancements may make historical operating results not comparable to, or indicative of, future performance. PRO FORMA COMBINED FOUNDING GROUPS' DATA The pro forma combined Founding Groups' data for 1995, 1996 and 1997 do not purport to present the combined Founding Groups in accordance with generally accepted accounting principles, but represent a summation of certain data of the individual Founding Groups on an historical basis including the effects of the pro forma adjustments. This data will not be comparable to and may not be indicative of the Company's post-combination results of operations because (i) the Founding Groups were not under common control of management and had different tax structures (S Corporations and C Corporations) during the periods presented and (ii) the Company used the purchase method to establish a new basis of accounting to record the acquisitions. 20 21 PARTS AND SERVICE DATA
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1995 1996 1997 ------- ------- ------- (dollars in thousands) Sales revenue......................... $65,599 $73,451 $77,215 Gross profit.......................... $31,408 $35,978 $40,691 Gross margin.......................... 47.9% 49.0% 52.7%
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 REVENUES. Revenues increased $80.4 million, or 9.8%, from $821.9 million for the year ended December 31, 1996 to $902.3 million for the year ended December 31, 1997. New vehicle revenues increased $44.6 million, or 9.5% from $469.3 million for the year ended December 31, 1996 to $513.9 million for the year ended December 31, 1997. The increase in revenue was primarily attributable to significant revenue growth from maturing Round Rock Nissan and Bob Howard Dodge franchise operations, successful marketing efforts and strong customer acceptance of the Founding Groups' products, particularly Lexus. Used vehicle revenues increased $30.0 million, or 11.6%, from $258.0 million for the year ended December 31, 1996 to $288.0 million for the year ended December 31, 1997. The increase was primarily attributable to the maturing franchise operations, successful marketing efforts and an emphasis on used vehicle sales in the Oklahoma market to mitigate the impact of lower than expected new vehicle demand. Parts and service sales increased $3.7 million, or 5.0%, from $73.5 million for the year ended December 31, 1996 to $77.2 million for the year ended December 31, 1997. The increase was primarily attributable to the maturing dealership operations and increased vehicle sales. Other dealership revenues increased $2.1 million or 10.0% from $21.1 million for the year ended December 31, 1996 to $23.2 million for the year ended December 31, 1997. The increase was due primarily to an increase in the number of retail new and used vehicle sales. GROSS PROFIT. Gross profit increased $11.0 million, or 9.5%, from $116.1 million for the year ended December 31, 1996 to $127.1 million for the year ended December 31, 1997. The increase was attributable to increased revenues and a stable overall gross margin. The gross margin on new retail vehicle sales increased from 8.0% for the year ended December 31, 1996 to 8.2% for the year ended December 31, 1997 primarily due to stronger margins in the Lexus and Nissan product lines, partially offset by reduced margins in the Oklahoma market. The gross margin for used retail vehicle sales declined from 9.7% for the year ended December 31, 1996 to 8.9% for the year ended December 31, 1997. The decline was primarily attributable to efforts to increase market share in the Oklahoma market while customer demand for new vehicles was not as strong as in prior years. Parts and service gross margin increased from 49.0% for the year ended December 31, 1996 to 52.7% for the year ended December 31, 1997. YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995 REVENUES. Revenues increased $92.5 million, or 12.7%, from $729.4 million for the year ended December 31, 1995 to $821.9 million for the year ended December 31, 1996. New vehicle revenues increased $47.0 million, or 11.1%, from $422.3 million for the year ended December 31, 1995 to $469.3 million for the year ended December 31, 1996. This increase was primarily attributable to increased sales at all but one of the Founding Groups with the McCall Group accounting for $40.6 million of the increase. New and expanded franchise operations, primarily the Howard Group's new Dodge franchise, successful marketing efforts and strong customer acceptance of the Founding Groups' products, particularly Toyota, Lexus and Chevrolet, contributed to the increase. The Smith Group had an $8.0 million decline in new vehicle revenues caused by reduced unit sales at its Dallas Nissan franchise. Used vehicle revenues increased $35.6 million, or 16.0%, from $222.4 million for the year ended December 31, 1995 to $258.0 million for the year ended December 31, 1996. All of the Founding Groups had increases in used vehicle revenues with the McCall Group accounting for $22.6 million of the increase. The increase was attributable primarily to a strong used vehicle market and successful marketing efforts. Parts and service 22 22 The following tables set forth certain unaudited pro forma combined data of the Founding Groups for the periods indicated: OPERATIONS DATA
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------- 1995 1996 1997 --------------------- --------------------- --------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT --------- -------- --------- ------- --------- --------- (dollars in thousands) Revenues New vehicle sales........ $422,348 57.9% $469,318 57.1% $513,864 56.9% Used vehicle sales....... 222,373 30.5 258,027 31.4 288,010 31.9 Parts and service sales.. 65,599 9.0 73,451 8.9 77,215 8.6 Other dealership revenues, net.......... 19,033 2.6 21,117 2.6 23,206 2.6 -------- ----- -------- ----- -------- ----- Total revenues.... 729,353 100.0 821,913 100.0 902,295 100.0 Cost of sales............ 629,305 86.3 705,783 85.9 775,164 85.9 -------- ----- -------- ----- -------- ----- Gross profit............. $100,048 13.7% $116,130 14.1% $127,131 14.1% ======== ===== ======== ===== ======== =====
NEW VEHICLE DATA
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1995 1996 1997 ------------ -------- --------- (dollars in thousands) Retail unit sales............... 20,357 21,378 23,201 Retail sales revenue............ $422,348 $469,318 $513,864 Gross profit.................... $32,047 $37,677 $42,199 Gross margin.................... 7.6% 8.0% 8.2% Average gross profit per retail unit sold..................... $1,574 $1,762 $1,819
USED VEHICLE DATA
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1995 1996 1997 ------------ -------- --------- (dollars in thousands) Retail unit sales............... 15,358 17,220 18,130 Retail sales revenue (1)........ $185,665 $219,183 $235,353 Gross profit.................... $17,560 $21,358 $21,035 Gross margin.................... 9.5% 9.7% 8.9% Average gross profit per retail unit sold..................... $1,143 $1,240 $1,160
_________________ (1) Excludes wholesale revenues. 21 23 sales increased $7.9 million, or 12.0%, from $65.6 million for the year ended December 31, 1995 to $73.5 million for the year ended December 31, 1996. The increase was primarily attributable to new and expanded operations at McCall Lexus, and increased vehicle sales. Other dealership revenues increased $2.1 million or 11.1% from $19.0 million for the year ended December 31, 1995 to $21.1 million for the year ended December 31, 1996. The increase was due primarily to an increase in the number of retail new and used vehicle sales. GROSS PROFIT. Gross profit increased $16.1 million, or 16.1%, from $100.0 million for the year ended December 31, 1995 to $116.1 million for the year ended December 31, 1996. The increase was attributable to increased revenues and an increase in gross margin from 13.7% for the year ended December 31, 1995 to 14.1% for the year ended December 31, 1996. The increase in gross margin was primarily due to a change in the merchandise mix as used vehicle sales became a greater percentage of total revenues and margins on vehicle and parts and service sales grew. The gross margin on new retail vehicle sales increased from 7.6% for the year ended December 31, 1995 to 8.0% for the year ended December 31, 1996. The gross margin on used retail vehicle sales increased from 9.5% for the year ended December 31, 1995 to 9.7% for the year ended December 31, 1996. The gross margin on parts and service sales increased from 47.9% for the year ended December 31, 1995 to 49.0% for the year ended December 31, 1996. HISTORICAL RESULTS OF OPERATIONS - GROUP 1 AUTOMOTIVE, INC. The historical results of operations for the years ended December 31, 1995, 1996 and 1997 are a presentation in accordance with generally accepted accounting principles. For historical presentation purposes, the Howard Group has been identified as the accounting acquiror. As such, the financial data for the years ended December 31, 1995 and 1996 represent the historical results of operations of the Howard Group on a stand-alone basis. The financial data for the year ended December 31, 1997, includes the operations of Group 1 Automotive, Inc., the parent company, and the Founding Groups, excluding the Howard Group, beginning October 31, 1997, the effective closing date of the acquisitions for accounting purposes. The Howard Group is included for the entire year ended December 31, 1997. During the periods presented, the companies within the Howard Group operated under different tax structures (S Corporations and C Corporations). All S Corporation entities were converted to C Corporations as of October 31, 1997. The following table sets forth certain selected financial data and data as a percentage of revenues for the Company for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------ 1995 1996 1997 --------------------- --------------------- --------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT --------- ------- ---------- ------- ---------- ------- (dollars in thousands) Revenues: New vehicle sales............ $151,227 59.5% $164,979 58.6% $228,044 56.5% Used vehicle sales........... 79,448 31.3 88,477 31.4 135,507 33.5 Parts and service sales...... 16,940 6.7 20,649 7.4 30,006 7.4 Other dealership revenues, net.............. 6,388 2.5 7,387 2.6 10,410 2.6 -------- ----- -------- ----- -------- ----- Total Revenues........ 254,003 100.0 281,492 100.0 403,967 100.0 Cost of sales................ 219,906 86.6 241,898 85.9 349,366 86.5 -------- ----- -------- ----- -------- ----- Gross profit................. 34,097 13.4 39,594 14.1 54,601 13.5 -------- ----- -------- ----- -------- ----- Goodwill amortization........ 27 - 37 - 170 .1 Selling, general and administrative expenses.... 26,139 10.3 30,731 10.9 44,210 10.9 -------- ----- -------- ----- -------- ----- Income from operations....... 7,931 3.1 8,826 3.2 10,221 2.5 Other income and expense: Interest expense, net...... (3,471) (1.4) (3,168) (1.2) (3,986) (1.0) Other income (expense), net....................... (81) - (69) - 156 0.1 -------- ----- -------- ----- -------- ----- Income before income taxes... 4,379 1.7 5,589 2.0 6,391 1.6 Provision for income taxes... 744 0.3 382 0.1 573 0.1 -------- ----- -------- ----- -------- ----- Net income................... $3,635 1.4% $5,207 1.9% $5,818 1.5% ======== ===== ======== ===== ======== =====
23 24 S Corporation pro forma income taxes............... 990 0.4 1,831 0.7 1,465 0.4 -------- ----- ------- ---- ------- ---- Pro forma net income......... 2,645 1.0% $3,376 1.2% $4,353 1.1% ======== ===== ======= ==== ======= ====
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 REVENUES. Revenues increased by $122.5 million, or 43.5%, from $281.5 million for the year ended December 31, 1996 to $404.0 million for the year ended December 31, 1997. New vehicle sales increased $63.0 million, or 38.2%, from $165.0 million for the year ended December 31, 1996 to $228.0 million for the year ended December 31, 1997. Used vehicle sales increased $47.0 million, or 53.1%, from $88.5 million for the year ended December 31, 1996 to $135.5 million for the year ended December 31, 1997. Parts and service sales increased $9.4 million, or 45.6%, from $20.6 million for the year ended December 31, 1996 to $30.0 million for the year ended December 31, 1997. Other dealership revenues increased $3.0 million, or 40.5%, from $7.4 million for the year ended December 31, 1996 to $10.4 million for the year ended December 31, 1997. These increases were due primarily to the inclusion of the acquisitions of the McCall, Smith and Kingwood Groups for the last two months of the year. GROSS PROFIT. Gross profit increased by $15.0 million, or 37.9%, from $39.6 million for the year ended December 31, 1996 to $54.6 million for the year ended December 31, 1997. The increase was attributable to the inclusion of the acquisitions for the last two months of the year, which was partially offset by a reduced gross margin from 14.1% for the year ended December 31, 1996 to 13.5% for the year ended December 31, 1997. This decline was due primarily to reduced vehicle gross margins. The reduced vehicle margin was caused by an emphasis on increasing market share in the Oklahoma market while customer demand was not as strong as in prior years. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $13.4 million, or 43.5%, from $30.8 million for the year ended December 31, 1996 to $44.2 million for the year ended December 31, 1997. The increase was primarily attributable to the inclusion of the acquisitions for last two months of the year and a one time $825,000 non-cash compensation charge recorded by the Howard Group for grants of equity to certain key employees of the Howard Group. Selling, general and administrative expenses remained constant as a percentage of revenues at 10.9% for the years ended December 31, 1996 and 1997. Excluding the impact of the one-time $825,000 non- cash compensation charge, selling, general and administrative expense would have declined to 10.7% of revenues for the year ended December 31, 1997. INTEREST EXPENSE, NET. Interest expense, net, increased $0.8 million, or 25.0%, from $3.2 million for the year ended December 31, 1996 to $4.0 million for the year ended December 31, 1997. The increase was primarily attributable to the inclusion of the acquisitions for the last two months of the year. PRO FORMA NET INCOME. Pro forma net income increased $1.0 million or 29.4% from $3.4 million for the year ended December 31, 1996 to $4.4 million for the year ended December 31, 1997. Excluding the net income impact of the $825,000 non-cash compensation charge, pro forma net income as a percentage of revenues remained constant at 1.2% for the years ended December 31, 1996 and 1997. The increase in pro forma net income was primarily attributable to the inclusion of the acquisitions for the last two months of the year. YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995 REVENUES. Revenues increased by $27.5 million, or 10.8%, from $254.0 million for the year ended December 31, 1995 to $281.5 million for the year ended December 31, 1996. New vehicle sales increased $13.8 million, or 9.1%, from $151.2 million for the year ended December 31, 1995 to $165.0 million for the year ended December 31, 1996. The increase was primarily attributable to strong sales at the Chevrolet franchise and the acquisition of Bob Howard Dodge, offset by reduced sales at Bob Howard Automall. Used vehicle revenues increased $9.1 million, or 11.5%, from $79.4 million for the year ended December 31, 1995 to $88.5 million for the year ended December 31, 1996. This increase was attributable to the acquisition of Bob Howard Dodge and the Howard Group's successful marketing efforts at all of the Howard Group's other franchises. Parts and service sales increased $3.7 million, or 21.9%, 24 25 from $16.9 million for the year ended December 31, 1995 to $20.6 million for the year ended December 31, 1996. The increase was attributable to increased sales at each of the Howard Group's franchises and new sales from the acquisition of Bob Howard Dodge. Other dealership revenues increased $1.0 million, or 15.6%, from $6.4 million for the year ended December 31, 1995 to $7.4 million for the year ended December 31, 1996. The increase was due primarily to an increase in the number of retail new and used vehicle sales. GROSS PROFIT. Gross profit increased by $5.5 million, or 16.1%, from $34.1 million for the year ended December 31, 1995 to $39.6 million for the year ended December 31, 1996. The increase was attributable to increased sales and improvement in the Howard Group's gross profit margin from 13.4% for the year ended December 31, 1995 to 14.1% for the year ended December 31, 1996. The gross margin improved as revenues from parts and service and other dealership revenues became a greater percentage of total revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $4.6 million, or 17.6%, from $26.2 million for the year ended December 31, 1995 to $30.8 million for the year ended December 31, 1996. The increase was primarily attributable to costs related to the newly acquired Bob Howard Dodge and variable incentive pay to employees which was related to the increase in revenues. As a percentage of total revenues, selling, general and administrative expenses increased from 10.3% for the year ended December 31, 1995 to 10.9% for the year ended December 31, 1996. INTEREST EXPENSE, NET. Interest expense, net, decreased $0.3 million, or 8.6%, from $3.5 million for the year ended December 31, 1995 to $3.2 million for the year ended December 31, 1996. The decrease was attributable to an approximately 50 basis point decrease in the average floorplan interest rate, partially offset by interest expense incurred by the newly acquired Bob Howard Dodge. PRO FORMA NET INCOME. Pro forma net income increased $0.8 million, or 30.8%, from $2.6 million for the year ended December 31, 1995 to $3.4 million for the year ended December 31, 1996. Pro forma net income as a percentage of revenues increased from 1.0% for the year ended December 31, 1995 to 1.2% for the year ended December 31, 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity are cash on hand, cash from operations, floorplan financing and its credit facility. The following table sets forth historical selected information from the Company's statements of cash flows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1995 1996 1997 ---------- ---------- --------- (dollars in thousands) Net cash provided by (used in) operating activities............. $7,197 $7,332 $(26,601) Net cash provided by (used in) investing activities............. (1,303) (4,615) 10,661 Net cash provided by (used in) financing activities............. (520) (1,558) 39,352 ------ ------ ------- Net increase in cash and cash Equivalents...................... $5,374 $1,159 $23,412 ====== ====== =======
CASH FLOWS Total cash and cash equivalents at December 31, 1997, were $35.1 million. For the three-year period ended December 31, 1997, the Company used $12.1 million in net cash in operating activities, as net income plus depreciation and amortization were offset by utilization of the 25 26 IPO proceeds to pay down floorplan debt. At December 31, 1997, the Company had paid down its floorplan debt in the amount of $33.5 million. The Company has the ability to draw on it floorplan facilities in the amount of $33.5 million in order to complete acquisitions or for working capital or other corporate purposes. The change in net cash provided by investing activities was attributable to cash paid in completing acquisitions offset by the cash balances obtained in the acquisitions and purchases of property and equipment. The change in net cash provided by financing activities was primarily attributable to the net proceeds of the Company's IPO of approximately $51.8 million. ACQUISITION FINANCING The Company anticipates that its primary use of cash will be for the completion of acquisitions. The Company expects the cash needed to complete its acquisitions will come from the operating cash flows of the existing dealerships, borrowings under its current credit facilities, other borrowings or equity/debt offerings. Currently, the Company has adequate cash resources to meet its contractual obligations. But, in order to continue to implement the Company's growth through acquisition strategy, the Company will need to raise additional funds or primarily utilize its Common Stock to complete acquisitions. See "Forward Looking Information and Certain Risks and Uncertainties that Could Affect Future Operations Risks Related to Acquisition Financing; Future Capital Requirements". Credit Facility On December 31, 1997, Group 1 entered into a $125 million, three-year revolving Credit Agreement with a bank group (the "Credit Facility"). The Credit Facility provides for a floorplan line of credit of $75 million for the financing of vehicle inventories and an acquisition line of credit of $50 million, for the financing of acquisitions, general corporate purposes or capital expenditures. There were no amounts drawn on the acquisition line of credit of the Credit Facility as of March 27, 1998. The amount of funds available under the acquisition line is dependent upon a calculation based on the Company's cash flow and maintaining certain financial ratios. At Group 1's option the acquisition line of credit of the Credit Facility may bear interest based on the London Interbank Offered Rate plus a margin varying from 150 to 275 basis points, dependent upon certain financial ratios. Additionally, the loan agreement contains various covenants including financial ratios and other requirements which must be maintained by the Company. The agreement also limits the amount the Company may pay as cash dividends. In January 1998, the Company entered into a three-year interest rate swap agreement with a bank. The effect of this swap will be to convert the interest rate on $75 million of debt to a fixed rate of approximately 7.16%. FLOORPLAN FINANCING The Company currently obtains floorplan financing for its vehicle inventory primarily through its Credit Facility and Toyota Motor Credit Corporation. This debt bears interest at rates of LIBOR plus 150 basis points and Prime minus 75 basis points to Prime minus 100 basis, based on certain conditions. LEASES The Company leases various real estate, facilities and equipment under long-term operating lease agreements, including leases with related parties. Substantially all related-party leases have terms of 30 years and are cancelable at the Company's option ten years from execution of the lease and at the end of each subsequent five-year period. 26 27 OTHER The Company had working capital of $50.2 million as of December 31, 1997. Historically, the Company has funded its operations with internally generated cash flow and borrowings from lenders. While there can be no assurance, based on current facts and circumstances, management believes it has adequate cash flows and financing alternatives to fund its current operations, exclusive of acquisitions. FORWARD LOOKING INFORMATION AND CERTAIN RISKS AND UNCERTAINTIES THAT COULD AFFECT FUTURE OPERATING RESULTS This Annual Report and Management's Discussion and Analysis of Results of Operations and Financial Condition include certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this document, including statements regarding potential acquisitions, expected cost savings, planned capital expenditures, the Company's future financial position, business strategy and other plans and objectives for future operations are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements are based upon assumptions and anticipated results that are subject to numerous uncertainties. Actual results may vary significantly from those anticipated due to many factors, including industry conditions, future demand for new and used vehicles, the ability to obtain Manufacturer consents to acquisitions, the availability of capital resources and the willingness of acquisition candidates to accept the Company's capital stock as currency. These important factors, risks and uncertainties include, but are not limited to, those described in the following paragraphs and in the discussion above in this Annual Report under the heading "Business", including, without limitation, the discussions under the subheadings "Agreements with Manufacturers", "Competition", "Governmental Regulations" and "Environmental Matters". All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. DEPENDENCE ON ACQUISITIONS FOR GROWTH Growth in the Company's revenues and earnings will depend significantly on the Company's ability to acquire and consolidate profitable dealerships. There can be no assurance that the Company will be able to identify, acquire or profitably manage and integrate additional dealerships, if any, into the Company, or that it will be able to do so without substantial costs, delays or other operational or financial problems. In addition, increased competition for acquisition candidates may develop, which could result in fewer acquisitions opportunities available to the Company and/or higher acquisition prices. Further, acquisitions involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of resources and management's attention, inability to retain key acquired personnel, risks associated with unanticipated events or liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. Finally, the ability of the Company to grow through acquisitions could be significantly affected by the price of the Common Stock since the Company intends to grow substantially through the issuance of its Common Stock in acquisitions. Any substantial decline in the price of the Common Stock could, therefore, have a material adverse effect on the Company's growth strategy. The Company will be required to obtain the consent of the applicable Manufacturer prior to the acquisition of any dealership franchises. Obtaining the consent of the Manufacturers for acquisitions of dealerships could take a significant amount of time. Obtaining the approvals of the Manufacturers for the acquisition of the Founding Groups took almost one year. Although the Company believes that subsequent acquisitions by the Company will take significantly less time since the Company has current completed applications and/or agreements with all Manufacturers, there can be no assurance that future approvals will not involve delays. The Manufacturers have not advised the Company that approvals for subsequent acquisitions will take significantly less time, and, if the Company experiences delays in obtaining, or fails to obtain, approvals of the Manufacturers for acquisitions of dealerships, the Company's growth strategy could be materially adversely affected. In determining whether to approve an acquisition, 27 28 the Manufacturers may consider many factors, including the moral character, business experience, financial condition, ownership structure and CSI scores of the Company. In addition, certain Manufacturers limit the number of such Manufacturers' dealerships that may be owned by the Company or the number that may be owned in a particular geographic area. See "Business - Agreements with Manufacturers". RISKS RELATING TO FAILURE TO MEET MANUFACTURER CSI SCORES Many Manufacturers attempt to measure customers' satisfaction with automobile dealerships through systems generally known as the customer satisfaction index. These manufacturers may use a dealership's CSI scores as a factor in evaluating applications for additional dealership acquisitions and participation by a dealership in incentive programs. Certain of the Company's dealerships have had difficulty from time to time meeting their Manufacturers' CSI standards. The components of the various manufacturer CSI scores 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. The Company's dealerships' CSI scores in the past have not had a material adverse effect on these dealerships. However, the CSI scores of the Howard Group's GM dealerships are currently below GM levels as required under the GM publication Policies for Changes in GM Dealership Ownership/Management ("GM Policies"), and as a result, the acquisition of a Chevrolet dealership in Tulsa, Oklahoma by Bob Howard East, an affiliate of the Company has been denied by GM. Under the GM Policies each GM dealership must maintain CSI scores that are at or above its respective zone/branch average for the overall dealership purchase/delivery category and the overall dealership service visit category. Exceptions will be considered if (i) the score in each category is no lower than 0.2 points below the applicable zone/branch average or 0.12 points below national divisional 12 month averages; and (ii) a business plan for the dealership is provided to improve CSI results in the categories to zone/branch average within two years; and/or (iii) a positive sustaining trend has been displayed in the dealership's CSI results in the categories. If such CSI scores fail to reach required levels, the Company's ability to acquire GM dealerships could be adversely affected. Moreover, failure of the Company's dealerships to comply with the CSI standards of GM as well as other Manufacturers at any given time in the future could adversely affect the growth strategy of the Company. MANUFACTURERS' LIMITATIONS ON ACQUISITIONS The Company's acquisition program may be limited to some extent by the Manufacturers. Under the limitations currently imposed by the Manufacturers, the Company could acquire no more than five additional Toyota dealerships, two additional Lexus dealerships, four additional Honda dealerships, one additional Acura dealership, approximately 400 additional Ford and Lincoln Mercury dealerships and 10 additional GM dealership locations prior to October 1999, subject to being increased. The Company owns: two Toyota, one Lexus, three Honda, two Acura, four Ford, one Lincoln and one Mercury franchise and three GM dealership locations. The other Manufacturers, which have no such limitations, accounted for the following estimated number of dealerships in the United States, as of December 31, 1997: Chrysler Corporation, 13,000 (at 4,600 locations); Nissan, 1,200; Mitsubishi, 500; Isuzu, 500; Suzuki, 300. However, not all of these existing dealership locations and franchises may be eligible for acquisition. In addition, all of the Manufacturers, whether or not they have numerical limitations on the number of dealerships that may be acquired, will require the Company to obtain the consent of the applicable Manufacturer prior to the acquisition of any dealership franchises of such Manufacturer, and may withhold such consents based on other considerations, such as the failure of existing dealerships to comply with their franchise agreements or to meet required CSI scores, or the ownership by the Company of dealerships of competing Manufacturers. Also, as a condition to granting its consent to the transfer of the three Honda and two Acura dealerships acquired by Group 1 in November 1997, American Honda imposed additional restrictions on the Company, including a requirement that more than 50% of the outstanding Common Stock of the Company be owned at all times by persons approved by American Honda, restrictions on transfers of the shares of Common Stock acquired by the stockholders of the Founding Groups pursuant to the acquisitions, and the requirement that American Honda approve the ownership by any stockholder of 5% or more of the Common Stock of the Company (other than certain institutional investors, which may own up to 10%), as well as any future public offering of Common Stock 28 29 of the Company. All of the foregoing could have the effect of limiting the Company's ability to implement its acquisition program. In addition, American Honda's policy on public ownership of Honda and Acura dealerships requires that individuals or entities that acquire, own or control more than 5% of the Common Stock of the Company must provide American Honda with copies of all filings made to the Securities and Exchange Commission, all comparable filings made to state agencies and annual audited financial statements. RISKS RELATED TO ACQUISITION FINANCING; FUTURE CAPITAL REQUIREMENTS The Company currently intends to finance future acquisitions by issuing shares of Common Stock as full or partial consideration for acquired dealerships. The extent to which the Company will be able or willing to issue Common Stock for acquisitions will depend on the market value of the Common Stock from time to time and the willingness of potential acquisition candidates to accept Common Stock as part of the consideration for the sale of their businesses. Since the Company will focus initially on large "platform" acquisitions, it is possible that the Company will issue a significant number of additional shares of Common Stock in connection with such acquisitions in the near future. Such additional shares of Common Stock could be as much as, or more than, the number of outstanding shares of Common Stock. To the extent that the Company is unable or unwilling to do so, the Company may be required to use available cash or other sources of debt or equity financing. The Company's Credit Facility provides it with a secured revolving line of credit of up to $125 million, of which $50 million may be used for general corporate purposes, acquisitions, capital expenditures and working capital and $75 million may be used for floorplan financing. As of December 31, 1997, there were no amounts drawn under the Credit Facility. The Company currently expects that available cash, other existing resources and the Credit Facility will be sufficient to fund the Company's contractual cash needs for at least the next 12 months. But, in order to continue to implement the Company's growth through acquisition strategy, the Company will need to raise additional funds or primarily utilize the Company's Common Stock to complete acquisitions. However, no assurance can be given that the available cash, other existing resources and the Credit Facility will be sufficient to fund the Company's contractual cash needs, or that the Company will be able to obtain adequate additional capital from other sources. DEPENDENCE ON AUTOMOBILE MANUFACTURERS The success of each of the Company's dealerships will be highly dependent upon the overall success of the line of vehicles that each dealership sells. The Company's business will be affected to varying degrees by the demand for its Manufacturers' vehicles, and by the financial condition, management, marketing, production and distribution capabilities of such Manufacturers. In addition, the timing, structure and amount of Manufacturer sales incentives and rebates will impact the timing and profitability of the Company's sales transactions and such incentives and rebates change frequently based on decisions of the Manufacturers. Events such as labor disputes and other production disruptions that may adversely affect a Manufacturer may also adversely affect the Company. 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. 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. The Company will also depend on its Manufacturers to provide it with a desirable mix of new vehicles. The most popular vehicles generally produce the highest profit margins and are frequently the most difficult to obtain from the Manufacturers. If the Company is unable to obtain sufficient quantities of the most popular models its profitability may be adversely affected. In some instances, in order to obtain additional allocations of these vehicles, the Company may elect to purchase a larger number of less desirable models than it would otherwise purchase. Sales of less desirable models may result in lower profit margins than sales of the more popular vehicles. The Company's franchise agreements with its Manufacturers will not give the Company the exclusive right to sell a Manufacturer's product within a given geographic area. Accordingly, a Manufacturer could grant another dealer a franchise to start a new dealership in proximity to one or more 29 30 of the Company's locations or an existing dealer could move its dealership to a location which would compete directly with the Company, although certain state laws provide a mechanism for challenging such action in advance through administrative or legal proceedings. If the Company cannot prevent a Manufacturer from granting a new franchise near to one of the Company's dealerships, such grant could have a material adverse effect on the Company and its operations. YEAR 2000 CONVERSION Year 2000 issues result from the inability of computer programs or computerized equipment to accurately calculate, store or use a date subsequent to December 31, 1999. The erroneous date can be interpreted in a number of different ways; typically the year 2000 is represented as the year 1900. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. Group 1 has recognized the need to ensure that its computer systems, equipment and operations will not be adversely impacted by the change to the calendar year 2000. As such, the Company has taken steps to identify potential areas of risk and has begun addressing these in its planning, purchasing and daily operations. The Company has not set a timetable for completion of its year 2000 review. The total cost of converting all internal systems, equipment and operations for the year 2000 has not been fully quantified, but it is not expected to be material to Group 1. The Company is currently reviewing the potential adverse impact resulting from the failure of third party service providers and vendors to prepare for the year 2000. Failure by the Company or its vendors to address the year 2000 issue could have a material adverse effect on the Company. The Company is primarily dependent upon the Manufacturers for the production and delivery of vehicles and parts and is unable to require the Manufacturers to address the year 2000 issues faced by them. A shortage of vehicles or other adverse effects on the relationship between the Company and the Manufacturers caused by the Manufacturers failure to address the year 2000 issue could have a material adverse effect on the Company. CYCLICALITY The Company's operations, like the automotive retailing industry in general, can be impacted by a number of factors relating to general economic conditions, including consumer business cycles, consumer confidence, economic conditions, availability of consumer credit and interest rates. Although the above factors, among others, may impact the Company's business, Group 1 believes the impact on the Company's operations of future negative trends in such factors will be somewhat mitigated by its (i) strong parts, service and collision repair services, (ii) variable cost salary structure, (iii) geographic diversity and (iv) product diversity. SEASONALITY The Company's operations are subject to seasonal variations, with the second and third quarters generally contributing more operating profit than the first and fourth quarters. This seasonality is driven by three primary forces: (i) Manufacturer-related factors, primarily the historical timing of major manufacturer incentive programs and model changeovers, (ii) weather-related factors and (iii) consumer buying patterns. ITEM 7A. MARKET RISK DISCLOSURE Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Financial Statements for the information required by this item. 30 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III For information concerning: ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the definitive Proxy Statement of Group 1 Automotive, Inc. for the Annual Meeting of Stockholders to be held May 28, 1998, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference. 31 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K On December 24, 1997, the Company filed a Current Report on Form 8-K reporting under Item 5 thereof and including exhibits under Item 7 thereof. (c) Exhibits
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 -- Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 3.2 -- Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit 3.3 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 4.1 -- Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.1 -- Employment Agreement between the Company and B.B. Hollingsworth, Jr. dated November 3, 1997. 10.2 -- Employment Agreement between the Company and Robert E. Howard II dated November 3, 1997. 10.3 -- Employment Agreement between the Company and Sterling B. McCall, Jr. dated November 3, 1997. 10.4 -- Employment Agreement between the Company and Charles M. Smith dated November 3, 1997. 10.5 -- Employment Agreement between the Company and John T. Turner dated November 3, 1997. 10.6 -- Employment Agreement between the Company and Scott L. Thompson dated November 3, 1997. 10.7 -- Employment Agreement between the Company and Kevin H. Whalen dated November 3, 1997. 10.8 -- Employment Agreement between the Company and James S. Carroll dated March 16, 1998. 10.9 -- 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.10 -- First Amendment to 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.11 -- Lease Agreement between Round Rock Nissan and SKLR Round Rock, L.C. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.12 -- Lease Agreement between SMC Luxury Cars and SBM-L F.L.P.(Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893)
32 33
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.13 -- Lease Agreement between Southwest Toyota and SBM-T F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.14 -- Lease Agreement between Southwest Toyota and SBM-T I&E F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.15 -- Lease Agreement between SMC Luxury Cars and SBM-L I&E F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.16 -- Lease Agreement between SMC Luxury Cars and SBM-L F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.17 -- Lease Agreement between Southwest Toyota and SMC Investment, Inc. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333- 29893) 10.18 -- Lease Agreement between Southwest Toyota and Dodge Financial F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.19 -- Lease Agreement between Howard Pontiac GMC and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.20 -- Lease Agreement between Bob Howard Motors and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333- 29893) 10.21 -- Lease Agreement between Bob Howard Chevrolet and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.22 -- Lease Agreement between Bob Howard Automotive-H and North Broadway Real Estate, (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.23 -- Lease Agreement between Mike Smith Autoplaza and Olds-Honda Realty (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.24 -- Rights Agreement between Group 1 Automotive, Inc. and ChaseMellon Shareholder Services, L.L.C., as rights agent dated October 3, 1997 (Incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.25 -- 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.26 -- Form of Agreement between Toyota Motor Sales, U.S.A., and Group 1 Automotive, Inc. (Incorporated by reference to Exhibit 10.12 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.27 -- Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service Agreement (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.28 -- Approval Letter dated December 11, 1996 from Nissan Motor Corporation U.S.A. (Incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.29 -- Amendment to Approval Letter from Nissan Motor Corporation U.S.A. dated September 29, 1997 (Incorporated by reference to Exhibit 10.15 of the Company's Registration Statement on Form S-1 Registration No. 333-29893)
33 34
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.30 -- Supplemental Terms and Conditions between Ford Motor Company and Group 1 Automotive, Inc. dated September 4, 1997 (Incorporated by reference to Exhibit 10.16 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.31 -- Toyota Dealer Agreement between Gulf States Toyota, Inc. and Southwest Toyota, Inc. dated April 5, 1993 (Incorporated by reference to Exhibit 10.17 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.32 -- Lexus Dealer Agreement between Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc. dated August 21, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.33 -- Letter Agreement between Mitsubishi Motor Sales of America, Inc. and Group 1 Automotive, Inc. dated June 20, 1997 (Incorporated by reference to Exhibit 10.20 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.34 -- Supplemental Agreement to Dealer Sales and Service Agreement (Public Traded Company) among Foyt Motors, Inc., Group 1 Automotive, Inc. and American Isuzu Motors Inc. (Incorporated by reference to Exhibit 10.21 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.35 -- Stock Purchase Agreement Among Howard Pontiac-GMC, Inc., Bob Howard Automotive-East, Inc. and the Stockholder of Bob Howard Automotive-East, Inc. dated as of September 12, 1997 (Incorporated by reference to Exhibit 10.22 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.36 -- Agreement between American Honda Motor Co., Inc. and the Dealership Parties dated October 23, 1997 (Incorporated by reference to Exhibit 10.24 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.37 -- Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.38 -- Form of Nissan Motor Corporation Sales and Service Agreement (Incorporated by reference to Exhibit 10.26 of the Company's Registration Statement on Form S-1 Registration No. 333- 29893) 10.39 -- Agreement and Plan of Reorganization by and among Group 1 Automotive, Inc., Koons Merger, Inc., Koons Ford, Inc. and the stockholders of Koons Ford, Inc. dated December 17, 1997. 10.40 -- Agreement and Plan of Reorganization by and among Group 1 Automotive, Inc., PF Merger, Inc., Perimeter Ford, Inc. and the stockholders of Perimeter Ford, Inc. dated December 17, 1997. 10.41 -- Agreement and Plan of Reorganization by and among Group 1 Automotive, Inc., Courtesy Merger, Inc., Courtesy Ford, Inc. and the stockholders of Courtesy Ford, Inc. dated December 17, 1997. 10.42 -- Lease Agreement between World Partner Enterprises Ltd. and Koons Ford, Inc. dated March 16, 1998. 10.43 -- Operations/Lease Agreement between K.C. Partnership and Perimeter Ford, Inc. dated March 16, 1998. 10.44 -- Lease Agreement between K.C. Partnership and Courtesy Ford, Inc. dated March 16, 1998. 10.45 -- Amended and Restated Sublease Agreement between Koons Development Co. and Koons Ford, Inc. Dated March 16, 1998. 10.46 -- Multi-Party Agreement by and among K.C. Partnership, Ford Leasing Development Company, Perimeter Ford, Inc., PF Merger, Inc. and Comerica Bank dated March 16, 1998. 10.47 -- Purchase Agreement by and among Group 1 Automotive, Inc., MSAP Merger Corp., the limited partners of Prestige Chrysler Plymouth South, Ltd. and the stockholders of Prestige Chrysler Plymouth, Inc. dated December 18, 1997. 10.48 -- Purchase Agreement by and among Group 1 Automotive, Inc., ST Merger Corp., the limited partners of Maxwell Chrysler Plymouth Dodge Jeep Eagle, Ltd. and the stockholders of Maxwell Chrysler Plymouth Dodge, Inc. dated December 18, 1997.
34 35 10.49 -- Purchase Agreement by and among Group 1 Automotive, Inc., RRN Merger Corp., the limited partners of Prestige Chrysler Plymouth Northwest, Ltd. and the stockholders of MMK Interests, Inc. dated December 18, 1997. 10.50 -- Asset Purchase Agreement by and among Group 1 Automotive, Inc., Casa Chevrolet Inc., United Management, Inc. and the stockholders of United Management, Inc. dated February 25, 1998. 10.51 -- Asset Purchase Agreement by and among Group 1 Automotive, Inc., Casa Chrysler Plymouth Jeep Inc., United Management, Inc. and the stockholders of United Management, Inc., dated February 25, 1998. 10.52 -- Purchase Agreement by and among Group 1 Automotive, Inc. and the stockholder of Bob Howard Nissan, Inc. dated December 30, 1997. 10.53 -- Revolving Credit Agreement dated December 31, 1997. 10.54 -- Stock Pledge Agreement dated December 19, 1997. 10.55 -- Swap Transaction Letter Agreement dated January 23, 1998. 21.1 -- Group 1 Automotive, Inc. Subsidiary List. 23.1 -- Consent of Arthur Andersen LLP. 27.1 -- Financial Data Schedule.
35 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Houston, Texas, on the 30th day of March, 1998. Group 1 Automotive, Inc. By:/s/ B.B. HOLLINGSWORTH, JR. -------------------------------- B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on the 30th day of March, 1998.
SIGNATURE TITLE --------- ----- /s/ B.B. HOLLINGSWORTH, JR. Chairman, President and Chief Executive - ------------------------------------------------------- Officer and Director (Principal Executive Officer) B.B. Hollingsworth, Jr. /s/ SCOTT L. THOMPSON Senior Vice President, Chief Financial - ------------------------------------------------------- Officer and Treasurer (Chief Financial and Accounting Scott L. Thompson Officer) /s/ ROBERT E. HOWARD II Director - ------------------------------------------------------- Robert E. Howard II /s/ STERLING B. MCCALL, JR. Director - ------------------------------------------------------- Sterling B. McCall, Jr. /s/ CHARLES M. SMITH Director - ------------------------------------------------------- Charles M. Smith /s/ JOHN DUNCAN Director - ------------------------------------------------------- John H. Duncan /s/ BENNETT E. BIDWELL Director - ------------------------------------------------------- Bennett E. Bidwell
36 37 INDEX TO FINANCIAL STATEMENTS Group 1 Automotive, Inc. and Subsidiaries -- Consolidated Financial Statements Report of Independent Public Accountants............................................................ F-2 Consolidated Balance Sheets......................................................................... F-3 Consolidated Statements of Operations............................................................... F-4 Consolidated Statements of Stockholders' Equity..................................................... F-5 Consolidated Statements of Cash Flows............................................................... F-6 Notes to Consolidated Financial Statements.......................................................... F-7 McCall Group -- Combined Financial Statements Report of Independent Public Accountants............................................................ F-17 Combined Balance Sheet.............................................................................. F-18 Combined Statements of Operations................................................................... F-19 Combined Statements of Stockholders' Equity (Deficit)............................................... F-20 Combined Statements of Cash Flows................................................................... F-21 Notes to Combined Financial Statements.............................................................. F-22 Smith Group -- Combined Financial Statements Report of Independent Public Accountants............................................................ F-30 Combined Balance Sheet.............................................................................. F-31 Combined Statements of Operations................................................................... F-32 Combined Statements of Stockholders' Equity......................................................... F-33 Combined Statements of Cash Flows................................................................... F-34 Notes to Combined Financial Statements.............................................................. F-35
F-1 38 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Group 1 Automotive, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Group 1 Automotive, Inc. and Subsidiaries (a Delaware corporation) (the Company) as of December 31, 1996 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 the Company as of December 31, 1996 and 1997, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Arthur Andersen LLP Houston, Texas March 6, 1998 F-2 39 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ------------------------------ 1996 1997 ASSETS ------------ ----------- CURRENT ASSETS: Cash and cash equivalents ............................ $11,679,050 $ 35,091,188 Accounts receivable, net ............................ 5,898,736 9,748,947 Inventories .......................................... 47,674,462 105,421,371 Notes receivable, net ................................ - 861,823 Prepaid expenses .................................... 858,886 1,865,883 Deferred income taxes ................................ - 8,692,447 ----------- ------------ Total current assets ............................ 66,111,134 161,681,659 ----------- ------------ PROPERTY AND EQUIPMENT, net ................................ 4,128,880 21,586,401 NOTES RECEIVABLE, net ...................................... 417,675 1,336,738 GOODWILL, net .............................................. 1,456,833 27,077,875 OTHER ASSETS .............................................. 759,714 1,466,480 ----------- ------------ Total assets .................................... $72,874,236 $213,149,153 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Floorplan notes payable .............................. $42,543,902 $ 58,487,845 Current maturities of long-term debt ................ 33,685 2,316,432 Deferred income taxes ................................ 357,172 - Accounts payable and accrued expenses ................ 16,740,525 50,668,326 ----------- ------------ Total current liabilities ...................... 59,675,284 111,472,603 ----------- ------------ LONG-TERM DEBT, net of current maturities .................. 309,779 7,053,467 LONG-TERM DEFERRED INCOME TAXES ............................ 58,604 3,698,838 OTHER LONG-TERM LIABILITIES ................................ 620,896 1,552,739 COMMITMENTS AND CONTINGENCIES .............................. STOCKHOLDERS' EQUITY: Preferred stock, 1,000,000 shares authorized, none issued or outstanding ................................ - - Common stock, $.01 par value, 50,000,000 shares authorized, 3,570,302 and 14,673,051 issued and outstanding ...................................... 35,703 146,730 Additional paid-in capital .......................... 6,269,801 91,846,257 Retained earnings (deficit) .......................... 5,904,169 (2,529,006) Treasury stock, at cost, 10,000 shares .............. - (92,475) ----------- ------------ Total stockholders' equity ...................... 12,209,673 89,371,506 ----------- ------------ Total liabilities and stockholders' equity .................................... $72,874,236 $213,149,153 =========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 40 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Pro Forma Year Ended December 31, Year Ended ----------------------------------------- December 31, 1995 1996 1997 1997 ------------ ------------ ---------- ------------ (unaudited) REVENUES: New vehicle sales .................. $151,226,737 $164,978,710 $228,043,546 $513,863,494 Used vehicle sales ................. 79,447,701 88,477,330 135,507,523 288,010,274 Parts and service sales............. 16,940,622 20,648,962 30,005,678 77,215,320 Other dealership revenues, net ..... 6,388,131 7,386,747 10,410,150 23,205,754 ------------ ------------ ------------ ------------ Total revenues ........... 254,003,191 281,491,749 403,966,897 902,294,842 ------------ ------------ ------------ ------------ COST OF SALES: New vehicle sales .................. 140,086,087 152,708,620 212,349,242 471,664,355 Used vehicle sales ................. 71,553,967 78,911,645 123,931,626 266,975,770 Parts and service sales ............ 8,266,771 10,277,097 13,085,450 36,524,219 ------------ ------------ ------------ ------------ Total cost of sales ...... 219,906,825 241,897,362 349,366,318 775,164,344 ------------ ------------ ------------ ------------ GROSS PROFIT ............................ 34,096,366 39,594,387 54,600,579 127,130,498 GOODWILL AMORTIZATION ................... 27,152 36,982 170,267 790,414 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ................ 26,138,383 30,731,251 44,209,231 100,928,222 ------------ ------------ ------------ ------------ Income from operations ... 7,930,831 8,826,154 10,221,081 25,411,862 OTHER INCOME AND EXPENSES: Interest expense, net .................. (3,470,879) (3,168,086) (3,985,621) (6,120,396) Other income (expense), net ............ (80,446) (69,328) 155,510 88,497 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES .............. 4,379,506 5,588,740 6,390,970 19,379,963 PROVISION FOR INCOME TAXES .............. 744,316 381,752 573,254 7,967,299 ------------ ------------ ------------ ------------ NET INCOME .............................. $3,635,190 $5,206,988 $5,817,716 $11,412,664 ============ ============ =========== ============ S Corporation pro forma income taxes (unaudited) ...................... 989,968 1,831,389 1,464,834 ------------ ------------ ------------ Pro forma net income (unaudited)......... $2,645,222 $3,375,599 $4,352,882 ============ ============ ============ Earnings per share on pro forma net Income: Basic ................................. $0.78 Diluted ................................ $0.76 Weighted average shares outstanding: Basic .................................. 14,672,804 Diluted ................................ 15,098,594
The accompanying notes are an integral part of these consolidated financial statements. F-4 41 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Retained ------------------------- Paid-In Earnings Treasury Shares Amounts Capital (Deficit) Stock Total ----------- -------- ----------- ----------- -------- ---------- BALANCE, December 31, 1994.... 3,353,461 $ 33,535 $3,046,969 $2,265,774 $ - $ 5,346,278 Net income .................. - - - 3,635,190 - 3,635,190 Capital contribution ........ - - 1,725,000 - - 1,725,000 Dividends ................... - - - (2,086,181) - (2,086,181) ----------- -------- ----------- ----------- -------- ----------- BALANCE, December 31, 1995.... 3,353,461 33,535 4,771,969 3,814,783 - 8,620,287 Net income................... - - - 5,206,988 - 5,206,988 Issuance of common stock ...................... 216,841 2,168 1,497,832 - - 1,500,000 Dividends .................... - - - (3,117,602) - (3,117,602) ----------- -------- ----------- ----------- -------- ----------- BALANCE, December 31, 1996..... 3,570,302 35,703 6,269,801 5,904,169 - 12,209,673 Acquisition of founding companies................... 5,954,613 59,546 33,294,322 - - 33,353,868 Initial public offering, net ........................ 5,148,136 51,481 51,707,134 - - 51,758,615 Purchase of treasury stock.... - - - - (92,475) (92,475) Stock transfer by shareholder, net of tax .... - - 575,000 - - 575,000 Net income ................... - - - 5,817,716 - 5,817,716 Dividends ................... - - - (14,250,891) - (14,250,891) ----------- -------- ----------- ----------- -------- ----------- BALANCE, December 31, 1997.... 14,673,051 $146,730 $91,846,257 $(2,529,006) $(92,475) $89,371,506 =========== ======== =========== =========== ======== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 42 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ----------------------------------------------------- 1995 1996 1997 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................. $3,635,190 $5,206,988 $5,817,716 Adjustments to reconcile net income to net cash provided by (used in) operating activities - Depreciation and amortization.......................... 538,493 740,811 1,020,073 Non-cash compensation, net of tax...................... - - 575,000 Deferred income taxes.................................. 190,787 (315,631) (1,014,705) Provision for doubtful accounts and uncollectible notes............................................ 84,833 108,068 270,047 Loss (gain) on sale of assets.......................... 15,313 18,350 (111,637) Changes in assets and liabilities - Accounts receivable ................................... 197,696 294,888 1,563,713 Inventories............................................ (4,873,611) (6,106,872) 5,686,292 Prepaid expenses and other assets...................... 196,943 (514,167) 3,608,725 Due from affiliates, net............................... - - 491,475 Floorplan notes payable................................ 3,876,738 5,508,254 (38,896,004) Accounts payable and accrued expenses.................. 3,334,511 2,391,588 (5,611,583) ----------- ----------- ----------- Total adjustments................................... 3,561,703 2,125,289 (32,418,604) ----------- ----------- ----------- Net cash provided by (used in) operating activities.................................. 7,196,893 7,332,277 (26,600,888) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in notes receivable........................... (374,826) (235,054) (362,422) Collections on notes receivable........................ - 192,205 87,787 Purchases of property and equipment.................... (928,017) (1,977,075) (2,163,793) Proceeds from sale of property and equipment........... - - 1,935,346 Cash received in acquisitions, net of cash paid........ - (2,594,994) 11,163,785 ----------- ----------- ----------- Net cash provided by (used in) investing activities.................................. (1,302,843) (4,614,918) 10,660,703 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt.................... (171,910) (152,807) (470,612) Borrowings of long-term debt............................ 13,111 212,329 108,488 Issuance of common stock................................ - 1,500,000 - Initial public offering, net............................ - - 51,758,615 Purchase of treasury stock.............................. - - (92,475) Contribution from stockholders.......................... 1,725,000 - - Dividends paid in cash.................................. (2,086,181) (3,117,602) (11,951,693) ----------- ----------- ----------- Net cash provided by (used in) financing activities.................................. (519,980) (1,558,080) 39,352,323 ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS................ 5,374,070 1,159,279 23,412,138 CASH AND CASH EQUIVALENTS, beginning of period........... 5,145,701 10,519,771 11,679,050 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of Period................. $10,519,771 $11,679,050 $35,091,188 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for - Interest................................................ $3,427,813 $3,117,601 $4,199,664 Taxes................................................... 475,000 924,456 130,991
The accompanying notes are an integral part of these consolidated financial statements. F-6 43 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Group 1 Automotive, Inc. and subsidiaries (Group 1 or the Company) was founded in December 1995 to become a leading consolidator in the highly fragmented automobile retailing industry. In October 1997, Group 1 acquired four separate dealership groups (the Founding Groups), consisting of 30 dealership franchises and related businesses, in exchange for consideration consisting of a combination of cash and common stock. Concurrent with the acquisition of the Founding Groups, Group 1 completed an initial public offering of 5,520,000 shares of common stock. The Company is primarily engaged in the retail sale of new and used vehicles and the sale of related finance, insurance and service contracts thereon. In addition, the Company sells automotive parts and provides vehicle servicing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation For financial statement presentation purposes, Howard Group, one of the Founding Groups, has been identified as the accounting acquiror. The acquisition of the remaining Founding Groups was accounted for using the purchase method of accounting. The operations of Group 1 Automotive, Inc., the parent company, and the Founding Groups, excluding the Howard Group, are included in the results of operations beginning October 31, 1997, the effective closing date of the acquisitions for accounting purposes. The results of operations of the Howard Group are included for the full year for all periods presented. The allocation of purchase price to the assets acquired and liabilities assumed has been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. All significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Revenue from vehicle sales, parts sales and vehicle service is recognized upon delivery to the customer. Finance, Insurance and Service Contract Income Recognition The Company arranges financing for customers through various institutions and receives financing fees equal to the difference between the loan rates charged to customers over the predetermined financing rates set by the financing institution. In addition, the Company receives commissions from the sale of credit life and disability insurance and extended service contracts to customers. The Company may be charged back (chargebacks) for unearned financing fees, insurance or service contract commissions in the event of early termination of the contracts by customers. The revenues from financing fees and commissions are recorded at the time of the sale of the vehicles and a reserve for future chargebacks is established based on historical operating results and the termination provisions of the applicable contracts. Finance, insurance and service contract income, net of estimated chargebacks, are included in other dealership revenue in the accompanying combined financial statements. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments that have an original maturity of three months or less at the date of purchase and contracts in transit. Contracts in transit represent contracts on vehicles sold, for which the proceeds are in transit from financing institutions. F-7 44 Inventories New, used and demonstrator vehicles are stated at the lower of cost or market, determined on a specific-unit basis. Parts and accessories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for major additions or improvements which extend the useful lives of assets are capitalized. Minor replacements, maintenance and repairs which do not improve or extend the life of such assets are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in current operations. Goodwill Goodwill represents the excess of the purchase price of dealerships acquired over the fair value of tangible assets acquired at the date of acquisition. Goodwill is amortized on a straight-line basis over 40 years. Amortization expense charged to operations totaled approximately $27,000, $37,000 and $170,000 for the years ended December 31, 1995, 1996 and 1997, respectively. Accumulated amortization totaled approximately $129,000 and $299,000 as of December 31, 1996 and 1997, respectively. Income Taxes The Company follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Under this method, deferred income taxes are recorded based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets are realized or liabilities are settled. A valuation allowance reduces deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Prior to acquisition of the Founding Groups, certain entities of the Howard Group elected S Corporation status, as defined by the Internal Revenue Code, whereby the companies were not subject to taxation for federal purposes. Under S Corporation status, the stockholders report their share of these companies' taxable earnings or losses in their personal tax returns. All S Corporation elections were terminated in conjunction with the acquisitions. Fair Value of Financial Instruments The Company's financial instruments consist primarily of floorplan notes payable and long-term 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 market rates. In January 1998, the Company entered into a three-year interest rate swap agreement with a bank. The effect of this swap will be to convert the interest rate on $75 million of debt to a fixed rate of approximately 7.16%. Advertising The Company expenses production and other costs of advertising as incurred. Advertising expense for the years ended December 31, 1995, 1996 and 1997 totaled $3.4, $3.2 and $5.9 million, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in determining 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. The F-8 45 significant estimates made by management in the accompanying financial statements relate to reserves for used vehicle valuations, retail loan guarantees and future chargebacks on finance, insurance and service contract income. Actual results could differ from those estimates. Statements of Cash Flows For purposes of the statements of cash flows, cash and cash equivalents include contracts in transit which are typically collected within one month. Additionally, the net change in floorplan financing of inventory, which is a customary financing technique in the industry, is reflected as an operating activity in the statements of cash flows. Earnings Per Share SFAS No. 128 requires the presentation of basic earnings per share and diluted earnings per share in financial statements of public enterprises rather than primary and fully diluted earnings per share as previously required. Under the provisions of this statement, basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities. As the Company was not a public enterprise until October 1997, and the companies included in the statements of operations were under different tax structures (S Corporations and C Corporations), no earnings per share data has been presented for the historical results of operations for the years ended December 31, 1995, 1996 and 1997. The following table sets forth the shares outstanding for the pro forma earnings per share calculations:
Pro Forma Year Ended December 31, 1997 ------------- Common stock outstanding 14,673,051 Less: weighted average treasury shares repurchased.............................. (247) ------------ Shares used in computing basic earnings per share............................. 14,672,804 Dilutive effect of stock options, net of assumed repurchase of treasury stock........................................................................... 425,790 ------------ Shares used in computing diluted earnings per share........................... 15,098,594 ============
Recent Accounting Pronouncements During June 1997, Statement of Financial Accounting Standards ("SFAS") No. 131, " Disclosures About Segments of an Enterprise and Related Information" was issued. SFAS No. 131 requires that segment reporting for public reporting purposes be conformed to the segment reporting used by management for internal purposes. Additionally, it adds a requirement for the presentation of certain segment data on a quarterly basis starting in 1999. Management is currently evaluating the impact of this standard on the Company's future financial reporting. Reclassifications Certain reclassifications have been made to prior year financial statements to conform them with the current year presentation. 3. ACQUISITION OF FOUNDING GROUPS The accompanying consolidated balance sheet includes preliminary allocations of the purchase price of the Founding Groups which are subject to final adjustment. The following pro forma financial information consists of income statement data from continuing operations as presented in the consolidated financial statements plus (1) the acquisition of the Founding Groups assuming the acquisitions occurred on January 1, 1996 and 1997, respectively, (2) the completion of the IPO as of the beginning of the respective periods and (3) certain pro forma adjustments discussed below. 1996 1997 --------- ---------- (in thousands, except share amounts) F-9 46 (unaudited) Revenues........................ $821,913 $902,295 Gross profit.................... 116,130 127,131 Income from operations.......... 21,822 25,412 Net income...................... 9,447 11,413 Basic earnings per share........ 0.64 0.78 Diluted earnings per share...... $0.63 $0.76 Pro forma adjustments included in the amounts above primarily relate to: (a) increases in revenues and decreases in cost of sales related to commission arrangements on certain third-party products sold by the dealerships which previously benefited the stockholders and such agreements were terminated in conjunction with the acquisitions and the companies will realize the benefits thereafter; (b) pro forma goodwill amortization expense over an estimated useful life of 40 years; (c) reductions in compensation expense and management fees to the level that certain management employees and owners of the Founding Groups will contractually receive; (d) incremental corporate overhead costs related to personnel costs, rents, professional service fees and directors and officers liability insurance premiums; (e) decreases in interest expense resulting from the repayment of floorplan obligations with proceeds from the offering; and (f) incremental provisions for federal and state income taxes relating to the compensation differential, S Corporation income and other pro forma adjustments. 4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Accounts receivable consist of the following:
December 31, ------------------------------------ 1996 1997 ----------- ------------ Amounts due from manufacturers................ $3,574,953 $3,888,501 Due from finance companies.................... 1,002,153 3,217,205 Parts and service receivables................. 652,222 2,273,045 Other......................................... 777,329 890,403 ------------ ------------ Total accounts receivable..................... 6,006,657 10,269,154 Less - Allowance for doubtful accounts........ (107,921) (520,207) ------------ ------------ Accounts receivable, net...................... $5,898,736 $9,748,947 ============ ============
Inventories consist of the following:
December 31, ------------------------------------ 1996 1997 ----------- ------------ New vehicles................................ $36,973,347 $70,574,596 Used vehicles............................... 8,612,757 25,690,062 Rental vehicles............................. - 2,495,113 Parts, accessories and other................ 2,088,358 6,661,600 ------------ ------------ Total inventories........................... $47,674,462 $105,421,371 =========== ============
Accounts payable and accrued expenses consist of the following:
December 31, ------------------------------------ 1996 1997 ----------- ------------ Account payable, trade....................... $ 6,135,880 $18,510,907 Reserve for finance, insurance and service contract chargebacks.............. 5,782,600 10,530,250 Reserve for retail loan guarantees........... - 2,009,638 Other accrued expenses....................... $ 4,822,045 19,617,531 ------------ ------------ Total accounts payable and accrued expenses............................. $16,740,525 $50,668,326 =========== ===========
F-10 47 5. PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
Estimated December 31, Useful Lives ------------------------------------ in Years 1996 1997 ----------- ------------ -------------- Land............................... - $- $7,665,229 Buildings.......................... 20 to 35 32,058 5,402,916 Leasehold improvements............. 7 to 15 1,086,129 3,807,625 Machinery and equipment............ 3 to 7 2,460,465 2,995,035 Furniture and fixtures............. 5 to 7 1,387,095 4,590,538 Company vehicles................... 5 2,146,377 528,166 ------------ ------------- Total......................... 7,112,124 24,989,509 Less -- Accumulated depreciation... (2,983,244) (3,403,108) ------------ ------------- Property and equipment, net........ $4,128,880 $21,586,401 ============ =============
6. FLOORPLAN NOTES PAYABLE: Floorplan notes payable reflect amounts payable for the purchase of specific vehicle inventory and consist of the following:
December 31, ----------------------------------- 1996 1997 ----------- ------------ New vehicles................................ $38,677,985 $42,918,279 Used vehicles............................... 3,865,917 13,173,880 Rental vehicles............................. - 2,395,686 ------------ ------------ Total floorplan notes payable.......... $42,543,902 $58,487,845 ============ ============
Floorplan notes payable are due to various floorplan lenders, bearing interest at rates ranging from prime minus 100 basis points to prime plus 175 basis points. As of December 31, 1996 and 1997 the weighted average interest rate on floorplan notes payable outstanding was 7.75% and 7.93%. Interest expense on floorplan notes payable totaled approximately $3.4, $3.1 and $3.9 million for the years ended December 31, 1995, 1996 and 1997, respectively. The floorplan arrangements permit the Company to borrow up to $150.4 million, dependent upon new and used vehicle sales and inventory levels. As of December 31, 1997, total available borrowings under floorplan agreements were approximately $91.9 million. Vehicle payments on the notes are due when the related vehicles are sold. The notes are collateralized by substantially all of the inventories of the Company. F-11 48 7. LONG-TERM DEBT:
December 31, -------------------------------------- 1996 1997 --------------- -------------- Note payable to a bank with monthly principal payments of $41,892, due through March 2004, bearing interest at 7.5% payable monthly.................... $ -- $ 3,138,386 Note payable to a bank, with monthly principal payments of $13,740 due through August 2006, bearing interest at prime rate (8.50% at December 31, 1997)....... -- 2,082,893 Mortgage loan to a bank, with monthly principal payments of $15,000, due through May 2005, bearing interest at prime plus 25 basis points (8.75% at December 31, 1997), payable monthly......... -- 1,314,290 Revolving line of credit with a bank, due on demand, bearing interest at prime plus 100 basis points (9.5% at December 31, 1997) -- 985,448 Note payable to a bank, with monthly principal and interest payments of $5,831 due through February 2006, bearing interest at 8.20%.............................. -- 568,399 Other notes payable, maturing in varying amounts through August 2001 with interest ranging from 7.0% to 13.7%...................... 343,464 1,280,483 --------------- -------------- Total long-term debt.................. 343,464 9,369,899 --------------- -------------- Less - Current portion............. (33,685) (2,316,432) --------------- -------------- Long-term portion.................. $ 309,779 $ 7,053,467 =============== ==============
The notes payable are secured by the land, buildings or other assets for which the debt was incurred. On December 31, 1997, Group 1 entered into a $125 million, three-year revolving Credit Agreement with a bank group (the "Credit Facility"). There were no amounts drawn on the Credit Facility as of December 31, 1997. The Credit Facility provides for a floorplan line of credit of $75 million for the financing of vehicle inventories and an acquisition line of credit of $50 million, for the financing of acquisitions, general corporate purposes or capital expenditures. The amount of funds available under the acquisition line is dependent upon a calculation based on the Company's cash flow and maintaining certain financial ratios. At Group 1's option the acquisition line of credit of the Credit Facility may bear interest based on the London Interbank Offered Rate plus a margin varying from 150 to 275 basis points, dependent upon certain financial ratios. Additionally, the loan agreement contains various covenants including financial ratios and other requirements which must be maintained by the Company. The agreements also limit the amount the Company may pay as cash dividends. Total interest expense on long-term debt was approximately $56,000 and $176,000 for the years ended December 31, 1996 and 1997, respectively. F-12 49 The aggregate maturities of long-term debt as of December 31, 1997 are as follows: 1998........................ $2,316,432 1999........................ 1,206,616 2000........................ 1,138,898 2001........................ 1,055,680 2002........................ 897,017 Thereafter.................. 2,755,256 ------------- Total long-term debt........ $9,369,899 =============
8. CAPITAL STOCK AND STOCK OPTIONS: In 1996, Group 1 adopted the 1996 Stock Incentive Plan (the Plan), which provides for the granting or awarding of stock options, stock appreciation rights and restricted stock to officers and other key employees and directors. The number of shares authorized and reserved for issuance under the Plan is 2,000,000 shares of which 752,550 are available for future issuance. In general, the terms of the option awards (including vesting schedules) are established by the Compensation Committee of the Company's Board of Directors. As of December 31, 1997, the Company has granted options to employees and directors covering an aggregate of 1,247,450 shares of common stock. All outstanding options are exercisable over a period not to exceed 10 years and vest over a five- or six-year period. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which, if fully adopted, requires the Company to record stock-based compensation at fair value. The Company has adopted the disclosure requirements of SFAS No. 123 and has elected to record employee compensation expense in accordance with Accounting Principles Board (APB) Opinion No. 25. Accordingly, compensation expense is recorded for stock options based on the excess of the fair market value of the common stock on the date the options were granted over the aggregate exercise price of the options. As the exercise price of options granted under the Plan has been equal to or greater than the market price of the Company's stock on the date of grant, no compensation expense related to the Plan has been recorded. Had compensation expense for the Plan been determined based on the provisions of SFAS No. 123, the impact on the Company's net income would have been as follows for the year ended December 31, 1997: Net income as reported ........................................ $5,817,716 Pro forma net income under FAS 123 ............................ $5,451,048
The following table summarizes the Company's outstanding stock options:
YEAR ENDED DECEMBER 31, 1997 -------------------------------- WEIGHTED AVERAGE NUMBER EXERCISE PRICE -------------- -------------- Options outstanding, beginning of year........ 205,000 $ 2.90 Grants: First quarter 1997 (all at $2.90 per share).. 360,000 2.90 Fourth quarter 1997 (all at $12.00 per share) 682,450 12.00 -------------- -------------- Options outstanding, end of year.............. 1,247,450 $ 7.88 ============== ==============
At December 31, 1997, 129,843 options were exercisable at a weighted average exercise price of $6.56. The weighted average exercise price of options granted during the year ended December 31, 1997 was $8.86. The weighted average remaining contractual life of options outstanding is 9.5 years. The weighted average fair value per share of options granted during the years ended December 31, 1996 and 1997 is $0.45 and $5.94, respectively. The fair value of the options granted prior to the initial public offering were estimated on the date of the grant using the minimum value method as the Company was not a public entity and was not able to use the Black-Scholes model because estimating the expected F-13 50 volatility was not feasible. The fair value of options granted at or subsequent to the initial public offering is estimated on the date of grant using the Black-Scholes option pricing model. The following table summarizes the weighted average information used in determining the fair value of the options granted during the years ended December 31, 1996 and 1997:
1996 1997 ---- ---- Weighted average risk-free interest rate ........ 5.0% 5.9% Weighted average expected life of options........ 6 years 10 years Weighted average expected volatility............. N/A 58.1% Weighted average expected dividends.............. --- ----
In September 1997, Group 1 adopted Group 1 Automotive's 1998 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan authorizes the issuance of up to 200,000 shares of Common Stock and provides that no options may be granted under the Purchase Plan after June 30, 2007. The Purchase Plan is available to all employees of the Company and its participating subsidiaries. At the end of each fiscal quarter ("Option Period") during the term of the Purchase Plan, the employee contributions are used to acquire shares of Common Stock at 85% of the fair market value of the Common Stock on the first or the last day of the Option Period, whichever is lower. 9. RELATED-PARTY TRANSACTIONS: The principals of the Founding Groups lease certain of the dealership facilities to Group 1 under long-term operating leases. Additional information regarding the terms of these leases is contained in Note 10, "Operating Leases." In connection with the acquisitions the principal stockholder of the Howard Group acquired certain non-operating assets (recreational vehicles and properties) owned by the Howard Group. The purchase price, which approximated fair market value, was approximately $2.0 million. 10. OPERATING LEASES: The Company leases various facilities and equipment under long-term operating lease agreements, including leases with related parties. The related-party leases expire on December 31, 2027 and are cancelable, at the Company's option, every five years beginning in 2007. The third-party leases are non-cancelable and expire on various dates through August 2013. Future minimum lease payments for operating leases are as follows:
Related Year ended December 31, Parties Third Parties Total ------------------------------ ------------- ------------------ ----------- 1998.......................... $5,022,608 $2,025,394 $7,048,002 1999.......................... 5,076,161 1,730,511 6,806,672 2000.......................... 5,043,672 1,671,049 6,714,721 2001.......................... 5,043,672 988,422 6,032,094 2002.......................... 4,909,232 570,000 5,479,232 Thereafter.................... 24,411,720 5,038,367 29,450,087 ----------- ----------- ----------- Total......................... $49,507,065 $12,023,743 $61,530,808 =========== =========== ===========
Total rent expense under all operating leases, including operating leases with related parties, was approximately $2.2, $2.3 and $3.3 million for the years ended December 31, 1995, 1996 and 1997, respectively. Total rental expense for the year ending December 31, 1998 is not anticipated to be materially different than the total rental expense incurred by all of the companies for the year ended December 31, 1997. Rental expense on related-party leases, which is included in the above amounts, totaled approximately $1.8, $1.9 and $2.6 million for the years ended December 31, 1995, 1996 and 1997, respectively. F-14 51 11. INCOME TAXES: Federal and state income taxes are as follows:
DECEMBER 31, ------------------------------------------- 1995 1996 1997 -------- --------- ---------- Federal - Current............ $476,615 $586,642 $1,290,857 Deferred........... 160,631 (261,857) (761,726) State - Current............ 76,914 110,741 297,102 Deferred........... 30,156 (53,774) (252,979) -------- -------- -------- Provision for income taxes....... $744,316 $381,752 $573,254 ======== ======== ========
Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate tax rate of 34 percent to income before income taxes as follows:
DECEMBER 31, ----------------------------------------------- 1995 1996 1997 ---------- ---------- ---------- Provision at the statutory rate...... $1,489,032 $1,900,172 $2,172,930 Increase (decrease) resulting from --............................. (877,106) (1,584,686) (1,269,151) Income of S Corporations State income tax, net of benefit for federal deduction...... 70,666 37,598 29,121 Deferred tax assets realized on conversion of S Corporations to C Corporations..................... - - (402,524) Other............................... 61,724 28,668 42,878 -------- -------- -------- Provision for income taxes........... $744,316 $381,752 $573,254 ======== ======== ========
Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences representing deferred tax assets and (liabilities) result principally from the following:
December 31, ------------------------------ 1996 1997 ------------ ------------ Inventory ................................ $(2,637,029) $(3,166,360) Reserves and accruals not deductible until paid ............................ 2,175,732 8,639,072 Depreciation ............................. (58,604) (644,607) Other .................................... 104,125 165,504 ----------- ----------- Net deferred tax asset (liability)........ $ (415,776) $ 4,993,609 =========== ===========
The net deferred tax assets and (liabilities) are comprised of the following:
December 31, -------------------------------- 1996 1997 ----------- ------------ Deferred tax assets - Current .................. $2,144,789 $ 10,219,562 Deferred tax liabilities - Current .................. (2,501,961) (1,527,115) Long-term ................ (58,604) (3,698,838) ---------- ------------ Net deferred tax asset (liability)......... $ (415,776) $ 4,993,609 ========== ============
F-15 52 12. COMMITMENTS AND CONTINGENCIES: Litigation The Company is a defendant in several lawsuits arising from normal business activities. Management has reviewed pending litigation with legal counsel and believes that the ultimate liability, if any, resulting from such actions will not have a material adverse effect on the Companies' financial position or results of operations. Insurance Because of their vehicle inventory and nature of business, automobile retail dealerships generally require significant levels of insurance covering a broad variety of risks. The Company's insurance includes an umbrella policy with a $50 million per occurrence limit as well as insurance on its real property, comprehensive coverage for its vehicle inventory, general liability insurance, employee dishonesty coverage and errors and omissions insurance in connection with its vehicle sales and financing activities. Loan Guarantees Two of the Company's dealerships provide financing for certain customers through a third-party lender. Under the terms of this financing contract, customers execute installment contracts which are guaranteed with full recourse to the dealerships. The dealerships transfer the rights to the future economic benefits related to the receivables; however, in the event that the customer defaults on the note, the lender may require repayment of the principal amount of the note plus earned interest through the date of default, with collection efforts to be performed by the dealership. As of December 31, 1997, total customer notes outstanding guaranteed by the two dealerships were approximately $10.1 million. The dealerships have provided reserves for estimated future loan losses based on historical loss trends and total guarantees outstanding (see Note 4). This financing arrangement represents approximately 1.3% of the Company's total financing arranged. 13. RETIREMENT PLANS: Effective April 1, 1996, one of the Founding Groups established a 401(k) salary deferral/savings plan for the benefit of all employees. Employees electing to participate in the plan may contribute up to 15% of annual compensation, limited to the maximum amount that can be deducted for income tax purposes each year. The Founding Group, at its discretion, has the option to match each employee's contribution up to a maximum of 6% of annual compensation each plan year. The Founding Group elected to make contributions totaling approximately $178,000 and $306,000 for the years ended December 31, 1996 and 1997, respectively. 14. PENDING ACQUISITIONS(UNAUDITED) The Company has signed definitive purchase agreements related to eight dealership acquisitions. Three of these acquisitions are new platforms and will expand the Company's geographic diversity to include Georgia, New Mexico and South Florida. Certain of the remaining acquisitions are tuck-ins which will complement the Company's platform operations in Austin and Beaumont, Texas and in South Florida. These acquisitions will bring the Company's total number of dealership franchises to 58 and the number of brands represented to 24. The closing of each of these acquisitions is subject to customary closing conditions, including manufacturer approval and the completion of due diligence. The aggregate consideration paid, or to be paid, in completing these acquisitions, including real estate acquired and excluding the assumption of an estimated $92.5 million of inventory financing, is $80.2 million in cash and 3,450,358 shares of Group 1 Common Stock. As part of certain of the acquisitions, the Company may be obligated for additional purchase consideration dependent upon the Company's future stock price and earnings before taxes of certain of the dealership operations. F-16 53 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To McCall Group: We have audited the accompanying combined balance sheet of the companies identified in Note 1 (the Companies) as of December 31, 1996, and the related combined statements of operations, stockholders' equity (deficit) and cash flows for the ten month period ended October 31, 1997, and for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the Companies' 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 the Companies as of December 31, 1996, and the results of their operations and their cash flows for the ten month period ended October 31, 1997 and for the years ended December 31, 1996 and 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas March 6, 1998 F-17 54 MCCALL GROUP COMBINED BALANCE SHEET December 31, ASSETS 1996 ------------ CURRENT ASSETS: Cash and cash equivalents............................ $14,093,483 Accounts receivable, net............................. 4,407,835 Due from affiliates.................................. 1,397,454 Inventories.......................................... 23,720,965 Notes receivable, net................................ 237,547 Prepaid expenses..................................... 294,044 Deferred income taxes................................ 1,769,529 ----------- Total current assets.............................. 45,920,857 ----------- PROPERTY AND EQUIPMENT, net........................... 3,147,017 LONG-TERM DEFERRED INCOME TAXES....................... 104,882 OTHER ASSETS.......................................... 1,300,432 ----------- Total assets...................................... $50,473,188 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Floorplan notes payable.............................. $32,219,713 Current maturities of long-term debt................. 146,303 Due to affiliates.................................... 798,413 Accounts payable and accrued expenses................ 18,176,922 ----------- Total current liabilities......................... 51,341,351 ----------- LONG-TERM DEBT, net of current maturities............. 410,805 OTHER LONG-TERM LIABILITIES........................... 427,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT: Common stock......................................... 71,278 Additional paid-in capital........................... 3,222,043 Retained deficit..................................... (4,999,289) ----------- Total stockholders' deficit....................... (1,705,968) ----------- Total liabilities and stockholders' deficit.......................................... $50,473,188 ===========
The accompanying notes are an integral part of these combined financial statements. F-18 55 MCCALL GROUP COMBINED STATEMENTS OF OPERATIONS
Ten Month Year Ended December 31, Period Ended ------------------------------- October 31, 1995 1996 1997 ------------ ------------ ------------ REVENUES: New vehicle sales............... $125,809,681 $166,381,686 $138,435,720 Used vehicle sales.............. 68,332,375 90,895,516 77,240,103 Parts and service sales......... 19,431,385 21,244,959 21,004,450 Other dealership revenues, net.. 5,314,141 6,810,908 5,360,216 ------------ ------------ ------------ Total revenues............. 218,887,582 285,333,069 242,040,489 COST OF SALES: New vehicle sales............... 115,413,170 152,054,592 125,123,613 Used vehicle sales.............. 64,157,498 84,806,452 73,522,958 Parts and service sales......... 9,069,093 9,354,112 8,671,416 ------------ ------------ ------------ Total cost of sales........ 188,639,761 246,215,156 207,317,987 ------------ ------------ ------------ Gross profit............... 30,247,821 39,117,913 34,722,502 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 27,751,831 35,072,460 29,233,094 ------------ ------------ ------------ Income from operations............... 2,495,990 4,045,453 5,489,408 OTHER INCOME AND EXPENSE: Interest expense, net........... (3,305,891) (2,883,395) (1,720,557) Other expense, net.............. (43,735) (45,094) (42,020) ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES........................... (853,636) 1,116,964 3,726,831 PROVISION FOR INCOME TAXES....... 282,887 177,772 1,045,383 ------------ ------------ ------------ NET INCOME (LOSS)................ $(1,136,523) $939,192 $2,681,448 ============ ============ ============
The accompanying notes are an integral part of these combined financial statements. F-19 56 MCCALL GROUP COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Additional Common Paid-In Subscription Retained Stock Capital Receivable (Deficit) Total --------- ---------- ------------ ------------ ------------- BALANCE, December 31, 1994................ 125,800 $2,930,419 $(838,683) $(2,347,263) $(129,727) Net loss................................. - - - (1,136,523) (1,136,523) Payments on subscriptions receivable..... - - 270,272 - 270,272 Settlement of subscriptions receivable.............................. - - 568,411 - 568,411 ------- ---------- ---------- ----------- ----------- BALANCE, December 31, 1995................ 125,800 2,930,419 - (3,483,786) (427,567) Net income............................... - - - 939,192 939,192 Dividend to parent under tax sharing agreement............................... - - - (323,590) (323,590) Purchase and retirement of treasury stock................................... (57,898) - - (2,131,105) (2,189,003) Stock issued to employees................ 3,376 291,624 - - 295,000 ------- ---------- ---------- ----------- ----------- BALANCE, December 31, 1996................ 71,278 3,222,043 - (4,999,289) (1,705,968) Net income............................... - - - 2,681,448 2,681,448 Dividend to parent under tax sharing agreement................................ - - - (445,349) (445,349) ------- ---------- ---------- ----------- ----------- BALANCE, October 31, 1997................. $71,278 $3,222,043 $ - $(2,763,190) $530,131 ======= ========== ========== =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-20 57 MCCALL GROUP COMBINED STATEMENTS OF CASH FLOWS
Ten Month Year Ended December 31, Period Ended ------------------------------ October 31, 1995 1996 1997 ------------ ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................................................. $(1,136,523) $ 939,192 2,681,448 Adjustments to reconcile net income (loss) to net cash Provided by (used in) operating activities - Depreciation and amortization.................................... 439,402 598,278 485,153 LIFO reserve..................................................... (305,000) 9,000 (99,474) Deferred income taxes............................................ (514,187) (14,313) 133,250 Provision for doubtful accounts and uncollectible notes.......... 208,972 357,860 240,682 Loss (gain) on sale of assets.................................... (23,259) 32,632 63 Non-cash compensation............................................ - 295,000 - Tax carryforward benefited....................................... - (323,590) (445,349) Changes in assets and liabilities - Accounts receivable............................................. 2,651,367 (1,059,288) (65,337) Inventories..................................................... (2,780,245) (1,239,076) 7,733,229 Due from affiliates, net........................................ (1,565,588) 132,341 107,566 Prepaid expenses................................................ (25,720) (170,068) 260,068 Other assets.................................................... (9,546) (874,771) 493,050 Floorplan notes payable......................................... (2,058,861) (3,720,448) (15,304,404) Accounts payable and accrued expenses........................... 7,695,141 (655,658) (2,738,901) Other long term liabilities..................................... - 277,000 (34,505) ----------- ----------- ---------- Total adjustments.............................................. 3,712,476 (6,355,101) (9,234,909) ----------- ----------- ---------- Net cash provided by (used in) operating activities............ 2,575,953 (5,415,909) (6,553,461) ----------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in notes receivable...................................... (909,260) (1,151,783) (1,825,293) Collections on notes receivable................................... 1,271,071 969,767 1,003,856 Purchases of property and equipment............................... (613,890) (1,285,276) (1,129,274) ----------- ----------- ---------- Net cash used in investing activities.......................... (252,079) (1,467,292) (1,950,711) ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt.............................. (54,555) (164,694) (228,994) Borrowings of long-term debt...................................... 110,168 512,594 127,069 Payments on subscriptions receivable.............................. 270,272 - - ----------- ----------- ---------- Net cash provided by (used in) financing activities............... 325,885 347,900 (101,925) ----------- ----------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... 2,649,759 (6,535,301) (8,606,097) CASH AND CASH EQUIVALENTS, beginning of period..................... 17,979,025 20,628,784 14,093,483 ----------- ----------- ---------- CASH AND CASH EQUIVALENTS, end of period........................... $20,628,784 $14,093,483 $5,487,386 =========== =========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for - Interest.......................................................... $3,253,486 $ 2,808,993 $1,725,577 Taxes............................................................. 227,090 818,962 513,262 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Receivables from stockholder forgiven in conjunction with purchase of treasury stock.................................. - 2,189,003 - Settlement of subscriptions receivable from stockholder in lieu of bonus..................................... 568,411 - -
The accompanying notes are an integral part of these combined financial statements. F-21 58 MCCALL GROUP NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: McCall Group (the Companies) is primarily engaged in the retail sale of new and used automobiles and the sale of the related finance, insurance and service contracts thereon. In addition, the Companies sell automotive parts, provide vehicle servicing and sell wholesale used vehicles. The following companies are included within the combined group: Southwest Toyota, Inc. (d.b.a. Sterling McCall Toyota) (SMT) - SMT is a Toyota dealership located in Houston, Texas. SMC Luxury Cars, Inc. (d.b.a. Sterling McCall Lexus) (SML) - SML is a Lexus dealership located in Houston, Texas. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The accompanying combined financial statements include the accounts of SMT and SML. The Companies have been presented on a combined basis due to their related operations, common ownership and common management control. All significant intercompany balances and transactions have been eliminated in combination. SMC Investments, Inc. (SMC) owns 100% of the issued and outstanding stock of SML and approximately 51% of the stock of SMT. SMC is a separate holding company which does not operate in the automobile retailing industry and has not been included in the accompanying combined financial statements as it will not be acquired by Group 1. Revenue Recognition Revenue from vehicle sales, parts sales and vehicle service is recognized upon delivery to the customer. Fleet Sales SMT periodically supplies vehicles to various rental car companies as an accommodation to the manufacturer and to better utilize dealership capacity. These transactions generate nominal gross profit, and in management's opinion, do not represent sales in the normal course of business. Accordingly, sales of approximately $7.7 million, $10.8 million and $12.6 million and cost of sales of approximately $7.5 million, $10.7 million and $12.5 million have been excluded from the accompanying statements of operations for the years ended December 31, 1995 and 1996 and the ten month period ended October 31, 1997, respectively, as management believes excluding such amounts represents a more appropriate basis of presentation. The net profit on these wholesale fleet transactions is recorded as other dealership revenues in the accompanying statements of operations. Finance, Insurance and Service Contract Income Recognition The Companies arrange financing for customers through various institutions and receive financing fees equal to the difference between the loan rates charged to customers over the predetermined financing rates set by the financing institution. In addition, the Companies receive commissions from the sale of credit life and disability insurance and extended service contracts to customers. The Companies may be charged back (chargebacks) for unearned financing fees, insurance or service contract commissions in the event of early termination of the contracts by customers. The revenues from financing fees and commissions are recorded at the time of the sale of the vehicles and a reserve for future chargebacks is established based on historical operating results and the termination provisions of the applicable contracts. Finance, insurance and service contract income, net of estimated chargebacks, are included in other dealership revenue in the accompanying combined financial statements. F-22 59 Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments that have an original maturity of three months or less at the date of purchase and contracts in transit. Contracts in transit represent contracts on vehicles sold, for which the proceeds are in transit from financing institutions. Inventories New and demonstrator vehicles are stated at cost, determined on the last-in, first-out (LIFO) basis, which is not in excess of market. Used vehicles are stated at lower of cost or market, determined on a specific unit basis. Parts and accessories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated life of the asset. Expenditures for major additions or improvements which extend the useful lives of assets are capitalized. Minor replacements, maintenance and repairs which do not improve or extend the life of such assets are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in current operations. Income Taxes The Companies follow the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Under this method, deferred income taxes are recorded based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets are realized or liabilities are settled. SML is a member of a consolidated group for tax reporting purposes. In accordance with SFAS No. 109, SML reports current and deferred tax expense using the separate return method, resulting in tax expense being recorded as if SML filed a separate company return for tax purposes. Under this method, SML does not recognize benefits for net operating losses (NOL's) as such amounts will not be refunded to SML by the consolidated group. These NOL carryforwards are offset against the provision for taxes in subsequent profitable years and treated as dividends to the parent when benefited. SMT is a separate tax paying entity and is not a member of a consolidated group. Fair Value of Financial Instruments The Companies' financial instruments consist primarily of floorplan notes payable, notes receivable and long-term 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 market rates. Advertising The Company expenses production and other costs of advertising as incurred. Advertising expense for the years ended December 31, 1995 and 1996 and the ten month period ended October 31, 1997 totaled approximately $2.8, $4.0 and $2.5 million, respectively. Concentration of Credit Risk Financial instruments which potentially subject the Companies to a concentration of credit risk consist principally of cash, cash equivalents, contracts in transit and accounts receivable. The Company maintains cash balances at financial institutions which may at times be in excess of federally insured levels. The Companies grant credit to local companies in various businesses. The Companies perform ongoing credit evaluations of their customers and generally do not require collateral. The Companies maintain an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. The Companies have not incurred significant losses related to these financial instruments to date. F-23 60 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in determining 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. The significant estimates made by management in the accompanying financial statements relate to reserves for used vehicle valuations, future chargebacks on finance, insurance and service contract income and reserves for retail loan guarantees (Notes 2 and 11, respectively). Actual results could differ from those estimates. Statements of Cash Flows For purposes of the statements of cash flows, cash and cash equivalents include contracts in transit which are typically collected within one month or less. Additionally, the net change in floorplan financing of inventory, which is a customary financing technique in the industry, is reflected as an operating activity in the statements of cash flows. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Accounts receivable consist of the following:
December 31, 1996 ------------ Amounts due from manufacturers.......... $1,192,275 Parts and service receivables........... 870,209 Warranty receivables.................... 259,826 Due from finance companies.............. 1,204,624 Other................................... 1,180,201 ---------- Total accounts receivable............... 4,707,135 Less - Allowance for doubtful accounts................................ (299,300) ---------- Accounts receivable, net................ $4,407,835 ==========
Activity in the Companies' allowance for doubtful accounts consists of the following:
December 31, 1996 ------------ Balance, beginning of year..................................... $159,972 Additions charged to expense................................... 187,278 Deductions for uncollectible receivables written off................................................... (47,950) -------- Balance, end of year........................................... $299,300 ========
Inventories consist of the following:
December 31, 1996 ------------ New vehicles......................... $13,918,424 Used vehicles........................ 11,050,657 Parts, accessories and other......... 1,566,156 Rental vehicles...................... 1,674,747 Accumulated LIFO Reserve............. (4,489,019) ----------- Total inventories, net............... $23,720,965 ===========
If the specific unit method of inventory were used, income before taxes would have increased (decreased) by approximately $305,000, $(9,000) and $(99,000) for the years ended December 31, 1995 and 1996 and for the ten month period ended October 31, 1997, respectively. Activity in the Companies' allowance for uncollectible notes consists of the following: F-24 61
DECEMBER 31, 1996 --------- Balance, beginning of year.................................... $240,000 Additions charged to expense.................................. 170,580 Transfers from loan guarantee reserve ........................ - Deductions for uncollectible notes written off................ (196,580) -------- Balance, end of year.......................................... $214,000 ========
Accounts payable and accrued expenses consist of the following:
DECEMBER 31, 1996 ----------- Accounts payable, trade........................... $ 7,452,034 Reserve for finance, insurance and service contract chargebacks............................. 3,011,354 Reserve for retail loan guarantees................ 1,965,000 Other accrued expenses............................ 5,748,534 ----------- Total accounts payable and accrued expenses....... $18,176,922 ===========
4. PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
ESTIMATED USEFUL LIVES DECEMBER 31, IN YEARS 1996 ------------ ----------- Leasehold improvements.................... 20 $ 2,470,037 Machinery and equipment................... 7 1,136,461 Furniture and fixtures.................... 7 2,622,636 Autos and trucks.......................... 5 380,626 ----------- Total.............................. 6,609,760 Less - Accumulated depreciation........... (3,462,743) ----------- Property and equipment, net............... $ 3,147,017 ===========
5. FLOORPLAN NOTES PAYABLE: Floorplan notes payable reflect amounts payable for the purchase of specific vehicle inventory and consist of the following:
1996 ----------- New vehicles............................... $24,398,255 Used vehicles.............................. 6,212,001 Rental vehicles............................ 1,609,457 ----------- Total floorplan notes payable........ $32,219,713 ===========
Floorplan notes payable are due to various floorplan lenders, bearing interest at rates ranging from prime minus 75 basis points to prime minus 100 basis points. As of 1996, the weighted average interest rate on floorplan notes payable outstanding was 8.99%. Interest expense on floorplan notes payable totaled approximately $3.1, $2.5 and $1.5 million for the years ended December 31, 1995 and 1996 and the ten month period ended October 31, 1997. The flooring arrangements permit the Companies to borrow up to $38.3 million dependent upon new and used vehicle sales and inventory levels. As of December 31, 1996, total available borrowings under the floorplan agreements were approximately $6.1 million. Payments on the notes are due when the related vehicles are sold and are collateralized by substantially all new and used vehicles. 6. LONG-TERM DEBT: Long-term debt consists of the following:
DECEMBER 31, 1996 ------------ Note payable to floorplan institution, principal payable in. monthly installments of $5,000 through August 2001, interest
F-25 62
payable monthly at lender's available financing rate plus 150 basis points (9.3% at December 31, 1996) Other notes payable, maturing in varying amounts through.............. $275,000 April 2001, with interest ranging from 5.5% to 9.6% at December 31, 1996..................................................... 282,108 -------- Total long-term debt.................................................. 557,108 Less - Current portion................................................ (146,303) -------- Long-term portion..................................................... $410,805 ========
Interest expense on long-term debt totaled approximately $210,000, $385,000 and $221,000 for the years ended December 31, 1995 and 1996 and for the ten month period ended October 31, 1997. The aggregate maturities of long-term debt as of December 31, 1996, are as follows:
YEAR ENDING DECEMBER 31, ------------------ 1997............. $146,303 1998............. 141,666 1999............. 124,378 2000............. 103,906 2001............. 40,855 -------- $557,108 ========
7. STOCKHOLDERS' EQUITY: Capital stock consists of the following as of December 31, 1996:
PAR AUTHORIZED ISSUED OUTSTANDING VALUE ---------- ------ ----------- ----- Sterling McCall Toyota.. 500,000 70,278 70,278 $1.00 Sterling McCall Lexus... 1,000,000 100,000 100,000 .01
During 1996, SMT and its principal stockholder entered into a series of treasury stock transactions in which SMT repurchased 57,898 shares of common stock from its principal stockholder. In conjunction with these transactions, SMT forgave approximately $2.2 million of related party receivables due from various entities owned by the principal stockholder. As part of these transactions, SMT has agreed to repurchase in certain instances, up to 4,502 additional shares of stock from its principal stockholder in exchange for a note payable in the amount of $2.0 million. This repurchase provision will be cancelled concurrently with an initial public offering of stock by the Companies. The shares repurchased by SMT have been constructively retired for financial reporting purposes. During December 1996, the Companies granted 3,376 shares of stock to two employees as compensation for prior services. The shares were issued as of the grant date and the Companies recorded compensation expense of $295,000 related to these shares based on the estimated fair market value of the shares as of the grant date. The shares issued are subject to various restrictions relating to transferability and resale, and contain a right of first refusal for repurchase by the Companies. 8. RELATED-PARTY TRANSACTIONS: SMT and SML lease land, facilities and equipment from limited partnerships and other entities controlled by the majority stockholder of the Companies under long-term operating leases. Additional information regarding the terms of these leases is contained in Note 9 "Operating Leases". The principal stockholder of the Companies has provided personal guarantees relating to the repayment of long term debt and floorplan obligations incurred by the Companies. As of December 31, 1996, floorplan obligations guaranteed by the principal stockholder totaled approximately $32.2 million, and long-term debt obligations totaled approximately $300,000. In addition to the above guarantees, the principal stockholder has also provided a personal guarantee related to loan guarantees on second chance finance customers (see Note 11). As of December 31, 1996, customer notes outstanding which were guaranteed by the Companies and the stockholder totaled approximately $10.4 million. The Companies sell credit life and disability insurance policies and extended service contracts F-26 63 which are underwritten by three companies owned by the principal stockholders of the Companies, as well as similar products provided by third parties. The Companies also sell various aftermarket products from certain companies owned by the principal stockholders of the Companies. The principal stockholders currently have agreements in place with these entities which decrease the fees and commissions paid to the dealerships for the sale of credit life and disability insurance policies and extended service contracts, and increase the cost of aftermarket products. The amounts withheld under these agreements are paid directly to the principal stockholders. Approximately $1.1, $1.6 and $1.4 million was withheld and paid to the stockholders under the agreements described above, during the years ended December 31, 1995 and 1996 and the ten month period ended October 31, 1997, respectively. The Companies pay management fees plus certain allocated and out of pocket expenses to an entity owned by the principal stockholder of the Companies for consultation and direct management assistance with respect to operations and strategic planning. Management fee expense totaled approximately $1.3 million, $1.4 million and $807,000 for the years ended December 31, 1995, 1996 and the ten month period ended October 31, 1997, respectively. 9. OPERATING LEASES: The Companies lease various facilities and equipment under long-term operating lease agreements, including leases with related parties. These leases are non-cancelable and expire on various dates through 2006. The lease agreements are subject to renewal under essentially the same terms and conditions as the original leases. Future minimum lease payments for operating leases are as follows:
Year ending Related Third December 31, Parties Parties Total ------------ ---------- ---------- ---------- 1997.............. $1,842,000 $411,556 $2,253,556 1998.............. 1,842,000 354,084 2,196,084 1999.............. 1,842,000 234,590 2,076,590 2000.............. 1,842,000 161,908 2,003,908 2001.............. 1,282,000 73,982 1,355,982 Thereafter........ 648,000 - 648,000 ---------- ---------- ----------- Total............. $9,298,000 $1,236,120 $10,534,120 ========== ========== ===========
Total rent expense under all operating leases, including operating leases with related parties, was approximately $1.9, $2.0 and $1.8 million for the years ended December 31, 1995 and 1996 and the ten month period ended October 31, 1997, respectively. Rental expense on related-party leases, which is included in the above amounts, totaled $1.5, $1.6 and $1.6 million for the years ended December 31, 1995 and 1996 and the ten month period ended October 31, 1997, respectively. 10. INCOME TAXES: The Companies are subject to a Texas franchise tax which is an income based tax. Federal and state income taxes are as follows:
December 31, ------------------------- October 31, 1995 1996 1997 --------- --------- ---------- Federal - Current.......... $695,074 $168,053 $1,204,955 Deferred......... (466,528) (12,618) (276,544) State - Current.......... 102,000 24,032 152,527 Deferred ......... (47,659) (1,695) (35,555) -------- -------- ---------- Provision for income taxes..... $282,887 $177,772 $1,045,383 ======== ======== ==========
F-27 64 Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate tax rate of 34 percent to income before income taxes as follows:
December 31, --------------------------- October 31, 1995 1996 1997 --------- --------- ----------- Provision (benefit) at the statutory rate....... $(290,236) $379,768 $1,267,123 Increase (decrease) resulting from - State income tax, net of benefit for federal deduction.............. 35,865 14,742 77,202 SML NOL (benefited) not benefited.............. 584,795 (323,590) (445,349) Other.................... (47,537) 106,852 146,407 -------- -------- ---------- Provision for income....... $282,887 $177,772 $1,045,383 ======== ======== ==========
Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences representing deferred tax assets and liabilities result principally from the following:
December 31, 1996 ------------ Reserves and accruals not deductible until paid........................................ $1,779,755 Other.......................................... 94,656 ---------- Net deferred tax asset......................... $1,874,411 ==========
The net deferred tax assets and liabilities are comprised of the following:
December 31, 1996 ------------ Deferred tax assets - Current..................................... $1,773,229 Long-term................................... 182,711 ---------- Total..................................... 1,955,940 Deferred tax liabilities - Current..................................... (6,836) Long-term................................... (74,693) ---------- Total..................................... (81,529) ---------- Net deferred tax asset........... $1,874,411 ==========
As discussed in Note 2, SML is a member of a consolidated group for tax reporting purposes and reports income taxes under the separate return method. During 1994 and 1995, SML did not record tax benefits of approximately $184,000 and $585,000 related to net operating losses as such amounts would not be reimbursed by the consolidated group. During 1996 and 1997, approximately $323,600 and $445,349 of these benefits were offset against the provision for taxes and accounted for as a dividend in the accompanying statement of stockholders' equity. 11. COMMITMENTS AND CONTINGENCIES: The Companies are defendants in several lawsuits arising from normal business activities. Management has reviewed pending litigation with legal counsel and believes that the ultimate liability, if any, resulting from such action will not have a material adverse effect on the Companies' financial position or results of operations. The Companies carry insurance coverage, including general and business auto liability, commercial property, workers' compensation and excess liability coverage. The Companies have not incurred significant claims or losses on any of their insurance policies. F-28 65 Loan Guarantees Provided on Second Chance Financing The Companies provide financing for certain customers through a third party lender. Under the terms of this financing contract, customers execute installment contracts which are guaranteed with full recourse by the Companies. The Companies transfer all rights to the future economic benefits related to the receivables; however, in the event that the customer defaults on the note, the lender may require repayment of the principal amount of the note plus earned interest through the date of default, with collection efforts to be performed by the dealership. Total customer notes outstanding guaranteed by the dealership at December 31, 1995 and 1996 and October 31, 1997 were approximately $7.4, $10.4 and $10.2 million, respectively. The principal stockholder of the Companies has also provided a personal guarantee to the lender related to repayment of these customer notes. The Companies have provided reserves for estimated future loan losses based on historical loss trends and total guarantees outstanding. Activity in the Companies' reserve account consists of the following:
December 31, 1996 ------------ Balance, beginning of year...................... $1,471,000 Additions charged to expense.................... 1,033,000 Deductions for loans written off................ (539,000) ---------- Balance, end of year............................ $1,965,000 ==========
12. ACQUISITION BY GROUP 1 AUTOMOTIVE, INC.: In November 1997, the McCall Group was acquired by Group 1 in exchange for 2,318,826 shares of common stock of Group 1. In conjunction with the acquisition of the Companies by Group 1, and all existing operating leases with related parties were restructured under new lease agreements. In addition, all amounts due to/from affiliates and related parties were settled in connection with the acquisition. F-29 66 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Smith Group: We have audited the accompanying combined balance sheet of the companies identified in Note 1 (the Companies) as of December 31, 1996, and the related combined statements of operations, stockholders' equity and cash flows for the ten month period ended October 31, 1997 and for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the Companies' 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 the Companies as of December 31, 1996, and the results of their operations and their cash flows for the ten month period ended October 31, 1997 and for the years ended December 31, 1996 and 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas March 6, 1998 F-30 67 SMITH GROUP COMBINED BALANCE SHEET
December 31, 1996 ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents............................. $9,069,829 Accounts receivable, net.............................. 4,467,590 Due from affiliates................................... 14,580 Inventories........................................... 30,637,433 Prepaid expenses...................................... 185,218 Deferred income tax benefit........................... 182,081 ----------- Total current assets............................. 44,556,731 ----------- PROPERTY AND EQUIPMENT, net................................ 9,819,994 GOODWILL, net.............................................. 2,322,307 OTHER ASSETS............................................... 689,453 ----------- Total assets..................................... $57,388,485 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Floorplan notes payable............................... $30,676,725 Current maturities of long-term debt.................. 949,565 Accounts payable and accrued expenses................. 8,509,815 ----------- Total current liabilities........................ 40,136,105 ----------- LONG-TERM DEBT, net of current maturities.................. 5,006,474 LONG-TERM DEFERRED INCOME TAXES............................ 217,611 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock.......................................... 3,090 Additional paid-in capital............................ 6,369,228 Retained earnings..................................... 6,051,274 Treasury stock, at cost............................... (395,297) ----------- Total stockholders' equity....................... 12,028,295 ----------- Total liabilities and stockholders' equity....... $57,388,485 ===========
The accompanying notes are an integral part of these combined financial statements. F-31 68 SMITH GROUP COMBINED STATEMENTS OF OPERATIONS
Ten Month Year Ended December 31, Period Ended ------------------------------ October 31, 1995 1996 1997 ------------ ------------ ------------ REVENUES: New vehicle sales................... $132,149,669 $124,173,950 $127,870,773 Used vehicle sales.................. 57,363,332 60,579,545 60,486,072 Parts and service sales............. 26,237,774 28,630,577 23,936,260 Other dealership revenues, net...... 5,506,759 4,895,329 5,152,307 ------------ ------------ ------------ Total revenues............ 221,257,534 218,279,401 217,445,412 COST OF SALES: New vehicle sales................... 123,391,332 114,982,383 116,853,172 Used vehicle sales.................. 53,162,956 56,247,629 55,931,779 Parts and service sales............. 15,234,938 16,684,932 13,803,578 ------------ ------------ ------------ Total cost of sales....... 191,789,226 187,914,944 186,588,529 ------------ ------------ ------------ Gross profit.............. 29,468,308 30,364,457 30,856,883 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................... 22,823,685 23,710,904 23,242,452 ------------ ------------ ------------ Income from operations......... 6,644,623 6,653,553 7,614,431 OTHER INCOME AND EXPENSE: Interest expense, net............... (3,831,372) (2,964,476) (3,011,873) Other income (expense), net......... 202,134 222,470 (25,389) ------------ ------------ ------------ INCOME BEFORE INCOME TAXES................ 3,015,385 3,911,547 4,577,169 PROVISION FOR INCOME TAXES................ 562,415 677,751 882,088 ------------ ------------ ------------ NET INCOME................................ $2,452,970 $3,233,796 $3,695,081 ============ ============ ============ S-Corporation pro forma income taxes (unaudited)................... 598,508 828,195 880,122 ------------ ------------ ------------ Pro forma net income (unaudited).......... $1,854,462 $2,405,601 $2,814,959 ============ ============ ============
The accompanying notes are an integral part of these combined financial statements. F-32 69 SMITH GROUP COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Common Paid-In Retained Treasury Stock Capital Earnings Stock Total ----------- ----------- ----------- ---------- ----------- BALANCE, December 31, 1994...... $2,090 $5,890,228 $4,316,871 $(395,297) $9,813,892 Net income................. - - 2,452,970 - 2,452,970 Dividends.................. - - (1,557,239) - (1,557,239) ----------- ----------- ----------- ---------- ----------- BALANCE, December 31, 1995...... 2,090 5,890,228 5,212,602 (395,297) 10,709,623 Net income................. - - 3,233,796 - 3,233,796 Issuance of common stock... 1,000 479,000 - - 480,000 Dividends.................. - - (2,395,124) - (2,395,124) ----------- ----------- ----------- ---------- ----------- BALANCE, December 31, 1996...... 3,090 6,369,228 6,051,274 (395,297) 12,028,295 Net income................. - - 3,695,081 - 3,695,081 Dividends.................. - - (3,955,187) - (3,955,187) ----------- ----------- ----------- ---------- ----------- BALANCE, October 31, 1997....... $3,090 $6,369,228 $5,791,168 $(395,297) $11,768,189 =========== =========== =========== ========== ============
The accompanying notes are an integral part of these combined financial statements. F-33 70 SMITH GROUP COMBINED STATEMENTS OF CASH FLOWS
Ten Month Year Ended December 31, Period Ended ---------------------------- October 31, 1995 1996 1997 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................ $2,452,970 $ 3,233,796 $ 3,695,081 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization................ 669,312 719,991 493,999 LIFO reserve................................. 78,061 35,489 (329,943) Deferred income taxes........................ 29,389 35,839 (10,000) Provision for doubtful accounts.............. 61,460 49,729 50,197 Loss (gain) on sale of assets................ (74,258) 65,088 - Changes in assets and liabilities - Accounts receivable..................... (1,207,158) (31,960) 1,348,321 Inventories............................. (4,323) (2,726,301) (4,294,534) Due from affiliates, net................ (136,650) 31,427 14,580 Prepaid expenses........................ 264,974 15,367 (53,446) Other assets............................ (12,073) (493,584) 722,704 Floorplan notes payable................. 2,175,223 3,252,493 1,498,531 Accounts payable and accrued expenses... 678,372 346,332 (825,189) ----------- ----------- ----------- Total adjustments.................. 2,522,329 1,299,910 (1,384,780) ----------- ----------- ----------- Net cash provided by operating activities.............. 4,975,299 4,533,706 2,310,301 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment............... (699,792) (858,245) (517,936) ----------- ----------- ----------- Net cash used in investing activities........ (699,792) (858,245) (517,936) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt.............. (899,623) (961,108) (778,176) Borrowings of long-term debt...................... 375,071 533,722 - Issuance of common stock.......................... - 480,000 - Dividends......................................... (1,557,239) (2,395,124) (1,928,117) ----------- ----------- ----------- Net cash used in financing activities........ (2,081,791) (2,342,510) (2,706,293) ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 2,193,716 1,332,951 (913,928) CASH AND CASH EQUIVALENTS, beginning of period............................... 5,543,162 7,736,878 9,069,829 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of period..................................... $7,736,878 $ 9,069,829 $ 8,155,901 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for - Interest..................................... $3,743,310 $ 2,818,402 $ 3,021,083 Taxes........................................ 522,565 543,401 574,481
The accompanying notes are an integral part of these combined financial statements. F-34 71 SMITH GROUP NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Smith Group (the Companies) is primarily engaged in the retail sale of new and used automobiles and the sale of the related finance, insurance and service contracts thereon. In addition, the Companies sell automotive parts, provide vehicle servicing and sell wholesale used vehicles. The following companies are included within the combined group: Mike Smith Autoplaza, Inc. (MSAP) MSAP consists of several franchises which conduct business at contiguous locations in Beaumont, Texas. The franchises operated in this location include Oldsmobile, Lincoln, Mercury, GMC, Mitsubishi, and Honda. Smith, Liu & Kutz, Inc. (Town North) Town North consists of three companies operating several franchises which conduct business at contiguous locations in Austin, Texas. The franchises operated in this location include Nissan, Mitsubishi and Suzuki. Courtesy Nissan, Inc. (Courtesy) Courtesy is a Nissan dealership located in Richardson, Texas. Smith, Liu & Corbin, Inc. (d.b.a. Acura Southwest) (Acura) Acura is an Acura dealership located in Houston, Texas. Round Rock Nissan, Inc. (Round Rock) Round Rock is a Nissan dealership located in Round Rock, Texas. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The accompanying combined financial statements include the accounts of the Companies listed above. The Companies have been presented on a combined basis due to their related operations, common ownership and common management control. All significant intercompany balances and transactions have been eliminated in combination. Revenue Recognition Revenue from vehicle sales, parts sales and vehicle service is recognized upon delivery to the customer. Finance, Insurance and Service Contract Income Recognition The Companies arrange financing for customers through various institutions and receive financing fees equal to the difference between the loan rates charged to customers over the predetermined financing rates set by the financing institution. In addition, the Companies receive commissions from the sale of credit life and disability insurance and extended service contracts to customers. The Companies may be charged back (chargebacks) for unearned financing fees, insurance or service contract commissions in the event of early termination of the contracts by customers. The revenues from financing fees and commissions are recorded at the time of the sale of the vehicles and a reserve for future chargebacks is established based on historical operating results and the termination provisions of the applicable contracts. Finance, insurance and service contract income, net of estimated chargebacks, are included in other dealership revenue in the accompanying combined financial F-35 72 statements. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments that have an original maturity of three months or less at the date of purchase and contracts in transit. Contracts in transit represent contracts on vehicles sold, for which the proceeds are in transit from financing institutions. Inventories New and demonstrator vehicles are stated at cost, determined on the last-in, first-out (LIFO) basis, which is not in excess of market. Used vehicles are stated at the lower of cost or market, determined on a specific-unit basis. Parts and accessories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated life of the asset. Expenditures for major additions or improvements which extend the useful lives of assets are capitalized. Minor replacements, maintenance and repairs which do not improve or extend the life of such assets are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in current operations. Goodwill Goodwill represents the excess of the purchase price of dealerships acquired (Town North Nissan, Courtesy Nissan and Mike Smith Auto Plaza) over the fair value of tangible assets acquired at the date of acquisition. Goodwill is amortized on a straight-line basis over 40 years and amortization expense charged to operations totaled approximately $55,000 for the ten month period ended October 31, 1997 and $67,000 for each of the two years ended December 31, 1996 and 1995. Accumulated amortization totaled approximately $956,000 as of December 31, 1996. Income Taxes The Companies follow the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Under this method, deferred income taxes are recorded based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets are realized or liabilities are settled. Certain of the Companies have elected S Corporation status, as defined by the Internal Revenue Code, whereby the companies are not subject to taxation for federal purposes. Under S Corporation status, the stockholders report their share of these companies' taxable earnings or losses in their personal tax returns. Fair Value of Financial Instruments The Companies' financial instruments consist primarily of floorplan notes payable and long-term 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 market rates. Advertising The Company expenses production and other costs of advertising as incurred. Advertising expense for the years ended December 31, 1995, 1996 and the ten month period ended October 31, 1997 totaled approximately $2.1, $1.9 and $2.9 million, respectively. F-36 73 Concentration of Credit Risk Financial instruments which potentially subject the Companies to a concentration of credit risk consist principally of cash, cash equivalents, contracts in transit and accounts receivable. The Company maintains cash balances at financial institutions which may at times be in excess of federally insured levels. The Companies grant credit to local companies in various businesses. The Companies perform ongoing credit evaluations of its customers and generally do not require collateral. The Companies maintain an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. The Companies have not incurred significant losses related to these financial instruments to date. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in determining 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. The significant estimates made by management in the accompanying financial statements relate to reserves for used vehicle valuations and future chargebacks on finance, insurance and service contract income. Actual results could differ from those estimates. Statements of Cash Flows For purposes of the statements of cash flows, cash and cash equivalents include contracts in transit which are typically collected within one month or less. Additionally, the net change in floorplan financing of inventory, which is a customary financing technique in the industry, is reflected as an operating activity in the statements of cash flows. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Accounts receivable consist of the following:
December 31, 1996 ------------ Vehicle receivables..................... $1,082,909 Amounts due from manufacturers.......... 1,670,776 Parts and service receivables........... 949,874 Warranty receivables.................... 314,391 Due from finance companies.............. 392,192 Other................................... 138,948 ---------- Total accounts receivable............... 4,549,090 Less - Allowance for doubtful accounts.. (81,500) ---------- Accounts receivable, net................ $4,467,590 ==========
Activity in the Companies' allowance for doubtful accounts consists of the following:
December 31, 1996 ------------ Balance, beginning of year..................... $131,500 Additions charged to expense................... 49,729 Deductions for uncollectible receivables written off.................................. (99,729) ------- Balance, end of year........................... $81,500 =======
F-37 74 Inventories consist of the following:
December 31, 1996 ------------ New vehicles............................ $24,302,689 Used vehicles........................... 6,936,348 Parts, accessories and other............ 3,102,812 Accumulated LIFO reserve................ (3,704,416) ----------- Inventories, net........................ $30,637,433 ===========
If the specific-unit method of inventory were used, income before taxes would have increased (decreased) by approximately $78,000, $35,000 and ($261,000), for the years ended December 31, 1995 and 1996 and the ten month period ended October 31, 1997, respectively. Accounts payable and accrued expenses consist of the following:
December 31, 1996 ----------- Accounts payable, trade ............................... $3,696,293 Reserve for finance, insurance and service contract chargebacks................................. 1,374,780 Other accrued expenses................................. 3,438,742 ---------- Total accounts payable and accrued expenses............ $8,509,815 ==========
4. PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
Estimated Useful Lives December 31, in Years 1996 ------------ ------------ Land................................ - $4,789,177 Buildings........................... 35 4,858,250 Leasehold improvements.............. 15 1,367,199 Machinery and equipment............. 7 1,720,940 Furniture and fixtures.............. 7 2,535,075 Autos and trucks.................... 5 321,316 Rental vehicles..................... - 124,023 ---------- Total.................... 15,715,980 Less - Accumulated depreciation.... (5,895,986) ---------- Property and equipment, net.... $9,819,994 ==========
5. FLOORPLAN NOTES PAYABLE: Floorplan notes payable reflect amounts payable for the purchase of specific vehicle inventory and consist of the following:
December 31, 1996 ------------ New vehicles.............................. $27,712,804 Used vehicles............................. 2,963,921 ----------- Total floorplan notes payable............. $30,676,725 ===========
Floorplan notes payable are due to various floorplan lenders, bearing interest at rates ranging from prime (adjusted for volume with lender (8.0% at December 31, 1996)) to prime plus 175 basis points. As of December 31, 1996, the weighted average interest rate on floorplan notes payable outstanding was 8.66%, respectively. Interest expense on floorplan notes payable totaled approximately $3.2, $2.5 and $2.6 million for the years ended December 31, 1995 and 1996 and for the ten month period ended October 31, 1997, respectively. The flooring arrangements permit the Companies to borrow up to $37.0 million dependent upon new and used vehicle sales and inventory levels. As of December 31, 1996, total F-38 75 available borrowings under floorplan agreements were approximately $6.5 million. Payments on the notes are due when the related vehicles are sold and are collateralized by substantially all new and used vehicles. 6. LONG-TERM DEBT: Long-term debt consists of the following:
DECEMBER 31, 1996 ------------ Note payable to a bank, with monthly principal payments of $41,892, due through March 2004, bearing interest at 7.5%, payable monthly.......................................... $3,641,136 Mortgage loan to a bank, with monthly principal payments of $15,000, due through May 2005, bearing interest at prime plus 25 basis points (8.50% at December 31, 1996), payable monthly................................................ 1,494,291 Note payable to a finance company, with monthly principal payments of $7,500, due through January 2002, bearing interest at prime plus 175 basis points (10.0% at December 31, 1996), payable monthly............................ 450,000 Other notes payable, maturing in varying amounts through November 2000 with interest ranging from prime plus 25 basis points to prime plus 150 basis points.................... 370,612 ---------- Total long-term debt............................................. 5,956,039 Less - current portion........................................... (949,565) ---------- Long-term portions............................................... $5,006,474 ==========
The Note payable due March 2004 is secured by a first priority lien on the land and buildings of Town North. The note payable due May 2005 is secured by substantially all property, improvements and equipment of Acura. Interest expense on long-term debt totaled approximately $626,000, $490,000 and $451,000 for the years ended December 31, 1995 and 1996 and for the ten month period ended October 31, 1997. The aggregate maturities of long-term debt as of December 31, 1996, are as follows: YEAR ENDING DECEMBER 31, -------------------- 1997........... $949,565 1998........... 839,644 1999........... 846,513 2000........... 807,428 2001........... 771,704 Thereafter ....... 1,741,185 ---------- Total.......... $5,956,039 7. STOCKHOLDERS' EQUITY: Capital stock consists of the following:
AUTHORIZED ISSUED OUTSTANDING PAR VALUE ---------- ------ ----------- --------- Common stock - MSAP......................... 10,000 1,000 800 $1.00 Town North Nissan............ 1,000 1,000 1,000 .01 Town North Suzuki............ 1,000 1,000 1,000 .01 Town North Mitsubishi........ 1,000 1,000 1,000 1.00 Courtesy..................... 1,000 1,000 1,000 .05 Acura........................ 2,000 2,000 2,000 .01 Round Rock................... 1,000 1,000 1,000 1.00
Treasury stock consists of 200 shares of the common stock of MSAP at a cost of approximately F-39 76 $395,000 at December 31, 1995 and 1996. 8. RELATED-PARTY TRANSACTIONS: MSAP and Round Rock lease land and facilities from entities owned by various stockholders of the Companies. Additional information regarding the terms of these leases is contained in Note 9 "Operating Leases". 9. OPERATING LEASES: The Companies lease various facilities and equipment under long-term operating lease agreements, including leases with related parties. These leases are noncancelable and expire on various dates through August 2013. The lease agreements are subject to renewal under essentially the same terms and conditions as the original leases. Future minimum lease payments for operating leases are as follows:
Year Ending Related Third December 31, Parties Parties Total ----------- ---------- ----------- ----------- 1997................ $918,000 $ 500,681 $1,418,681 1998................ 918,000 479,876 1,397,876 1999................ 918,000 472,655 1,390,655 2000................ 499,500 453,149 952,649 2001................ 360,000 433,387 793,387 Thereafter............ 4,440,000 4,896,000 9,336,000 ---------- ---------- ----------- Total............... $8,053,500 $7,235,748 $15,289,248 ========== ========== ===========
Total rent expense under all operating leases, including operating leases with related parties, was approximately $1.1, $1.2 and $1.2 million for the years ended December 31, 1995, 1996 and for the ten months ended October 31, 1997, respectively. Rental expense on related-party leases, which is included in the above amounts, totaled approximately $558,000, $591,000 and $785,000 for the years ended December 31, 1995, 1996 and for the ten month period ended October 31, 1997, respectively. 10. INCOME TAXES: The S Corporations will terminate S Corporation status concurrent with the effective date of the offering. The Companies are subject to a Texas franchise tax which is an income based tax. Federal and state income taxes are as follows:
December 31, ----------------------- October 31, 1995 1996 1997 -------- -------- ----------- Federal - Current......... $382,865 $460,166 $684,916 Deferred........ 36,310 29,304 (8,800) State - Current......... 150,161 181,746 207,172 Deferred........ (6,921) 6,535 (1,200) -------- -------- -------- Provision for income taxes.... $562,415 $677,751 $882,088 ======== ======== ========
F-40 77 Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate tax rate of 34 percent to income before income taxes as follows:
DECEMBER 31, --------------------------- OCTOBER 31, 1995 1996 1997 ---------- ---------- ---------- Provision at the statutory rate............ $1,025,231 $1,329,926 $1,556,237 Increase (decrease) resulting from - Income of S Corporations.............. (619,972) (888,533) (979,979) State income tax, net of benefit for federal deduction............... 123,800 165,900 180,041 Other................................. 33,356 70,458 125,789 --------- -------- --------- Provision for income taxes................. $562,415 $677,751 $882,088 ========= ======== =========
Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences representing deferred tax assets and liabilities result principally from the following:
DECEMBER 31, 1996 ------------ Reserves and accruals not deductible until paid.......................................... $191,862 Depreciation.................................... (217,611) Other........................................... (9,781) -------- Net deferred tax liability...................... $(35,530) ========
The net deferred tax assets and liabilities are comprised of the following:
DECEMBER 31, 1996 ------------ Deferred tax assets - Current.................................................. $191,862 Long-term ............................................... - -------- Total............................................... 191,862 -------- Deferred tax liabilities - Current ................................................. 9,781 Long-term................................................ 217,611 -------- Total............................................... 227,392 -------- Net deferred income tax assets (liabilities)....... $(35,530) ========
11. COMMITMENTS AND CONTINGENCIES: The Companies are defendants in several lawsuits arising from normal business activities. Management has reviewed pending litigation with legal counsel and believes that the ultimate liability, if any, resulting from such actions will not have a material adverse effect on the Companies' financial position or results of operations. The Companies carry insurance coverage, including general and business auto liability, commercial property, workers' compensation and excess liability coverage. The Companies have not incurred significant claims or losses on any of their insurance policies. 12. ACQUISITION BY GROUP 1 AUTOMOTIVE, INC.: In November 1997, the Smith Group was acquired by Group 1 in exchange for 2,725,933 shares of common stock of Group 1. In conjunction with the acquisition of the Companies by Group 1, all existing operating leases with related parties were restructured under new lease agreements. F-41 78 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 __ Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 3.2 __ Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 3.3 __ Bylaws of the Company (Incorporated by reference to Exhibit 3.3 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 4.1 __ Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.1 __ Employment Agreement between the Company and B.B. Hollingsworth, Jr. dated November 3, 1997. 10.2 __ Employment Agreement between the Company and Robert E. Howard II dated November 3, 1997. 10.3 __ Employment Agreement between the Company and Sterling B. McCall, Jr. dated November 3, 1997. 10.4 __ Employment Agreement between the Company and Charles M. Smith dated November 3, 1997. 10.5 __ Employment Agreement between the Company and John T. Turner dated November 3, 1997. 10.6 __ Employment Agreement between the Company and Scott L. Thompson dated November 3, 1997. 10.7 __ Employment Agreement between the Company and Kevin H. Whalen dated November 3, 1997. 10.8 __ Employment Agreement between the Company and James S. Carroll dated March 16, 1998. 10.9 __ 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.10 __ First Amendment to 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.11 __ Lease Agreement between Round Rock Nissan and SKLR Round Rock, L.C. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.12 __ Lease Agreement between SMC Luxury Cars and SBM-L F.L.P.(Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.13 __ Lease Agreement between Southwest Toyota and SBM-T F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.14 __ Lease Agreement between Southwest Toyota and SBM-T I&E F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.15 __ Lease Agreement between SMC Luxury Cars and SBM-L I&E F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.16 __ Lease Agreement between SMC Luxury Cars and SBM-L F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.17 __ Lease Agreement between Southwest Toyota and SMC Investment, Inc. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893)
79 INDEX TO EXHIBITS 10.18 __ Lease Agreement between Southwest Toyota and Dodge Financial F.L.P. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.19 __ Lease Agreement between Howard Pontiac GMC and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.20 __ Lease Agreement between Bob Howard Motors and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.21 __ Lease Agreement between Bob Howard Chevrolet and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.22 __ Lease Agreement between Bob Howard Automotive-H and North Broadway Real Estate, (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.23 __ Lease Agreement between Mike Smith Autoplaza and Olds-Honda Realty (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.24 __ Rights Agreement between Group 1 Automotive, Inc. and ChaseMellon Shareholder Services, L.L.C., as rights agent dated October 3, 1997 (Incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.25 __ 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.26 __ Form of Agreement between Toyota Motor Sales, U.S.A., and Group 1 Automotive, Inc. (Incorporated by reference to Exhibit 10.12 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.27 __ Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service Agreement (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.28 __ Approval Letter dated December 11, 1996 from Nissan Motor Corporation U.S.A. (Incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.29 __ Amendment to Approval Letter from Nissan Motor Corporation U.S.A. dated September 29, 1997 (Incorporated by reference to Exhibit 10.15 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.30 __ Supplemental Terms and Conditions between Ford Motor Company and Group 1 Automotive, Inc. dated September 4, 1997 (Incorporated by reference to Exhibit 10.16 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.31 __ Toyota Dealer Agreement between Gulf States Toyota, Inc. and Southwest Toyota, Inc. dated April 5, 1993 (Incorporated by reference to Exhibit 10.17 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.32 __ Lexus Dealer Agreement between Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc. dated August 21, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.33 __ Letter Agreement between Mitsubishi Motor Sales of America, Inc. and Group 1 Automotive, Inc. dated June 20, 1997 (Incorporated by reference to Exhibit 10.20 of the Company's Registration Statement on Form S-1 Registration No. 333-29893)
80 INDEX TO EXHIBITS 10.34 __ Supplemental Agreement to Dealer Sales and Service Agreement (Public Traded Company) among Foyt Motors, Inc., Group 1 Automotive, Inc. and American Isuzu Motors Inc. (Incorporated by reference to Exhibit 10.21 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.35 __ Stock Purchase Agreement Among Howard Pontiac-GMC, Inc., Bob Howard Automotive-East, Inc. and the Stockholder of Bob Howard Automotive-East, Inc. dated as of September 12, 1997 (Incorporated by reference to Exhibit 10.22 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.36 __ Agreement between American Honda Motor Co., Inc. and the Dealership Parties dated October 23, 1997 (Incorporated by reference to Exhibit 10.24 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.37 __ Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.38 __ Form of Nissan Motor Corporation Sales and Service Agreement (Incorporated by reference to Exhibit 10.26 of the Company's Registration Statement on Form S-1 Registration No. 333-29893) 10.39 -- Agreement and Plan of Reorganization by and among Group 1 Automotive, Inc., Koons Merger, Inc., Koons Ford, Inc. and the stockholders of Koons Ford, Inc. dated December 17, 1997. 10.40 -- Agreement and Plan of Reorganization by and among Group 1 Automotive, Inc., PF Merger, Inc., Perimeter Ford, Inc. and the stockholders of Perimeter Ford, Inc. dated December 17, 1997. 10.41 -- Agreement and Plan of Reorganization by and among Group 1 Automotive, Inc., Courtesy Merger, Inc., Courtesy Ford, Inc. and the stockholders of Courtesy Ford, Inc. dated December 17, 1997. 10.42 -- Lease Agreement between World Partner Enterprises Ltd. and Koons Ford, Inc. dated March 16, 1998. 10.43 -- Operations/Lease Agreement between KC Partnership and Perimeter Ford, Inc. dated March 16, 1998. 10.44 -- Lease Agreement between K.C. Partnership and Courtesy Ford, Inc. dated March 16, 1998. 10.45 -- Amended and Restated Sublease Agreement between Koons Development Co. and Koons Ford, Inc. dated March 16, 1998. 10.46 -- Multi-Party Agreement by and among KC Partnership, Ford Leasing Development Company, Perimeter Ford, Inc., PF Merger, Inc. and Comerica Bank dated March 16, 1998. 10.47 -- Purchase Agreement by and among Group 1 Automotive, Inc., MSAP Merger Corp., the limited partners of Prestige Chrysler Plymouth South, Ltd. and the stockholders of Prestige Chrysler Plymouth, Inc. dated December 18, 1997. 10.48 -- Purchase Agreement by and among Group 1 Automotive, Inc., ST Merger Corp., the limited partners of Maxwell Chrysler Plymouth Dodge Jeep Eagle, Ltd. and the stockholders of Maxwell Chrysler Plymouth Dodge, Inc. dated December 18, 1997. 10.49 -- Purchase Agreement by and among Group 1 Automotive, Inc., RRN Merger Corp., the limited partners of Prestige Chrysler Plymouth Northwest, Ltd. and the stockholders of MMK Interests, Inc. dated December 18, 1997. 10.50 -- Asset Purchase Agreement by and among Group 1 Automotive, Inc., Casa Chevrolet Inc., United Management, Inc. and the stockholders of United Management, Inc. dated February 25, 1998. 10.51 -- Asset Purchase Agreement by and among Group 1 Automotive, Inc., Casa Chrysler Plymouth Jeep Inc., United Management, Inc. and the stockholders of United Management, Inc. dated February 25, 1998. 10.52 -- Purchase Agreement between Group 1 Automotive, Inc. and the sole stockholder of Bob Howard Nissan, Inc. dated as of December 30, 1997. 10.53 -- Revolving Credit Agreement dated December 31, 1997. 10.54 -- Stock Pledge Agreement dated December 19, 1997. 10.55 -- Swap Transaction Letter Agreement dated January 23, 1998. 21.1 -- Group 1 Automotive, Inc. Subsidiary List. 23.1 __ Consent of Arthur Andersen LLP 27.1 __ Financial Data Schedule
EX-10.1 2 EMPLOYMENT AGREEMENT - B.B. HOLLINGSWORTH, JR. 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into between Group 1 Automotive, Inc. having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024 ("Employer"), and B. B. Hollingsworth, Jr., an individual currently residing at 5763 Indian Circle, Houston, Texas 77057 ("Employee"), to be effective as of November 3, 1997. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. EMPLOYMENT AND DUTIES: 1.1. Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning November 3, 1997 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. 1.2. Employee shall serve as "Chairman, President and Chief Executive Officer" of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3. Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or any of its subsidiaries or affiliates, or requires any significant portion of Employee's business time; provided, however, that Employee may engage in passive personal investments that do not conflict with the business and affairs of the Employer or any of its subsidiaries or affiliates or interfere with Employee's performance of his or her duties hereunder. 1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer or any of its subsidiaries or affiliates and to do no act which would injure the business, interests, or reputation of Employer or any of its subsidiaries or affiliates. In keeping with these duties, Employee shall make full disclosure to Employer of all business opportunities pertaining to Employer's business and shall not appropriate for Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. 2 1.5. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer, or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's General Counsel (who shall be Employer's outside General Counsel unless Employer has employed an inside General Counsel) any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest". Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by Employee to Employer's General Counsel may be all that is necessary to enable Employer or its subsidiaries or affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its subsidiaries or affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employee agrees that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 2. COMPENSATION AND BENEFITS: 2.1. Employee's initial base salary under this Agreement shall be $360,000.00 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. Employee's base salary may be increased from time to time by Employer and, after any such change, Employee's new level of base salary shall be Employee's base salary for purposes of this Agreement until the effective date of any subsequent change. 2.2 Employee's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Employee is a participant. 2.3. If Employee is granted stock options, Employee will enter into a separate written stock option agreement pursuant to which Employee shall be granted the option to acquire common stock of Employer subject to the terms and conditions of Employer's 1996 Stock Incentive Plan and the stock option agreement entered into thereunder. The number of shares, exercise price per share and other terms of the options shall be as specified in such other written agreement. 2.4. While employed by Employer, Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. -2- 3 2.5. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.6. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be for five (5) years from November 3, 1997 through November 2, 2002. Should Employee remain employed by Employer beyond the expiration of the Term, such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause, upon thirty days notice. Upon such termination of the continued at-will employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonus with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. Upon termination of employment, Employee shall repay to Employer all advances received by Employee from Employer or any of its subsidiaries or affiliates, including all advances drawn against any bonus. 3.2. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time for any of the following reasons: (i) For "cause" upon the determination by Employer's Board of Directors that "cause" exists for the termination of the employment relationship. As used in this Section 3.2(i), the term "cause" shall mean (a) Employee has engaged in gross negligence, gross incompetence or willful misconduct in the performance of, or Employee's willful refusal without proper reason to perform, the duties and services required of Employee pursuant to this Agreement; (b) Employee has been convicted of a felony; or (c) Employee's material breach of any material provision of this Agreement or corporate code or policy. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to Employer's Board of Directors for -3- 4 determination. Employee, if he so requests, after reasonable notice of such Board of Directors meeting, shall be entitled to be heard before the Board of Directors. If Employee disagrees with the decision reached by Employer's Board of Directors, the dispute will be limited to whether Employer's Board of Directors reached its decision in good faith; (ii) for any other reason whatsoever, including termination without cause, in the sole discretion of Employer's Board of Directors; (iii) upon Employee's death; or (iv) upon Employee's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Employee, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. The termination of Employee's employment shall constitute a "Termination for Cause" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.2(iii) as a result of Employee's death is specified in Section 3.7. The effect of the employment relationship being terminated pursuant to Section 3.2(iv) as a result of the Employee becoming incapacitated is specified in Section 3.8. 3.3. Notwithstanding any other provisions of this Agreement, Employee shall have the right to terminate the employment relationship under this Agreement at any time for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement, which remains uncorrected for 30 days following written notice of such breach by Employee to Employer's Board of Directors; (ii) the dissolution of Employer; or (iii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee shall constitute an "Involuntary Termination" if made pursuant to Section 3.3(i) or 3.3(ii); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee shall constitute a "Voluntary Termination" if made pursuant to Sections 3.3(iii); the effect of such termination is specified in Section 3.4. -4- 5 3.4. Upon a "Voluntary Termination" of the employment relationship by Employee or a termination of the employment relationship for "Cause" by Employer, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.5. Upon an Involuntary Termination of the employment relationship by either Employer or Employee pursuant to Sections 3.2(ii) or 3.3(i), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the compensation specified in Section 2.1, payable bi-weekly, as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Upon an Involuntary Termination of the employment relationship by Employee pursuant to Sections 3.3(ii), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non- competition obligations), to receive in a lump sum payment the compensation specified in Section 2.1 as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer or its subsidiaries or affiliates, and Employer's and its subsidiaries' and affiliates' sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. 3.6. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer based on Involuntary Termination for any monies other than those specified in Section 3.5. If Employee breaches this covenant, Employer, and its subsidiaries' and affiliates' shall be entitled to recover from Employee all sums expended by Employer, and its subsidiaries and affiliates (including costs and attorneys' fees) in connection with such suit, claim, demand or cause of action. Employer and its subsidiaries and affiliates shall not be entitled to offset any of the amounts specified in the immediately preceding sentence against amounts otherwise owing by Employer and its subsidiaries and affiliates to Employee prior to a final determination under the terms of the arbitration provisions of this Agreement that Employee has breached the covenant contained in this Section 3.6. 3.7. Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.8. Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses with respect to the operations of the Employer and its -5- 6 subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.9. In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be reduced and offset by any amounts to which Employee may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.10. Termination of the employment relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Employee's obligations of confidentiality, non-competition and Employee's continuing obligations with respect to business opportunities that had been entrusted to Employee by Employer during the employment relationship. 3.11. This Agreement governs the rights and obligations of Employer and Employee with respect to Employee's salary and other perquisites of employment. 4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 4.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer and its subsidiaries and affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendre or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in Employer or any of its subsidiaries having civil or criminal liability or responsibility under the FCPA or other applicable United States law, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's Board of Directors determines that the actions found to be in violation of the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer. Moreover, to the extent that Employer or any of its subsidiaries is found or held responsible for any civil or criminal fines or sanctions of any type under the FCPA or other applicable United States law or suffers other damages as a result of Employee's actions, Employee shall be responsible for, and shall reimburse and pay to such Employer an amount of money equal to, such civil or criminal fines, sanctions or damages. The rights afforded Employer under this provision are in addition to any and all rights and remedies otherwise afforded by the law. 5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 5.1. Employer owns certain confidential and proprietary information and trade secrets to which Employee will be given access for the purpose of carrying out his or her employment responsibilities hereunder. Furthermore, Employer agrees to provide Employee with confidential -6- 7 and proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Employee in satisfying his or her obligations hereunder. 5.2 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Employee's employment, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 5.3. Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. 5.4. If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's, or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such work is neither prepared by Employee within the scope of his or her employment nor a work specially ordered that is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. -7- 8 5.5. Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 6.1. As part of the consideration for the compensation and benefits to be paid and extended to Employee hereunder, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 6. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or any of its subsidiaries or affiliated companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (iii) encourage or induce any current or former employee of Employer or any of its subsidiaries or affiliates to leave the employment of Employer or any of its subsidiaries or affiliates or proselytize, offer employment, retain, hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Employer or any of its subsidiaries or affiliates; provided, however, that nothing in this subsection (iii) shall prohibit Employee from offering employment to any prior employee of Employer or any of its subsidiaries or affiliates who was not employed by Employer or any of its subsidiaries or affiliates at any time in the twelve (12) months prior to the termination of Employee's employment. The non-competition obligations set forth in subsections (i) and (ii) of this Section 6.1 shall apply during Employee's employment and for a period of three (3) years after termination of employment. The obligations set forth in subsection (iii) of this Section 6.1 with respect to employees shall apply during Employee's employment and for a period of five (5) years after termination of employment If Employer or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, -8- 9 ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this post-employment non-competition covenant shall not apply to such former aspect of that business. 6.2. Employee understands that the foregoing restrictions may limit his ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.6 for the remainder of the Term upon Involuntary Termination and access to certain confidential and proprietary information and trade secrets) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to Employer or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Employee and his agents involved in such breach. 6.3. It is expressly understood that the restrictions contained in this Article 6 are related to and result from the agreements of Employer and Employee in Article 5 and agreed that Employer and Employee consider the restrictions contained in this Article 6 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Employer and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 7. MISCELLANEOUS: 7.1. For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. 7.2. Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Employer or any of its subsidiaries' or affiliates' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer or any of its subsidiaries' or affiliates' officers, employees, agents, or representatives; or that place Employer or its subsidiaries' or affiliates' or its -9- 10 officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness Employer or any of its subsidiaries' or affiliates' or its officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. 7.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Employee, to the address shown on the first page hereof. Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 7.4. This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 7.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, -10- 11 or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 7.7. Any and all claims, demands, cause of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Employee (all of which are referred to herein as "Claims"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Employee shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Employee and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Southern District of Texas, Houston Division, upon application of the Employee or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Employee, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Houston, Texas. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Texas; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. 7.8. This Agreement shall be binding upon and inure to the benefit of Employer its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Employee without the prior written consent of Employer. -11- 12 7.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Employer and Employee. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer or any of its subsidiaries or affiliates and Employee is hereby canceled and Employee hereby irrevocably waives and renounces all of Employee's rights and claims under any such agreement or arrangement. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. ------------------------------------- B. B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer /s/ B. B. HOLLINGSWORTH, JR. ----------------------------------------- Employee -12- EX-10.2 3 EMPLOYMENT AGREEMENT - ROBERT E. HOWARD II 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into between Group 1 Automotive, Inc. having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024 ("Employer"), and Robert E. Howard II, an individual currently residing at 1825 N. Coltrane, Edmond, Oklahoma 73034 ("Employee"), to be effective as of November 3, 1997. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. EMPLOYMENT AND DUTIES: 1.1. Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning November 3, 1997 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. 1.2. Employee shall serve as "President -- Howard Group" of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3. Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or any of its subsidiaries or affiliates, or requires any significant portion of Employee's business time; provided, however, that Employee may engage in passive personal investments that do not conflict with the business and affairs of the Employer or any of its subsidiaries or affiliates or interfere with Employee's performance of his or her duties hereunder. 1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer or any of its subsidiaries or affiliates and to do no act which would injure the business, interests, or reputation of Employer or any of its subsidiaries or affiliates. In keeping with these duties, Employee shall make full disclosure to Employer of all business opportunities pertaining to Employer's business and shall not appropriate for Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. 2 1.5. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer, or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's General Counsel (who shall be Employer's outside General Counsel unless Employer has employed an inside General Counsel) any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest". Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by Employee to Employer's General Counsel may be all that is necessary to enable Employer or its subsidiaries or affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its subsidiaries or affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employee agrees that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 2. COMPENSATION AND BENEFITS: 2.1. Employee's initial base salary under this Agreement shall be $300,000.00 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. Employee's base salary may be increased from time to time by Employer and, after any such change, Employee's new level of base salary shall be Employee's base salary for purposes of this Agreement until the effective date of any subsequent change. 2.2 Employee's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Employee is a participant. 2.3. If Employee is granted stock options, Employee will enter into a separate written stock option agreement pursuant to which Employee shall be granted the option to acquire common stock of Employer subject to the terms and conditions of Employer's 1996 Stock Incentive Plan and the stock option agreement entered into thereunder. The number of shares, exercise price per share and other terms of the options shall be as specified in such other written agreement. 2.4. While employed by Employer, Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs -2- 3 than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. 2.5. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.6. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be for five (5) years from November 3, 1997 through November 2, 2002. Should Employee remain employed by Employer beyond the expiration of the Term, such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause, upon thirty days notice. Upon such termination of the continued at-will employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonus with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. Upon termination of employment, Employee shall repay to Employer all advances received by Employee from Employer or any of its subsidiaries or affiliates, including all advances drawn against any bonus. 3.2. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time for any of the following reasons: (i) For "cause" upon the determination by Employer's Board of Directors that "cause" exists for the termination of the employment relationship. As used in this Section 3.2(i), the term "cause" shall mean (a) Employee has engaged in gross negligence, gross incompetence or willful misconduct in the performance of, or Employee's willful refusal without proper reason to perform, the duties and services -3- 4 required of Employee pursuant to this Agreement; (b) Employee has been convicted of a felony; or (c) Employee's material breach of any material provision of this Agreement or corporate code or policy. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to Employer's Board of Directors for determination. Employee, if he so requests, after reasonable notice of such Board of Directors meeting, shall be entitled to be heard before the Board of Directors. If Employee disagrees with the decision reached by Employer's Board of Directors, the dispute will be limited to whether Employer's Board of Directors reached its decision in good faith; (ii) for any other reason whatsoever, including termination without cause, in the sole discretion of Employer's Board of Directors; (iii) upon Employee's death; or (iv) upon Employee's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Employee, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. The termination of Employee's employment shall constitute a "Termination for Cause" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.2(iii) as a result of Employee's death is specified in Section 3.7. The effect of the employment relationship being terminated pursuant to Section 3.2(iv) as a result of the Employee becoming incapacitated is specified in Section 3.8. 3.3. Notwithstanding any other provisions of this Agreement, Employee shall have the right to terminate the employment relationship under this Agreement at any time for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement, which remains uncorrected for 30 days following written notice of such breach by Employee to Employer's Board of Directors; (ii) the dissolution of Employer; or -4- 5 (iii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee shall constitute an "Involuntary Termination" if made pursuant to Section 3.3(i) or 3.3(ii); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee shall constitute a "Voluntary Termination" if made pursuant to Sections 3.3(iii); the effect of such termination is specified in Section 3.4. 3.4. Upon a "Voluntary Termination" of the employment relationship by Employee or a termination of the employment relationship for "Cause" by Employer, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.5. Upon an Involuntary Termination of the employment relationship by either Employer or Employee pursuant to Sections 3.2(ii) or 3.3(i), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the compensation specified in Section 2.1, payable bi-weekly, as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Upon an Involuntary Termination of the employment relationship by Employee pursuant to Sections 3.3(ii), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non- competition obligations), to receive in a lump sum payment the compensation specified in Section 2.1 as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer or its subsidiaries or affiliates, and Employer's and its subsidiaries' and affiliates' sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. 3.6. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer based on Involuntary Termination for any monies other than those specified in Section 3.5. If Employee breaches this covenant, Employer, and its subsidiaries' and affiliates' shall be entitled to recover from Employee all sums expended by Employer, and its subsidiaries and affiliates (including costs and attorneys' fees) in connection with such suit, claim, demand or cause of action. Employer and its subsidiaries and affiliates shall not be entitled to offset any of the amounts specified in the immediately preceding sentence against amounts otherwise owing by Employer and its subsidiaries and affiliates to Employee prior to a final determination under the -5- 6 terms of the arbitration provisions of this Agreement that Employee has breached the covenant contained in this Section 3.6. 3.7. Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.8. Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.9. In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be reduced and offset by any amounts to which Employee may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.10. Termination of the employment relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Employee's obligations of confidentiality, non-competition and Employee's continuing obligations with respect to business opportunities that had been entrusted to Employee by Employer during the employment relationship. 3.11. This Agreement governs the rights and obligations of Employer and Employee with respect to Employee's salary and other perquisites of employment. 4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 4.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer and its subsidiaries and affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendre or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in Employer or any of its subsidiaries having civil or criminal liability or responsibility under the FCPA or other applicable United States law, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's Board of Directors determines that the -6- 7 actions found to be in violation of the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer. Moreover, to the extent that Employer or any of its subsidiaries is found or held responsible for any civil or criminal fines or sanctions of any type under the FCPA or other applicable United States law or suffers other damages as a result of Employee's actions, Employee shall be responsible for, and shall reimburse and pay to such Employer an amount of money equal to, such civil or criminal fines, sanctions or damages. The rights afforded Employer under this provision are in addition to any and all rights and remedies otherwise afforded by the law. 5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 5.1. Employer owns certain confidential and proprietary information and trade secrets to which Employee will be given access for the purpose of carrying out his or her employment responsibilities hereunder. Furthermore, Employer agrees to provide Employee with confidential and proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Employee in satisfying his or her obligations hereunder. 5.2 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Employee's employment, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 5.3. Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. 5.4. If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright -7- 8 (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's, or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such work is neither prepared by Employee within the scope of his or her employment nor a work specially ordered that is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. 5.5. Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 6.1. As part of the consideration for the compensation and benefits to be paid and extended to Employee hereunder, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 6. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or any of its subsidiaries or affiliated companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; -8- 9 (iii) encourage or induce any current or former employee of Employer or any of its subsidiaries or affiliates to leave the employment of Employer or any of its subsidiaries or affiliates or proselytize, offer employment, retain, hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Employer or any of its subsidiaries or affiliates; provided, however, that nothing in this subsection (iii) shall prohibit Employee from offering employment to any prior employee of Employer or any of its subsidiaries or affiliates who was not employed by Employer or any of its subsidiaries or affiliates at any time in the twelve (12) months prior to the termination of Employee's employment. The non-competition obligations set forth in subsections (i) and (ii) of this Section 6.1 shall apply during Employee's employment and for a period of three (3) years after termination of employment. The obligations set forth in subsection (iii) of this Section 6.1 with respect to employees shall apply during Employee's employment and for a period of five (5) years after termination of employment If Employer or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this post-employment non-competition covenant shall not apply to such former aspect of that business. 6.2. Employee understands that the foregoing restrictions may limit his ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.6 for the remainder of the Term upon Involuntary Termination and access to certain confidential and proprietary information and trade secrets) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to Employer or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Employee and his agents involved in such breach. 6.3. It is expressly understood that the restrictions contained in this Article 6 are related to and result from the agreements of Employer and Employee in Article 5 and agreed that Employer and Employee consider the restrictions contained in this Article 6 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Employer and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise -9- 10 unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 7. CONCERNING THE TULSA CHEVROLET DEALERSHIP: If the shares of common stock of Employer placed in escrow in accordance with the Stock Purchase Agreement (the "Stock Purchase Agreement") by and among Employer, Howard Pontiac-GMC, Inc. and the stockholders of Howard Pontiac-GMC, Inc. are released and distributed according to the formula described in Section 5.19 of the Stock Purchase Agreement, Employer shall release Employee from his obligations under Section 1 and Section 6 of this Agreement to the extent necessary to permit Employee to: (i) Own and operate the Chevrolet dealership in Tulsa, Oklahoma ("Tulsa Chevrolet"); (ii) Own and operate the Honda and Saturn dealerships adjoining Tulsa Chevrolet; (iii) Expand the existing Tulsa Chevrolet facility ("Existing Facility") or construct a replacement facility ("Replacement Facility") on property within five miles of the Existing Facility; (iv) Acquire any other automobile franchise provided that such acquired automobile franchise is moved into, or adjacent to, the Existing Facility or the Replacement Facility; and (v) Temporarily operate any acquired automobile franchise pending the relocation of such acquired automobile franchise into, or adjacent to, the Existing Facility or the Replacement Facility. 8. MISCELLANEOUS: 8.1. For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. 8.2. Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Employer or any of its subsidiaries' or affiliates' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents, or representatives; or that give -10- 11 rise to unreasonable publicity about the private lives of Employer or any of its subsidiaries' or affiliates' officers, employees, agents, or representatives; or that place Employer or its subsidiaries' or affiliates' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness Employer or any of its subsidiaries' or affiliates' or its officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. 8.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Employee, to the address shown on the first page hereof. with a copy to: Randall K. Calvert 6520 N. Western, Suite 100 Oklahoma City, Oklahoma 73116 Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 8.4. This Agreement shall be governed in all respects by the laws of the State of Oklahoma, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. -11- 12 8.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 8.7. Any and all claims, demands, cause of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Employee (all of which are referred to herein as "Claims"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Employee shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Employee and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Western District of Oklahoma, upon application of the Employee or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Employee, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Oklahoma City, Oklahoma. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules -12- 13 governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Oklahoma; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may be available under Oklahoma law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. 8.8. This Agreement shall be binding upon and inure to the benefit of Employer its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Employee without the prior written consent of Employer. 8.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Employer and Employee. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer or any of its subsidiaries or affiliates and Employee is hereby canceled and Employee hereby irrevocably waives and renounces all of Employee's rights and claims under any such agreement or arrangement. -13- 14 IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. -------------------------------------- B. B. Hollingsworth, Jr. Chief Executive Officer /s/ ROBERT E. HOWARD II ----------------------------------------- Employee -14- EX-10.3 4 EMPLOYMENT AGREEMENT - STERLING B. MCCALL, JR. 1 EXHIBIT 10.3 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into between Group 1 Automotive, Inc. having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024 ("Employer"), and Sterling B. McCall, Jr., an individual currently residing at 37 Saddlebrook, Houston, Texas 77024 ("Employee"), to be effective as of November 3, 1997. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. EMPLOYMENT AND DUTIES: 1.1. Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning November 3, 1997 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. 1.2. Employee shall serve as "President -- McCall Group" of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3. Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or any of its subsidiaries or affiliates, or requires any significant portion of Employee's business time; provided, however, that Employee may engage in passive personal investments that do not conflict with the business and affairs of the Employer or any of its subsidiaries or affiliates or interfere with Employee's performance of his or her duties hereunder. 1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer or any of its subsidiaries or affiliates and to do no act which would injure the business, interests, or reputation of Employer or any of its subsidiaries or affiliates. In keeping with these duties, Employee shall make full disclosure to Employer of all business opportunities pertaining to Employer's business and shall not appropriate for Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. 1.5. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer, or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's General Counsel 2 (who shall be Employer's outside General Counsel unless Employer has employed an inside General Counsel) any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest". Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by Employee to Employer's General Counsel may be all that is necessary to enable Employer or its subsidiaries or affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its subsidiaries or affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employee agrees that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 2. COMPENSATION AND BENEFITS: 2.1. Employee's initial base salary under this Agreement shall be $300,000.00 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. Employee's base salary may be increased from time to time by Employer and, after any such change, Employee's new level of base salary shall be Employee's base salary for purposes of this Agreement until the effective date of any subsequent change. 2.2 Employee's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Employee is a participant. 2.3. If Employee is granted stock options, Employee will enter into a separate written stock option agreement pursuant to which Employee shall be granted the option to acquire common stock of Employer subject to the terms and conditions of Employer's 1996 Stock Incentive Plan and the stock option agreement entered into thereunder. The number of shares, exercise price per share and other terms of the options shall be as specified in such other written agreement. 2.4. While employed by Employer, Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. 2.5. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be -2- 3 secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.6. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be for five (5) years from November 3, 1997 through November 2, 2002. Should Employee remain employed by Employer beyond the expiration of the Term, such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause, upon thirty days notice. Upon such termination of the continued at-will employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonus with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. Upon termination of employment, Employee shall repay to Employer all advances received by Employee from Employer or any of its subsidiaries or affiliates, including all advances drawn against any bonus. 3.2. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time for any of the following reasons: (i) For "cause" upon the determination by Employer's Board of Directors that "cause" exists for the termination of the employment relationship. As used in this Section 3.2(i), the term "cause" shall mean (a) Employee has engaged in gross negligence, gross incompetence or willful misconduct in the performance of, or Employee's willful refusal without proper reason to perform, the duties and services required of Employee pursuant to this Agreement; (b) Employee has been convicted of a felony; or (c) Employee's material breach of any material provision of this Agreement or corporate code or policy. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to Employer's Board of Directors for determination. Employee, if he so requests, after reasonable notice of such Board of Directors meeting, shall be entitled to be heard before the Board of Directors. If Employee disagrees with the decision reached by Employer's Board of Directors, the dispute will be limited -3- 4 to whether Employer's Board of Directors reached its decision in good faith; (ii) for any other reason whatsoever, including termination without cause, in the sole discretion of Employer's Board of Directors; (iii) upon Employee's death; or (iv) upon Employee's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Employee, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. The termination of Employee's employment shall constitute a "Termination for Cause" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.2(iii) as a result of Employee's death is specified in Section 3.7. The effect of the employment relationship being terminated pursuant to Section 3.2(iv) as a result of the Employee becoming incapacitated is specified in Section 3.8. 3.3. Notwithstanding any other provisions of this Agreement, Employee shall have the right to terminate the employment relationship under this Agreement at any time for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement, which remains uncorrected for 30 days following written notice of such breach by Employee to Employer's Board of Directors; (ii) the dissolution of Employer; or (iii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee shall constitute an "Involuntary Termination" if made pursuant to Section 3.3(i) or 3.3(ii); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee shall constitute a "Voluntary Termination" if made pursuant to Sections 3.3(iii); the effect of such termination is specified in Section 3.4. 3.4. Upon a "Voluntary Termination" of the employment relationship by Employee or a termination of the employment relationship for "Cause" by Employer, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonuses with respect to the operations of the -4- 5 Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.5. Upon an Involuntary Termination of the employment relationship by either Employer or Employee pursuant to Sections 3.2(ii) or 3.3(i), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the compensation specified in Section 2.1, payable bi-weekly, as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Upon an Involuntary Termination of the employment relationship by Employee pursuant to Sections 3.3(ii), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non- competition obligations), to receive in a lump sum payment the compensation specified in Section 2.1 as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer or its subsidiaries or affiliates, and Employer's and its subsidiaries' and affiliates' sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. 3.6. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer based on Involuntary Termination for any monies other than those specified in Section 3.5. If Employee breaches this covenant, Employer, and its subsidiaries' and affiliates' shall be entitled to recover from Employee all sums expended by Employer, and its subsidiaries and affiliates (including costs and attorneys' fees) in connection with such suit, claim, demand or cause of action. Employer and its subsidiaries and affiliates shall not be entitled to offset any of the amounts specified in the immediately preceding sentence against amounts otherwise owing by Employer and its subsidiaries and affiliates to Employee prior to a final determination under the terms of the arbitration provisions of this Agreement that Employee has breached the covenant contained in this Section 3.6. 3.7. Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.8. Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.9. In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be reduced and offset by any amounts to which -5- 6 Employee may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.10. Termination of the employment relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Employee's obligations of confidentiality, non-competition and Employee's continuing obligations with respect to business opportunities that had been entrusted to Employee by Employer during the employment relationship. 3.11. This Agreement governs the rights and obligations of Employer and Employee with respect to Employee's salary and other perquisites of employment. 4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 4.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer and its subsidiaries and affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendre or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in Employer or any of its subsidiaries having civil or criminal liability or responsibility under the FCPA or other applicable United States law, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's Board of Directors determines that the actions found to be in violation of the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer. Moreover, to the extent that Employer or any of its subsidiaries is found or held responsible for any civil or criminal fines or sanctions of any type under the FCPA or other applicable United States law or suffers other damages as a result of Employee's actions, Employee shall be responsible for, and shall reimburse and pay to such Employer an amount of money equal to, such civil or criminal fines, sanctions or damages. The rights afforded Employer under this provision are in addition to any and all rights and remedies otherwise afforded by the law. 5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 5.1. Employer owns certain confidential and proprietary information and trade secrets to which Employee will be given access for the purpose of carrying out his or her employment responsibilities hereunder. Furthermore, Employer agrees to provide Employee with confidential and proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Employee in satisfying his or her obligations hereunder. 5.2 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in -6- 7 conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Employee's employment, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 5.3. Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. 5.4. If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's, or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such work is neither prepared by Employee within the scope of his or her employment nor a work specially ordered that is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. 5.5. Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents -7- 8 requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 6.1. As part of the consideration for the compensation and benefits to be paid and extended to Employee hereunder, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 6. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or any of its subsidiaries or affiliated companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (iii) encourage or induce any current or former employee of Employer or any of its subsidiaries or affiliates to leave the employment of Employer or any of its subsidiaries or affiliates or proselytize, offer employment, retain, hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Employer or any of its subsidiaries or affiliates; provided, however, that nothing in this subsection (iii) shall prohibit Employee from offering employment to any prior employee of Employer or any of its subsidiaries or affiliates who was not employed by Employer or any of its subsidiaries or affiliates at any time in the twelve (12) months prior to the termination of Employee's employment. The non-competition obligations set forth in subsections (i) and (ii) of this Section 6.1 shall apply during Employee's employment and for a period of three (3) years after termination of employment. The obligations set forth in subsection (iii) of this Section 6.1 with respect to employees shall apply during Employee's employment and for a period of five (5) years after termination of employment If Employer or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this post-employment non-competition covenant shall not apply to such former aspect of that business. -8- 9 6.2. Employee understands that the foregoing restrictions may limit his ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.6 for the remainder of the Term upon Involuntary Termination and access to certain confidential and proprietary information and trade secrets) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to Employer or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Employee and his agents involved in such breach. 6.3. It is expressly understood that the restrictions contained in this Article 6 are related to and result from the agreements of Employer and Employee in Article 5 and agreed that Employer and Employee consider the restrictions contained in this Article 6 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Employer and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 7. MISCELLANEOUS: 7.1. For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. 7.2. Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Employer or any of its subsidiaries' or affiliates' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer or any of its subsidiaries' or affiliates' officers, employees, agents, or representatives; or that place Employer or its subsidiaries' or affiliates' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness Employer or any of its subsidiaries' or affiliates' or its officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. -9- 10 7.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Employee, to the address shown on the first page hereof. with a copy to: Robert D. Remy Two Memorial City Plaza 820 Gessner, Suite 1360 Houston, Texas 77024 Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 7.4. This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 7.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable -10- 11 in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 7.7. Any and all claims, demands, cause of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Employee (all of which are referred to herein as "Claims"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Employee shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Employee and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Southern District of Texas, Houston Division, upon application of the Employee or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Employee, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Houston, Texas. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Texas; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. 7.8. This Agreement shall be binding upon and inure to the benefit of Employer its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under -11- 12 this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Employee without the prior written consent of Employer. 7.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Employer and Employee. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer or any of its subsidiaries or affiliates and Employee is hereby canceled and Employee hereby irrevocably waives and renounces all of Employee's rights and claims under any such agreement or arrangement. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. ------------------------------------- B. B. Hollingsworth, Jr. Chief Executive Officer /s/ STERLING B. McCALL, JR. ----------------------------------------- Employee -12- EX-10.4 5 EMPLOYMENT AGREEMENT - CHARLES M. SMITH 1 EXHIBIT 10.4 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into between Group 1 Automotive, Inc. having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024 ("Employer"), and Charles M. Smith, an individual currently residing at 11145 N. Country Squire, Houston, Texas 77024 ("Employee"), to be effective as of November 3, 1997. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. EMPLOYMENT AND DUTIES: 1.1. Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning November 3, 1997 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. 1.2. Employee shall serve as "President -- Smith Group" of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3. Except for Employee's performance of his duties relating to the ownership and operation of Russell & Smith Ford, Inc. (also d/b/a Russell & Smith Honda) and W. C. & M. Enterprises Incorporated (d/b/a Streater-Smith) consistent with Employee's past conduct in performing such duties: (i) Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer; and (ii) Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or any of its subsidiaries or affiliates, or requires any significant portion of Employee's business time (provided, however, that Employee may engage in passive personal investments that do not conflict with the business and affairs of the Employer or any of its subsidiaries or affiliates or interfere with Employee's performance of his duties hereunder). 1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer or any of its subsidiaries or affiliates and to do no act which would injure the business, interests, or reputation of Employer or any of its subsidiaries or affiliates. In keeping with these duties, Employee shall make full disclosure to Employer of all business opportunities pertaining to Employer's business and shall not appropriate for 2 Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. 1.5. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer, or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's General Counsel (who shall be Employer's outside General Counsel unless Employer has employed an inside General Counsel) any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest". Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by Employee to Employer's General Counsel may be all that is necessary to enable Employer or its subsidiaries or affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its subsidiaries or affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employee agrees that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. For the purposes of this Agreement, Employee's performance of his duties relating to the ownership and operation of Russell & Smith Ford, Inc. (also d/b/a Russell & Smith Honda) and W. C. & M. Enterprises Incorporated (d/b/a Streater-Smith) consistent with Employee's past conduct in discharging such duties shall not constitute a "conflict of interest." 2. COMPENSATION AND BENEFITS: 2.1. Employee's initial base salary under this Agreement shall be $300,000.00 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. Employee's base salary may be increased from time to time by Employer and, after any such change, Employee's new level of base salary shall be Employee's base salary for purposes of this Agreement until the effective date of any subsequent change. 2.2 Employee's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Employee is a participant. 2.3. If Employee is granted stock options, Employee will enter into a separate written stock option agreement pursuant to which Employee shall be granted the option to acquire common stock of Employer subject to the terms and conditions of Employer's 1996 Stock Incentive Plan and the stock option agreement entered into thereunder. The number of shares, exercise price per share and other terms of the options shall be as specified in such other written agreement. 2.4. While employed by Employer, Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, -2- 3 and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. 2.5. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.6. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be for five (5) years from November 3, 1997 through November 2, 2002. Should Employee remain employed by Employer beyond the expiration of the Term, such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause, upon thirty days notice. Upon such termination of the continued at-will employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonus with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. Upon termination of employment, Employee shall repay to Employer all advances received by Employee from Employer or any of its subsidiaries or affiliates, including all advances drawn against any bonus. 3.2. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time for any of the following reasons: (i) For "cause" upon the determination by Employer's Board of Directors that "cause" exists for the termination of the employment relationship. As used in this Section 3.2(i), the term "cause" shall mean (a) Employee has engaged in gross negligence, gross incompetence or willful misconduct in the performance of, or Employee's willful refusal without proper reason to perform, the duties and services required of -3- 4 Employee pursuant to this Agreement; (b) Employee has been convicted of a felony; or (c) Employee's material breach of any material provision of this Agreement or corporate code or policy. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to Employer's Board of Directors for determination. Employee, if he so requests, after reasonable notice of such Board of Directors meeting, shall be entitled to be heard before the Board of Directors. If Employee disagrees with the decision reached by Employer's Board of Directors, the dispute will be limited to whether Employer's Board of Directors reached its decision in good faith; (ii) for any other reason whatsoever, including termination without cause, in the sole discretion of Employer's Board of Directors; (iii) upon Employee's death; or (iv) upon Employee's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Employee, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. The termination of Employee's employment shall constitute a "Termination for Cause" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.2(iii) as a result of Employee's death is specified in Section 3.7. The effect of the employment relationship being terminated pursuant to Section 3.2(iv) as a result of the Employee becoming incapacitated is specified in Section 3.8. 3.3. Notwithstanding any other provisions of this Agreement, Employee shall have the right to terminate the employment relationship under this Agreement at any time for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement, which remains uncorrected for 30 days following written notice of such breach by Employee to Employer's Board of Directors; (ii) the dissolution of Employer; or (iii) for any other reason whatsoever, in the sole discretion of Employee. -4- 5 The termination of Employee's employment by Employee shall constitute an "Involuntary Termination" if made pursuant to Section 3.3(i) or 3.3(ii); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee shall constitute a "Voluntary Termination" if made pursuant to Sections 3.3(iii); the effect of such termination is specified in Section 3.4. 3.4. Upon a "Voluntary Termination" of the employment relationship by Employee or a termination of the employment relationship for "Cause" by Employer, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.5. Upon an Involuntary Termination of the employment relationship by either Employer or Employee pursuant to Sections 3.2(ii) or 3.3(i), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the compensation specified in Section 2.1, payable bi-weekly, as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Upon an Involuntary Termination of the employment relationship by Employee pursuant to Sections 3.3(ii), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non- competition obligations), to receive in a lump sum payment the compensation specified in Section 2.1 as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer or its subsidiaries or affiliates, and Employer's and its subsidiaries' and affiliates' sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. 3.6. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer based on Involuntary Termination for any monies other than those specified in Section 3.5. If Employee breaches this covenant, Employer, and its subsidiaries' and affiliates' shall be entitled to recover from Employee all sums expended by Employer, and its subsidiaries and affiliates (including costs and attorneys' fees) in connection with such suit, claim, demand or cause of action. Employer and its subsidiaries and affiliates shall not be entitled to offset any of the amounts specified in the immediately preceding sentence against amounts otherwise owing by Employer and its subsidiaries and affiliates to Employee prior to a final determination under the terms of the arbitration provisions of this Agreement that Employee has breached the covenant contained in this Section 3.6. 3.7. Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to -5- 6 any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.8. Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.9. In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be reduced and offset by any amounts to which Employee may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.10. Termination of the employment relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Employee's obligations of confidentiality, non-competition and Employee's continuing obligations with respect to business opportunities that had been entrusted to Employee by Employer during the employment relationship. 3.11. This Agreement governs the rights and obligations of Employer and Employee with respect to Employee's salary and other perquisites of employment. 4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 4.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer and its subsidiaries and affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendere or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in Employer or any of its subsidiaries having civil or criminal liability or responsibility under the FCPA or other applicable United States law, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's Board of Directors determines that the actions found to be in violation of the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer. Moreover, to the extent that Employer or any of its subsidiaries is found or held responsible for any civil or criminal fines or sanctions of any type under the FCPA or other applicable United States law or suffers other damages as a result of Employee's actions, Employee shall be responsible for, and shall reimburse and pay to such Employer an amount of money equal to, such civil or criminal fines, sanctions or damages. The rights afforded Employer under this provision are in addition to any and all rights and remedies otherwise afforded by the law. -6- 7 5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 5.1. Employer owns certain confidential and proprietary information and trade secrets to which Employee will be given access for the purpose of carrying out his employment responsibilities hereunder. Furthermore, Employer agrees to provide Employee with confidential and proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Employee in satisfying his obligations hereunder. 5.2 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Employee's employment, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 5.3. Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. 5.4. If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's, or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his employment; or, if the work is not prepared by Employee within the scope of his employment but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such -7- 8 work is neither prepared by Employee within the scope of his employment nor a work specially ordered that is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. 5.5. Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 6.1. As part of the consideration for the compensation and benefits to be paid and extended to Employee hereunder, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 6. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or any of its subsidiaries or affiliated companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (iii) encourage or induce any current or former employee of Employer or any of its subsidiaries or affiliates to leave the employment of Employer or any of its subsidiaries or affiliates or proselytize, offer employment, retain, hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Employer or any of its subsidiaries or affiliates; provided, however, that nothing in this subsection (iii) shall prohibit Employee from offering employment to any prior employee of Employer or any of its subsidiaries or affiliates who was not employed by Employer or any of its subsidiaries or affiliates at any time in the twelve (12) months prior to the termination of Employee's employment. -8- 9 The non-competition obligations set forth in subsections (i) and (ii) of this Section 6.1 shall apply during Employee's employment and for a period of three (3) years after termination of employment. The obligations set forth in subsection (iii) of this Section 6.1 with respect to employees shall apply during Employee's employment and for a period of five (5) years after termination of employment If Employer or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this post-employment non-competition covenant shall not apply to such former aspect of that business. 6.2. Employee understands that the foregoing restrictions may limit his ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.6 for the remainder of the Term upon Involuntary Termination and access to certain confidential and proprietary information and trade secrets) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to Employer or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Employee and his agents involved in such breach. 6.3. It is expressly understood that the restrictions contained in this Article 6 are related to and result from the agreements of Employer and Employee in Article 5 and agreed that Employer and Employee consider the restrictions contained in this Article 6 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Employer and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 6.4. Nothing in this Section 6 shall prohibit Employee from performing his duties relating to the ownership and operation of Russell & Smith Ford, Inc. (also d/b/a Russell & Smith Honda) and W. C. & M. Enterprises Incorporated (d/b/a Streater-Smith) in a manner consistent with Employee's past conduct in performing such duties. 7. MISCELLANEOUS: 7.1. For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. -9- 10 7.2. Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Employer or any of its subsidiaries' or affiliates' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer or any of its subsidiaries' or affiliates' officers, employees, agents, or representatives; or that place Employer or its subsidiaries' or affiliates' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness Employer or any of its subsidiaries' or affiliates' or its officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. 7.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Employee, to the address shown on the first page hereof. Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 7.4. This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 7.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed -10- 11 a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 7.7. Any and all claims, demands, cause of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Employee (all of which are referred to herein as "Claims"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Employee shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Employee and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Southern District of Texas, Houston Division, upon application of the Employee or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Employee, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Houston, Texas. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Texas; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may -11- 12 be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. 7.8. This Agreement shall be binding upon and inure to the benefit of Employer its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Employee without the prior written consent of Employer. 7.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Employer and Employee. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer or any of its subsidiaries or affiliates and Employee is hereby canceled and Employee hereby irrevocably waives and renounces all of Employee's rights and claims under any such agreement or arrangement. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. ------------------------------------- B. B. Hollingsworth, Jr. Chief Executive Officer /s/ CHARLES M. SMITH ----------------------------------------- Employee -12- EX-10.5 6 EMPLOYMENT AGREEMENT - JOHN T. TURNER 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into between Group 1 Automotive, Inc. having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024 ("Employer"), and John T. Turner, an individual currently residing at 5405 Maryanna Drive, Austin, Texas 78746 ("Employee"), to be effective as of November 3, 1997. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. EMPLOYMENT AND DUTIES: 1.1. Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning November 3, 1997 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. 1.2. Employee shall serve as "Senior Vice President -- Corporate Development" of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3. Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or any of its subsidiaries or affiliates, or requires any significant portion of Employee's business time; provided, however, that Employee may engage in passive personal investments that do not conflict with the business and affairs of the Employer or any of its subsidiaries or affiliates or interfere with Employee's performance of his or her duties hereunder. 1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer or any of its subsidiaries or affiliates and to do no act which would injure the business, interests, or reputation of Employer or any of its subsidiaries or affiliates. In keeping with these duties, Employee shall make full disclosure to Employer of all business opportunities pertaining to Employer's business and shall not appropriate for Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. 2 1.5. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer, or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's General Counsel (who shall be Employer's outside General Counsel unless Employer has employed an inside General Counsel) any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest". Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by Employee to Employer's General Counsel may be all that is necessary to enable Employer or its subsidiaries or affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its subsidiaries or affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employee agrees that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 2. COMPENSATION AND BENEFITS: 2.1. Employee's initial base salary under this Agreement shall be $250,000.00 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. Employee's base salary may be increased from time to time by Employer and, after any such change, Employee's new level of base salary shall be Employee's base salary for purposes of this Agreement until the effective date of any subsequent change. 2.2 Employee's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Employee is a participant. 2.3. If Employee is granted stock options, Employee will enter into a separate written stock option agreement pursuant to which Employee shall be granted the option to acquire common stock of Employer subject to the terms and conditions of Employer's 1996 Stock Incentive Plan and the stock option agreement entered into thereunder. The number of shares, exercise price per share and other terms of the options shall be as specified in such other written agreement. 2.4. While employed by Employer, Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. -2- 3 2.5. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.6. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be for five (5) years from November 3, 1997 through November 2, 2002. Should Employee remain employed by Employer beyond the expiration of the Term, such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause, upon thirty days notice. Upon such termination of the continued at-will employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonus with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. Upon termination of employment, Employee shall repay to Employer all advances received by Employee from Employer or any of its subsidiaries or affiliates, including all advances drawn against any bonus. 3.2. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time for any of the following reasons: (i) For "cause" upon the determination by Employer's Board of Directors that "cause" exists for the termination of the employment relationship. As used in this Section 3.2(i), the term "cause" shall mean (a) Employee has engaged in gross negligence, gross incompetence or willful misconduct in the performance of, or Employee's willful refusal without proper reason to perform, the duties and services required of Employee pursuant to this Agreement; (b) Employee has been convicted of a felony; or (c) Employee's material breach of any material provision of this Agreement or corporate code or policy. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to Employer's Board of Directors for -3- 4 determination. Employee, if he so requests, after reasonable notice of such Board of Directors meeting, shall be entitled to be heard before the Board of Directors. If Employee disagrees with the decision reached by Employer's Board of Directors, the dispute will be limited to whether Employer's Board of Directors reached its decision in good faith; (ii) for any other reason whatsoever, including termination without cause, in the sole discretion of Employer's Board of Directors; (iii) upon Employee's death; or (iv) upon Employee's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Employee, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. The termination of Employee's employment shall constitute a "Termination for Cause" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.2(iii) as a result of Employee's death is specified in Section 3.7. The effect of the employment relationship being terminated pursuant to Section 3.2(iv) as a result of the Employee becoming incapacitated is specified in Section 3.8. 3.3. Notwithstanding any other provisions of this Agreement, Employee shall have the right to terminate the employment relationship under this Agreement at any time for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement, which remains uncorrected for 30 days following written notice of such breach by Employee to Employer's Board of Directors; (ii) the dissolution of Employer; or (iii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee shall constitute an "Involuntary Termination" if made pursuant to Section 3.3(i) or 3.3(ii); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee shall constitute a "Voluntary Termination" if made pursuant to Sections 3.3(iii); the effect of such termination is specified in Section 3.4. -4- 5 3.4. Upon a "Voluntary Termination" of the employment relationship by Employee or a termination of the employment relationship for "Cause" by Employer, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.5. Upon an Involuntary Termination of the employment relationship by either Employer or Employee pursuant to Sections 3.2(ii) or 3.3(i), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the compensation specified in Section 2.1, payable bi-weekly, as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Upon an Involuntary Termination of the employment relationship by Employee pursuant to Sections 3.3(ii), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non- competition obligations), to receive in a lump sum payment the compensation specified in Section 2.1 as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer or its subsidiaries or affiliates, and Employer's and its subsidiaries' and affiliates' sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. 3.6. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer based on Involuntary Termination for any monies other than those specified in Section 3.5. If Employee breaches this covenant, Employer, and its subsidiaries' and affiliates' shall be entitled to recover from Employee all sums expended by Employer, and its subsidiaries and affiliates (including costs and attorneys' fees) in connection with such suit, claim, demand or cause of action. Employer and its subsidiaries and affiliates shall not be entitled to offset any of the amounts specified in the immediately preceding sentence against amounts otherwise owing by Employer and its subsidiaries and affiliates to Employee prior to a final determination under the terms of the arbitration provisions of this Agreement that Employee has breached the covenant contained in this Section 3.6. 3.7. Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.8. Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses with respect to the operations of the Employer and its -5- 6 subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.9. In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be reduced and offset by any amounts to which Employee may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.10. Termination of the employment relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Employee's obligations of confidentiality, non-competition and Employee's continuing obligations with respect to business opportunities that had been entrusted to Employee by Employer during the employment relationship. 3.11. This Agreement governs the rights and obligations of Employer and Employee with respect to Employee's salary and other perquisites of employment. 4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 4.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer and its subsidiaries and affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendre or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in Employer or any of its subsidiaries having civil or criminal liability or responsibility under the FCPA or other applicable United States law, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's Board of Directors determines that the actions found to be in violation of the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer. Moreover, to the extent that Employer or any of its subsidiaries is found or held responsible for any civil or criminal fines or sanctions of any type under the FCPA or other applicable United States law or suffers other damages as a result of Employee's actions, Employee shall be responsible for, and shall reimburse and pay to such Employer an amount of money equal to, such civil or criminal fines, sanctions or damages. The rights afforded Employer under this provision are in addition to any and all rights and remedies otherwise afforded by the law. 5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 5.1. Employer owns certain confidential and proprietary information and trade secrets to which Employee will be given access for the purpose of carrying out his or her employment responsibilities hereunder. Furthermore, Employer agrees to provide Employee with confidential and -6- 7 proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Employee in satisfying his or her obligations hereunder. 5.2 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Employee's employment, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 5.3. Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. 5.4. If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's, or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such work is neither prepared by Employee within the scope of his or her employment nor a work specially ordered that is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. -7- 8 5.5. Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 6.1. As part of the consideration for the compensation and benefits to be paid and extended to Employee hereunder, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 6. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or any of its subsidiaries or affiliated companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (iii) encourage or induce any current or former employee of Employer or any of its subsidiaries or affiliates to leave the employment of Employer or any of its subsidiaries or affiliates or proselytize, offer employment, retain, hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Employer or any of its subsidiaries or affiliates; provided, however, that nothing in this subsection (iii) shall prohibit Employee from offering employment to any prior employee of Employer or any of its subsidiaries or affiliates who was not employed by Employer or any of its subsidiaries or affiliates at any time in the twelve (12) months prior to the termination of Employee's employment. The non-competition obligations set forth in subsections (i) and (ii) of this Section 6.1 shall apply during Employee's employment and for a period of three (3) years after termination of employment. The obligations set forth in subsection (iii) of this Section 6.1 with respect to employees shall apply during Employee's employment and for a period of five (5) years after termination of employment If Employer or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, -8- 9 ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this post-employment non-competition covenant shall not apply to such former aspect of that business. 6.2. Employee understands that the foregoing restrictions may limit his ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.6 for the remainder of the Term upon Involuntary Termination and access to certain confidential and proprietary information and trade secrets) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to Employer or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Employee and his agents involved in such breach. 6.3. It is expressly understood that the restrictions contained in this Article 6 are related to and result from the agreements of Employer and Employee in Article 5 and agreed that Employer and Employee consider the restrictions contained in this Article 6 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Employer and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 7. MISCELLANEOUS: 7.1. For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. 7.2. Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Employer or any of its subsidiaries' or affiliates' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer or any of its subsidiaries' or affiliates' officers, employees, agents, or representatives; or that place Employer or its subsidiaries' or affiliates' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness Employer or any of its subsidiaries' or affiliates' or its -9- 10 officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. 7.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Employee, to the address shown on the first page hereof. Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 7.4. This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 7.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, -10- 11 or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 7.7. Any and all claims, demands, cause of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Employee (all of which are referred to herein as "Claims"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Employee shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Employee and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Southern District of Texas, Houston Division, upon application of the Employee or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Employee, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Houston, Texas. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Texas; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. 7.8. This Agreement shall be binding upon and inure to the benefit of Employer its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Employee without the prior written consent of Employer. -11- 12 7.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Employer and Employee. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer or any of its subsidiaries or affiliates and Employee is hereby canceled and Employee hereby irrevocably waives and renounces all of Employee's rights and claims under any such agreement or arrangement. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. ------------------------------------- B. B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer /s/ JOHN T. TURNER ----------------------------------------- Employee -12- EX-10.6 7 EMPLOYMENT AGREEMENT - SCOTT L. THOMPSON 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into between Group 1 Automotive, Inc. having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024 ("Employer"), and Scott L. Thompson, an individual currently residing at 8610 Hawaii Lane, Jersey Village, Texas 77040 ("Employee"), to be effective as of November 3, 1997. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. EMPLOYMENT AND DUTIES: 1.1. Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning November 3, 1997 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. 1.2. Employee shall serve as "Senior Vice President -- Chief Financial Officer" and "Treasurer" of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3. Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or any of its subsidiaries or affiliates, or requires any significant portion of Employee's business time; provided, however, that Employee may engage in passive personal investments that do not conflict with the business and affairs of the Employer or any of its subsidiaries or affiliates or interfere with Employee's performance of his or her duties hereunder. 1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer or any of its subsidiaries or affiliates and to do no act which would injure the business, interests, or reputation of Employer or any of its subsidiaries or affiliates. In keeping with these duties, Employee shall make full disclosure to Employer of all business opportunities pertaining to Employer's business and shall not appropriate for Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. 2 1.5. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer, or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's General Counsel (who shall be Employer's outside General Counsel unless Employer has employed an inside General Counsel) any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest". Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by Employee to Employer's General Counsel may be all that is necessary to enable Employer or its subsidiaries or affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its subsidiaries or affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employee agrees that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 2. COMPENSATION AND BENEFITS: 2.1. Employee's initial base salary under this Agreement shall be $180,000.00 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. Employee's base salary may be increased from time to time by Employer and, after any such change, Employee's new level of base salary shall be Employee's base salary for purposes of this Agreement until the effective date of any subsequent change. 2.2 Employee's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Employee is a participant. 2.3. If Employee is granted stock options, Employee will enter into a separate written stock option agreement pursuant to which Employee shall be granted the option to acquire common stock of Employer subject to the terms and conditions of Employer's 1996 Stock Incentive Plan and the stock option agreement entered into thereunder. The number of shares, exercise price per share and other terms of the options shall be as specified in such other written agreement. 2.4. While employed by Employer, Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. -2- 3 2.5. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.6. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be for five (5) years from November 3, 1997 through November 2, 2002. Should Employee remain employed by Employer beyond the expiration of the Term, such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause, upon thirty days notice. Upon such termination of the continued at-will employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonus with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. Upon termination of employment, Employee shall repay to Employer all advances received by Employee from Employer or any of its subsidiaries or affiliates, including all advances drawn against any bonus. 3.2. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time for any of the following reasons: (i) For "cause" upon the determination by Employer's Board of Directors that "cause" exists for the termination of the employment relationship. As used in this Section 3.2(i), the term "cause" shall mean (a) Employee has engaged in gross negligence, gross incompetence or willful misconduct in the performance of, or Employee's willful refusal without proper reason to perform, the duties and services required of Employee pursuant to this Agreement; (b) Employee has been convicted of a felony; or (c) Employee's material breach of any material provision of this Agreement or corporate code or policy. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to Employer's Board of Directors for -3- 4 determination. Employee, if he so requests, after reasonable notice of such Board of Directors meeting, shall been titled to be heard before the Board of Directors. If Employee disagrees with the decision reached by Employer's Board of Directors, the dispute will be limited to whether Employer's Board of Directors reached its decision in good faith; (ii) for any other reason whatsoever, including termination without cause, in the sole discretion of Employer's Board of Directors; (iii) upon Employee's death; or (iv) upon Employee's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Employee, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. The termination of Employee's employment shall constitute a "Termination for Cause" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.2(iii) as a result of Employee's death is specified in Section 3.7. The effect of the employment relationship being terminated pursuant to Section 3.2(iv) as a result of the Employee becoming incapacitated is specified in Section 3.8. 3.3. Notwithstanding any other provisions of this Agreement, Employee shall have the right to terminate the employment relationship under this Agreement at any time for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement, which remains uncorrected for 30 days following written notice of such breach by Employee to Employer's Board of Directors; (ii) the dissolution of Employer; or (iii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee shall constitute an "Involuntary Termination" if made pursuant to Section 3.3(i) or 3.3(ii); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee shall constitute a "Voluntary Termination" if made pursuant to Sections 3.3(iii); the effect of such termination is specified in Section 3.4. -4- 5 3.4. Upon a "Voluntary Termination" of the employment relationship by Employee or a termination of the employment relationship for "Cause" by Employer, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.5. Upon an Involuntary Termination of the employment relationship by either Employer or Employee pursuant to Sections 3.2(ii) or 3.3(i), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the compensation specified in Section 2.1, payable bi-weekly, as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Upon an Involuntary Termination of the employment relationship by Employee pursuant to Sections 3.3(ii), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non- competition obligations), to receive in a lump sum payment the compensation specified in Section 2.1 as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer or its subsidiaries or affiliates, and Employer's and its subsidiaries' and affiliates' sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. 3.6. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer based on Involuntary Termination for any monies other than those specified in Section 3.5. If Employee breaches this covenant, Employer, and its subsidiaries' and affiliates' shall be entitled to recover from Employee all sums expended by Employer, and its subsidiaries and affiliates (including costs and attorneys' fees) in connection with such suit, claim, demand or cause of action. Employer and its subsidiaries and affiliates shall not be entitled to offset any of the amounts specified in the immediately preceding sentence against amounts otherwise owing by Employer and its subsidiaries and affiliates to Employee prior to a final determination under the terms of the arbitration provisions of this Agreement that Employee has breached the covenant contained in this Section 3.6. 3.7. Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.8. Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses with respect to the operations of the Employer and its -5- 6 subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.9. In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be reduced and offset by any amounts to which Employee may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.10. Termination of the employment relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Employee's obligations of confidentiality, non-competition and Employee's continuing obligations with respect to business opportunities that had been entrusted to Employee by Employer during the employment relationship. 3.11. This Agreement governs the rights and obligations of Employer and Employee with respect to Employee's salary and other perquisites of employment. 4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 4.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer and its subsidiaries and affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendre or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in Employer or any of its subsidiaries having civil or criminal liability or responsibility under the FCPA or other applicable United States law, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's Board of Directors determines that the actions found to be in violation of the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer. Moreover, to the extent that Employer or any of its subsidiaries is found or held responsible for any civil or criminal fines or sanctions of any type under the FCPA or other applicable United States law or suffers other damages as a result of Employee's actions, Employee shall be responsible for, and shall reimburse and pay to such Employer an amount of money equal to, such civil or criminal fines, sanctions or damages. The rights afforded Employer under this provision are in addition to any and all rights and remedies otherwise afforded by the law. 5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 5.1. Employer owns certain confidential and proprietary information and trade secrets to which Employee will be given access for the purpose of carrying out his or her employment responsibilities hereunder. Furthermore, Employer agrees to provide Employee with confidential and -6- 7 proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Employee in satisfying his or her obligations hereunder. 5.2 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Employee's employment, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 5.3. Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. 5.4. If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's, or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such work is neither prepared by Employee within the scope of his or her employment nor a work specially ordered that is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. -7- 8 5.5. Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 6.1. As part of the consideration for the compensation and benefits to be paid and extended to Employee hereunder, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 6. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or any of its subsidiaries or affiliated companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (iii) encourage or induce any current or former employee of Employer or any of its subsidiaries or affiliates to leave the employment of Employer or any of its subsidiaries or affiliates or proselytize, offer employment, retain, hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Employer or any of its subsidiaries or affiliates; provided, however, that nothing in this subsection (iii) shall prohibit Employee from offering employment to any prior employee of Employer or any of its subsidiaries or affiliates who was not employed by Employer or any of its subsidiaries or affiliates at any time in the twelve (12) months prior to the termination of Employee's employment. The non-competition obligations set forth in subsections (i) and (ii) of this Section 6.1 shall apply during Employee's employment and for a period of three (3) years after termination of employment. The obligations set forth in subsection (iii) of this Section 6.1 with respect to employees shall apply during Employee's employment and for a period of five (5) years after termination of employment If Employer or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, -8- 9 ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this post-employment non-competition covenant shall not apply to such former aspect of that business. 6.2. Employee understands that the foregoing restrictions may limit his ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.6 for the remainder of the Term upon Involuntary Termination and access to certain confidential and proprietary information and trade secrets) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to Employer or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Employee and his agents involved in such breach. 6.3. It is expressly understood that the restrictions contained in this Article 6 are related to and result from the agreements of Employer and Employee in Article 5 and agreed that Employer and Employee consider the restrictions contained in this Article 6 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Employer and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 7. MISCELLANEOUS: 7.1. For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. 7.2. Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Employer or any of its subsidiaries' or affiliates' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer or any of its subsidiaries' or affiliates' officers, employees, agents, or representatives; or that place Employer or its subsidiaries' or affiliates' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness Employer or any of its subsidiaries' or affiliates' or its -9- 10 officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. 7.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Employee, to the address shown on the first page hereof. Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 7.4. This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 7.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, -10- 11 or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 7.7. Any and all claims, demands, cause of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Employee (all of which are referred to herein as "Claims"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Employee shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Employee and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Southern District of Texas, Houston Division, upon application of the Employee or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Employee, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Houston, Texas. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Texas; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. 7.8. This Agreement shall be binding upon and inure to the benefit of Employer its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Employee without the prior written consent of Employer. -11- 12 7.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Employer and Employee. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer or any of its subsidiaries or affiliates and Employee is hereby canceled and Employee hereby irrevocably waives and renounces all of Employee's rights and claims under any such agreement or arrangement. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. ----------------------------------------------- B. B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer /s/ SCOTT L. THOMPSON ---------------------------------------------------- Employee -12- EX-10.7 8 EMPLOYMENT AGREEMENT - KEVIN H. WHALEN 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into between Group 1 Automotive, Inc. having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024 ("Employer"), and Kevin H. Whalen, an individual currently residing at 3423 Oakland Drive, Sugar Land, Texas 77479 ("Employee"), to be effective as of November 3, 1997. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. EMPLOYMENT AND DUTIES: 1.1. Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning November 3, 1997 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. 1.2. Employee shall serve as "Chief Operating Officer -- McCall Group" of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3. Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or any of its subsidiaries or affiliates, or requires any significant portion of Employee's business time; provided, however, that Employee may engage in passive personal investments that do not conflict with the business and affairs of the Employer or any of its subsidiaries or affiliates or interfere with Employee's performance of his or her duties hereunder. 1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer or any of its subsidiaries or affiliates and to do no act which would injure the business, interests, or reputation of Employer or any of its subsidiaries or affiliates. In keeping with these duties, Employee shall make full disclosure to Employer of all business opportunities pertaining to Employer's business and shall not appropriate for Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. 2 1.5. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer, or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's General Counsel (who shall be Employer's outside General Counsel unless Employer has employed an inside General Counsel) any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest". Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by Employee to Employer's General Counsel may be all that is necessary to enable Employer or its subsidiaries or affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its subsidiaries or affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employee agrees that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 2. COMPENSATION AND BENEFITS: 2.1. Employee's initial base salary under this Agreement shall be $300,000.00 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. Employee's base salary may be increased from time to time by Employer and, after any such change, Employee's new level of base salary shall be Employee's base salary for purposes of this Agreement until the effective date of any subsequent change. 2.2 Employee's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Employee is a participant. 2.3. If Employee is granted stock options, Employee will enter into a separate written stock option agreement pursuant to which Employee shall be granted the option to acquire common stock of Employer subject to the terms and conditions of Employer's 1996 Stock Incentive Plan and the stock option agreement entered into thereunder. The number of shares, exercise price per share and other terms of the options shall be as specified in such other written agreement. 2.4. While employed by Employer, Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. -2- 3 2.5. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.6. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be for five (5) years from November 3, 1997 through November 2, 2002. Should Employee remain employed by Employer beyond the expiration of the Term, such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause, upon thirty days notice. Upon such termination of the continued at-will employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonus with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. Upon termination of employment, Employee shall repay to Employer all advances received by Employee from Employer or any of its subsidiaries or affiliates, including all advances drawn against any bonus. 3.2. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time for any of the following reasons: (i) For "cause" upon the determination by Employer's Board of Directors that "cause" exists for the termination of the employment relationship. As used in this Section 3.2(i), the term "cause" shall mean (a) Employee has engaged in gross negligence, gross incompetence or willful misconduct in the performance of, or Employee's willful refusal without proper reason to perform, the duties and services required of Employee pursuant to this Agreement; (b) Employee has been convicted of a felony; or (c) Employee's material breach of any material provision of this Agreement or corporate code or policy. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to Employer's Board of Directors for -3- 4 determination. Employee, if he so requests, after reasonable notice of such Board of Directors meeting, shall be entitled to be heard before the Board of Directors. If Employee disagrees with the decision reached by Employer's Board of Directors, the dispute will be limited to whether Employer's Board of Directors reached its decision in good faith; (ii) for any other reason whatsoever, including termination without cause, in the sole discretion of Employer's Board of Directors; (iii) upon Employee's death; or (iv) upon Employee's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Employee, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. The termination of Employee's employment shall constitute a "Termination for Cause" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.2(iii) as a result of Employee's death is specified in Section 3.7. The effect of the employment relationship being terminated pursuant to Section 3.2(iv) as a result of the Employee becoming incapacitated is specified in Section 3.8. 3.3. Notwithstanding any other provisions of this Agreement, Employee shall have the right to terminate the employment relationship under this Agreement at any time for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement, which remains uncorrected for 30 days following written notice of such breach by Employee to Employer's Board of Directors; (ii) the dissolution of Employer; or (iii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee shall constitute an "Involuntary Termination" if made pursuant to Section 3.3(i) or 3.3(ii); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee shall constitute a "Voluntary Termination" if made pursuant to Sections 3.3(iii); the effect of such termination is specified in Section 3.4. -4- 5 3.4. Upon a "Voluntary Termination" of the employment relationship by Employee or a termination of the employment relationship for "Cause" by Employer, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.5. Upon an Involuntary Termination of the employment relationship by either Employer or Employee pursuant to Sections 3.2(ii) or 3.3(i), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the compensation specified in Section 2.1, payable bi-weekly, as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Upon an Involuntary Termination of the employment relationship by Employee pursuant to Sections 3.3(ii), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non- competition obligations), to receive in a lump sum payment the compensation specified in Section 2.1 as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer or its subsidiaries or affiliates, and Employer's and its subsidiaries' and affiliates' sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. 3.6. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer based on Involuntary Termination for any monies other than those specified in Section 3.5. If Employee breaches this covenant, Employer, and its subsidiaries' and affiliates' shall be entitled to recover from Employee all sums expended by Employer, and its subsidiaries and affiliates (including costs and attorneys' fees) in connection with such suit, claim, demand or cause of action. Employer and its subsidiaries and affiliates shall not be entitled to offset any of the amounts specified in the immediately preceding sentence against amounts otherwise owing by Employer and its subsidiaries and affiliates to Employee prior to a final determination under the terms of the arbitration provisions of this Agreement that Employee has breached the covenant contained in this Section 3.6. 3.7. Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.8. Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses with respect to the operations of the Employer and its -5- 6 subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.9. In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be reduced and offset by any amounts to which Employee may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.10. Termination of the employment relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Employee's obligations of confidentiality, non-competition and Employee's continuing obligations with respect to business opportunities that had been entrusted to Employee by Employer during the employment relationship. 3.11. This Agreement governs the rights and obligations of Employer and Employee with respect to Employee's salary and other perquisites of employment. 4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 4.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer and its subsidiaries and affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendre or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in Employer or any of its subsidiaries having civil or criminal liability or responsibility under the FCPA or other applicable United States law, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's Board of Directors determines that the actions found to be in violation of the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer. Moreover, to the extent that Employer or any of its subsidiaries is found or held responsible for any civil or criminal fines or sanctions of any type under the FCPA or other applicable United States law or suffers other damages as a result of Employee's actions, Employee shall be responsible for, and shall reimburse and pay to such Employer an amount of money equal to, such civil or criminal fines, sanctions or damages. The rights afforded Employer under this provision are in addition to any and all rights and remedies otherwise afforded by the law. 5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 5.1. Employer owns certain confidential and proprietary information and trade secrets to which Employee will be given access for the purpose of carrying out his or her employment responsibilities hereunder. Furthermore, Employer agrees to provide Employee with confidential -6- 7 and proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Employee in satisfying his or her obligations hereunder. 5.2 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Employee's employment, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 5.3. Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. 5.4. If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's, or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such work is neither prepared by Employee within the scope of his or her employment nor a work specially ordered that is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. -7- 8 5.5. Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 6.1. As part of the consideration for the compensation and benefits to be paid and extended to Employee hereunder, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 6. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or any of its subsidiaries or affiliated companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (iii) encourage or induce any current or former employee of Employer or any of its subsidiaries or affiliates to leave the employment of Employer or any of its subsidiaries or affiliates or proselytize, offer employment, retain, hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Employer or any of its subsidiaries or affiliates; provided, however, that nothing in this subsection (iii) shall prohibit Employee from offering employment to any prior employee of Employer or any of its subsidiaries or affiliates who was not employed by Employer or any of its subsidiaries or affiliates at any time in the twelve (12) months prior to the termination of Employee's employment. The non-competition obligations set forth in subsections (i) and (ii) of this Section 6.1 shall apply during Employee's employment and for a period of three (3) years after termination of employment. The obligations set forth in subsection (iii) of this Section 6.1 with respect to employees shall apply during Employee's employment and for a period of five (5) years after termination of employment If Employer or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, -8- 9 ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this post-employment non-competition covenant shall not apply to such former aspect of that business. 6.2. Employee understands that the foregoing restrictions may limit his ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.6 for the remainder of the Term upon Involuntary Termination and access to certain confidential and proprietary information and trade secrets) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to Employer or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Employee and his agents involved in such breach. 6.3. It is expressly understood that the restrictions contained in this Article 6 are related to and result from the agreements of Employer and Employee in Article 5 and agreed that Employer and Employee consider the restrictions contained in this Article 6 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Employer and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 7. MISCELLANEOUS: 7.1. For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. 7.2. Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Employer or any of its subsidiaries' or affiliates' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer or any of its subsidiaries' or affiliates' directors, officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer or any of its subsidiaries' or affiliates' officers, employees, agents, or representatives; or that place Employer or its subsidiaries' or affiliates' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness Employer or any of its subsidiaries' or affiliates' or its -9- 10 officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. 7.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Employee, to the address shown on the first page hereof. with a copy to: Robert D. Remy Two Memorial City Plaza 820 Gessner, Suite 1360 Houston, Texas 77024 Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 7.4. This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 7.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. -10- 11 7.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 7.7. Any and all claims, demands, cause of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Employee (all of which are referred to herein as "Claims"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Employee shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Employee and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Southern District of Texas, Houston Division, upon application of the Employee or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Employee, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Houston, Texas. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Texas; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. -11- 12 7.8. This Agreement shall be binding upon and inure to the benefit of Employer its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Employee without the prior written consent of Employer. 7.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests as officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Employer and Employee. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer or any of its subsidiaries or affiliates and Employee is hereby canceled and Employee hereby irrevocably waives and renounces all of Employee's rights and claims under any such agreement or arrangement. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. ------------------------------------- B. B. Hollingsworth, Jr. Chief Executive Officer /s/ KEVIN H. WHALEN ----------------------------------------- Employee -12- EX-10.8 9 EMPLOYMENT AGREEMENT - JAMES S. CARROLL 1 EXHIBIT 10.8 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into between Group 1 Automotive, Inc., a Delaware corporation having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024 ("Group 1"), Koons Ford, Inc., a Florida corporation and a wholly owned subsidiary of Group 1 ("Employer"), and James S. Carroll, an individual currently residing at 13880 Stirling Road, Fort Lauderdale, Florida 33330 ("Employee"), to be effective as of March 16, 1998. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. EMPLOYMENT AND DUTIES: 1.1. Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning March 16, 1998 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. In addition, Employee shall perform management services (as determined in accordance with Section 1.2 hereof) for Courtesy Ford, Inc. ("Courtesy"), Perimeter Ford, Inc. ("Perimeter") and such other dealerships of Group 1 as may be mutually agreed upon between Employee and Group 1 (Employer, Courtesy, Perimeter and such other dealerships are collectively refereed to herein as the "Dealerships Under Management"). 1.2. Employee shall serve as President of Employer, Courtesy, as Chairman of Perimeter, and shall serve in such offices of the other Dealerships Under Management as may be mutually agreed by Employee and Group 1. Employee agrees to serve in the assigned positions and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such positions as determined by Group 1, as well as such additional or different duties and services appropriate to such positions which Employee from time to time may be reasonably directed to perform by Group 1. Employee shall at all times comply with and be subject to such policies and procedures as Group 1 and the Dealerships Under Management may establish from time to time. 1.3. Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of the Dealerships Under Management. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or any of its subsidiaries or affiliates, or requires any significant portion of Employee's business time; provided, however, that Employee may engage in passive personal investments that do not conflict with the business and affairs of the Employer or any of its subsidiaries or affiliates or interfere with Employee's performance of his duties hereunder. It is specifically acknowledged that Employee's investments in Koons Development Co., K.C. Partnership, World Partner Enterprises, Ltd. (each owners of the real property of the dealership facilities leased to subsidiaries of Group 1 under agreements of even date herewith), Shamrock Life Insurance Company, Shamrock Reinsurance Company, Ltd., VPC Holding Corp., Vehicle Protection Corp. (credit life and supplemental warranty entities not sold to Group 1 under the Agreement and Plan of Reorganization by and among Group 1, Koons Merger, Inc., Koons Ford, Inc. and the stockholders of Koons Ford, Inc. dated as of December 17, 1997 (the "Plan of Reorganization"), which continuing activity will be the "runoff" of business pre- existing this Agreement) and J. Carroll Enterprises, Inc. (the management company which will manage Employee's investments in the preceding entities) will not constitute a violation of this Section 1.3 2 provided that the management of such investments do not require a significant portion of Employee's business time or interfere with Employee's performance of his duties hereunder. 1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer or any of its subsidiaries or affiliates and to do no act which would injure the business, interests, or reputation of Employer or any of its subsidiaries or affiliates. In keeping with these duties, Employee shall make full disclosure to Employer of all business opportunities pertaining to the business of Employer or any of its subsidiaries or affiliates and shall not appropriate for Employee's own benefit business opportunities concerning the subject matter of the fiduciary relationship. Exercise of the right granted under Section 10.1(a) of the Plan of Reorganization will not constitute a violation of this Section 1.4. 1.5. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer, or any of its subsidiaries or affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer and its subsidiaries and affiliates, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer, or any of its subsidiaries or affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Group 1's General Counsel (who shall be Group 1's outside General Counsel unless Group 1 has employed an inside General Counsel) any facts which might involve such a conflict of interest that has not been approved by Group 1's President. Employer, Group 1 and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest". Moreover, Employer, Group 1 and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by Employee to Group 1's General Counsel may be all that is necessary to enable Employer or its subsidiaries or affiliates to protect their interests. In others, if no improper motivation appears to exist and the interests of Employer or its subsidiaries or affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer or Group 1 to terminate the employment relationship. Employee agrees that Group 1's determination as to whether a conflict of interest exists shall be conclusive. Employer and Group 1 reserve the right to take such action as, in their judgment, will end the conflict. It is acknowledged that the outside activities described in Sections 1.3 and 1.4 do not constitute a violation of this Section 1.5. 2. COMPENSATION AND BENEFITS: 2.1. (i) Employee's initial base salary under this Agreement shall be $300,000.00 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. Employee's base salary may be increased from time to time by Employer and, after any such change, Employee's new level of base salary shall be Employee's base salary for purposes of this Agreement until the effective date of any subsequent change. (ii) In addition to the compensation of Sections 2.1(i) and 2.2, employee will be entitled to $260,000.00 per annum, paid in semi-monthly installments, for each of the five years subsequent to the date of this Agreement. -2- 3 2.2 Employee's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Employee is a participant. 2.3. If Employee is granted stock options, Employee will enter into a separate written stock option agreement pursuant to which Employee shall be granted the option to acquire common stock of Group 1 subject to the terms and conditions of Group 1's 1996 Stock Incentive Plan and the stock option agreement entered into thereunder. The number of shares, exercise price per share and other terms of the options shall be as specified in such other written agreement. 2.4. While employed by Employer, Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. 2.5. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.6. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be for five (5) years from March 16, 1998 through March 15, 2003. Should Employee remain employed by Employer beyond the expiration of the Term, such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause, upon thirty days notice. Upon such termination of the continued at-will employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, and any quarterly incentive compensation previously payable with respect to full quarters completed prior to the date of termination, but Employee shall not be entitled to any incentive compensation with respect to full quarters not completed prior to the date of termination. Upon termination of employment, Employee shall repay to Employer all advances received by Employee from Employer or any of its subsidiaries or affiliates, including all advances drawn against any bonus. -3- 4 3.2. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time for any of the following reasons: (i) For "cause" upon the determination by Group 1's Board of Directors that "cause" exists for the termination of the employment relationship. As used in this Section 3.2(i), the term "cause" shall mean (a) Employee has engaged in gross negligence, gross incompetence or willful misconduct in the performance of, or Employee's willful refusal without proper reason to perform, the duties and services required of Employee pursuant to this Agreement; (b) Employee has been convicted of a felony; or (c) Employee's material breach of any material provision of this Agreement or corporate code or policy, which breach remains uncorrected for 30 days following Employer's delivery of written notice of such breach to Employee. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to Group 1's Board of Directors for determination. Employee, if he so requests, after reasonable notice of such Board of Directors meeting, shall be entitled to be heard before the Board of Directors; (ii) for any other reason whatsoever, including termination without cause, in the sole discretion of Group 1's Board of Directors; (iii) upon Employee's death; or (iv) upon Employee's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Employee, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. The termination of Employee's employment shall constitute a "Termination for Cause" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.2(iii) as a result of Employee's death is specified in Section 3.7. The effect of the employment relationship being terminated pursuant to Section 3.2(iv) as a result of the Employee becoming incapacitated is specified in Section 3.8. 3.3. Notwithstanding any other provisions of this Agreement, Employee shall have the right to terminate the employment relationship under this Agreement at any time for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement or a material breach by Group 1 of any material provision of the Plan of Reorganization, in each case which remains uncorrected for 30 days following -4- 5 written notice of such breach by Employee to Employer's or Group 1's Board of Directors, as appropriate; (ii) the dissolution of Employer; or (iii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee shall constitute an "Involuntary Termination" if made pursuant to Section 3.3(i) or 3.3(ii); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee shall constitute a "Voluntary Termination" if made pursuant to Sections 3.3(iii); the effect of such termination is specified in Section 3.4. 3.4. Subject to the provisions of Section 3.12, upon a "Voluntary Termination" of the employment relationship by Employee or a termination of the employment relationship for "Cause" by Employer, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination. Employee shall be entitled to pro rata salary through the date of such termination, and any quarterly incentive compensation previously payable with respect to full quarters completed prior to the date of termination, but Employee shall not be entitled to any incentive compensation with respect to full quarters not completed prior to the date of termination. 3.5. Upon an Involuntary Termination of the employment relationship by either Employer or Employee pursuant to Sections 3.2(ii) or 3.3(i), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the compensation specified in Section 2.1, payable bi-weekly, as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Upon an Involuntary Termination of the employment relationship by Employee pursuant to Sections 3.3(ii), Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non- competition obligations), to receive in a lump sum payment the compensation specified in Section 2.1 as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer or its subsidiaries or affiliates, and Employer's and its subsidiaries' and affiliates' sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. 3.6. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer or any of its subsidiaries or affiliates based on Involuntary Termination for any monies other than those specified in Section 3.5. If Employee breaches this covenant, Employer and its subsidiaries and affiliates shall be entitled to recover from Employee all sums expended by Employer and its subsidiaries and affiliates (including costs and attorneys' fees) in connection with such suit, claim, demand or cause of action. Employer and its subsidiaries and affiliates shall not be entitled to offset any of the amounts specified in the immediately preceding sentence against amounts otherwise owing by -5- 6 Employer and its subsidiaries and affiliates to Employee prior to a final determination under the terms of the arbitration provisions of this Agreement that Employee has breached the covenant contained in this Section 3.6. 3.7. Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination which has not been paid, but Employee's heirs, administrators, or legatees shall not be entitled to any individual incentive compensation with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.8. Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his pro rata salary through the date of such termination which has not been paid, but Employee shall not be entitled to any individual incentive compensation with respect to the operations of the Employer and its subsidiaries and affiliates during the calendar year in which Employee's employment with Employer is terminated. 3.9. In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be reduced and offset by any amounts to which Employee may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.10. Termination of the employment relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Employee's obligations of confidentiality, non-competition and Employee's continuing obligations with respect to business opportunities that had been entrusted to Employee by Employer or any of its subsidiaries or affiliates during the employment relationship. 3.11. This Agreement governs the rights and obligations of Employer and Employee with respect to Employee's salary and other perquisites of employment. 3.12. Notwithstanding anything to the contrary in this Section 3, any compensation payable to Employee under Section 2.1.(ii) of this Agreement will remain payable according to the terms thereof and will not be affected by any termination of employment under this Agreement. 4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 4.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer and its subsidiaries and affiliates, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendre or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in Employer or any of its subsidiaries or affiliates having civil or criminal liability or responsibility under the FCPA or other -6- 7 applicable United States law, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's Board of Directors determines that the actions found to be in violation of the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer. Moreover, to the extent that Employer or any of its subsidiaries or affiliates is found or held responsible for any civil or criminal fines or sanctions of any type under the FCPA or other applicable United States law or suffers other damages as a result of Employee's actions, Employee shall be responsible for, and shall reimburse and pay to such Employer an amount of money equal to, such civil or criminal fines, sanctions or damages. The rights afforded Employer under this provision are in addition to any and all rights and remedies otherwise afforded by the law. 5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 5.1. Employer and its subsidiaries and affiliates own certain confidential and proprietary information and trade secrets to which Employee will be given access for the purpose of carrying out his or her employment responsibilities hereunder. Furthermore, Employer agrees to provide Employee with confidential and proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Employee in satisfying his or her obligations hereunder. 5.2 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Employee's employment, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 5.3. Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. Information which is common knowledge within the automotive retailing industry is not included under the provisions of this Section 5.3. 5.4. If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic -7- 8 databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such work is neither prepared by Employee within the scope of his or her employment nor a work specially ordered that is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. 5.5. Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 6.1. As part of the consideration for the compensation and benefits to be paid and extended to Employee hereunder, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 6. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, within twelve (12) miles of or in the county of any Dealership Under Management as of the date of termination of the employment relationship or any of Employee's Dealerships Under Management during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Employer or any of its subsidiaries or affiliates; (iii) encourage or induce any current or former employee of Employer or any of its subsidiaries or affiliates to leave the employment of Employer or any of its subsidiaries or affiliates or proselytize, offer employment, retain, hire or assist in the hiring of any such employee by any person, -8- 9 association, or entity not affiliated with Employer or any of its subsidiaries or affiliates; provided, however, that nothing in this subsection (iii) shall prohibit Employee from offering employment to any prior employee of Employer or any of its subsidiaries or affiliates who was not employed by Employer or any of its subsidiaries or affiliates at any time in the twelve (12) months prior to the termination of Employee's employment (i.e., this subsection (iii) shall not apply to any prior employee who was not employed by Employer during the twelve (12) months preceding the termination of Employee). 6.2. The non-competition obligations set forth in subsections (i), (ii) and (iii) of this Section 6.1 shall apply during Employee's employment and for a period of three (3) years after termination of employment. If Employer and its subsidiaries and affiliates abandon a particular aspect of their business, that is, ceases such aspect of their business with the intention to permanently refrain from such aspect of their business, then this post-employment non- competition covenant shall not apply to such former aspect of that business. Further, Employee will not engage in these restricted activities or assist in the industry consolidation efforts on behalf of any publicly held entity in the automotive retailing industry (nor any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity), regardless of geographic area or market; provided, however, that this paragraph shall not prohibit Employee from selling, to a publicly held entity, any dealership acquired by him in full compliance with his post-employment non-competition obligations hereunder and held by him for at least one year. 6.3. Employee understands that the foregoing restrictions may limit his ability to engage in certain businesses during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.5 for the remainder of the Term upon Involuntary Termination and access to certain confidential and proprietary information and trade secrets) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be a sufficient remedy for any breach of this Article 6 by Employee, and Employer or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement (except for payments payable to Employee under Section 2.1(ii)) and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to Employer or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Employee and his agents involved in such breach. 6.4. It is expressly understood that the restrictions contained in this Article 6 are related to and result from the agreements of Employer and Employee in Article 5 and agreed that Employer and Employee consider the restrictions contained in this Article 6 to be reasonably necessary to protect the legitimate business interests of Employer and its subsidiaries and affiliates, including the confidential and proprietary information and trade secrets of Employer and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly -9- 10 broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 6.5. Notwithstanding the foregoing, the non-competition obligations of this Article 6 shall not apply to (x) the leasing of property or facilities owned by the Employee or his affiliates to a competitor of Group 1 if such property or facilities were previously leased to Group 1 under a lease agreement which Group 1 materially breached, failed to renew or terminated (for reasons other than lessor's breach), or (y) the operation and management of any dealership purchased pursuant to Section 10.1(b) of the Plan of Reorganization. 6.6. The parties hereto expressly acknowledge that Group 1's and Employer's rights under this Article 6 are assignable and that such rights shall be fully enforceable by any of Group 1's or Employer's assignees or successors in interest. 7. MISCELLANEOUS: 7.1. For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. For purposes of this Agreement the term "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of an individual or entity, whether through the ownership of stock or as a trustee or executor, by contract or credit arrangement or otherwise. 7.2. Employer, Group 1 and Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from making any negative or critical statements about each other or any of their respective affiliates or such entities' directors, officers, employees, agents or representatives or disclosing any conflicts with same, or from publishing any oral or written statements about each other or any of their respective subsidiaries' or affiliates' directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about each other or any of their respective subsidiaries' or affiliates' business affairs or about their respective directors, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of each other or any of their respective affiliates, directors, officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of each other or any of their respective subsidiaries, affiliates, officers, employees, agents, or representatives; or that place each other or any of their respective affiliates, officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness of each other or any of their respective subsidiaries, affiliates, officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. 7.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: -10- 11 If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Employee, to the address shown on the first page hereof. Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 7.4. This Agreement shall be governed in all respects by the laws of the State of Florida, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 7.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 7.7. Any and all claims, demands, causes of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Employee (all of which are referred to herein as "Claims"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and -11- 12 decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Employee shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Employee and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Southern District of Florida, upon application of the Employee or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Employee, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Broward County, Florida. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Florida; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may be available under Florida law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. 7.8. This Agreement shall be binding upon and inure to the benefit of Employer, its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means, whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Employee without the prior written consent of Employer. 7.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests of officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Employer and Employee. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer -12- 13 or any of its subsidiaries or affiliates and Employee is hereby canceled and Employee hereby irrevocably waives and renounces all of Employee's rights and claims under any such agreement or arrangement. 7.10. The reasonable costs of resolution of any dispute arising under this Agreement shall be borne by the party losing such dispute. 7.11. The parties hereto expressly acknowledge that Group 1's and Employer's rights under this Agreement are assignable and that such rights shall be fully enforceable by any of Group 1's or Employer's assignees or successors in interest. -13- 14 IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ JOHN T. TURNER -------------------------- Name: John T. Turner Title: Senior Vice President KOONS FORD, INC. By: /s/ WILLIAM C. CARROLL ------------------------------------- Name: William C. Carroll Title: Vice President /s/ JAMES S. CARROLL --------------------------------- Employee -14- EX-10.39 10 PLAN OF REORGANIZATION - KOONS MERGER, INC. 1 EXHIBIT 10.39 AGREEMENT AND PLAN OF REORGANIZATION AMONG GROUP 1 AUTOMOTIVE, INC., KOONS MERGER, INC., A WHOLLY OWNED SUBSIDIARY OF GROUP 1 AUTOMOTIVE, INC., KOONS FORD, INC. AND THE STOCKHOLDERS OF KOONS FORD, INC. DATED AS OF DECEMBER 17, 1997 2 TABLE OF CONTENTS
ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II THE MERGER 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS 3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.18 Leased Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.24 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-i- 3 3.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS 4.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 AND MERGER SUB 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.5 Authorization For Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.7 Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.8 No Knowledge of Misrepresentations or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VI COVENANTS OF THE STOCKHOLDERS 6.1 Merger Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.3 Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . 20 6.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.10 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.11 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.12 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.13 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-ii- 4 6.15 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.16 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.17 Section 338(h)(10) Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 6.18 Phase I Environmental Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.5 Delivery of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.6 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Merger . . . . . . . . . . . . . . . 27 8.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 27 8.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 29 ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Stockholders to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.2 Agreement by Group 1 to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 9.4 Section 338(h)(10) Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE X MISCELLANEOUS 10.1 Certain Additional Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.2 Certain Post-Closing Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.3 Schedules to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.4 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.6 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.8 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-iii- 5 10.9 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.10 Legal Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.11 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.12 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.17 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.18 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
-iv- 6 AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization (this "Agreement"), dated as of the 17th day of December, 1997, is among Group 1 Automotive, Inc., a Delaware corporation ("Group 1"), Koons Merger, Inc., a Florida corporation and a wholly owned subsidiary of Group 1 (Merger Sub"), Koons Ford, Inc., a Florida corporation ("the Company") and the persons listed on the signature pages hereof under the caption "Stockholders" (collectively, the "Stockholders," and each of those persons, individually, a "Stockholder"). RECITALS: WHEREAS, the parties to this Agreement have determined it is in their best long-term interests to effect a business combination pursuant to which: (A) Merger Sub will merge with and into the Company on the terms and subject to the conditions set forth herein (the "Merger"); (B) Group 1 will acquire by merger (the "Other Mergers") Courtesy Ford, Inc., a Florida corporation and Perimeter Ford, Inc., a Delaware corporation (each an "Other Company" and, collectively with the Company, the "Companies") pursuant to agreements entered into among those entities and their equity owners, Group 1 and subsidiaries of Group 1 (collectively, the "Other Agreements"); and WHEREAS, the respective Boards of Directors of Group 1, Merger Sub and the Company have approved this Agreement and the Merger pursuant to the terms and conditions herein set forth. WHEREAS, the parties hereto desire to set forth certain representations, warranties and covenants made by each to the other as an inducement to the consummation of the Merger. NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined has the meaning ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to 7 this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. ARTICLE II THE MERGER 2.1 The Merger. Subject to and in accordance with the terms and conditions of this Agreement and pursuant to the Agreement and Plan of Merger between Merger Sub and the Company, a form of which is attached hereto as Exhibit A (the "Plan of Merger"), at the Effective Time (as hereinafter defined) Merger Sub shall be merged with and into the Company, the separate existence of the Merger Company shall cease, and the Company shall (i) continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation") under the corporate name "Koons Ford, Inc.", (ii) be governed by the laws of Florida, (iii) maintain a registered office in the State of Florida at 3101 N. State Road 7, Hollywood, Florida 33021 and (iv) succeed to and assume all of the rights, properties and obligations of Merger Sub and the Company in accordance with the Florida Business and Corporation Act. Subject to the terms and conditions of this Agreement and the Plan of Merger, Group 1 agrees, at or prior to the Closing, to cause Merger Sub to execute and deliver, the Plan of Merger in form and substance substantially similar to the form attached hereto as Exhibit A. Subject to the terms and conditions of this Agreement and the Plan of Merger, the Stockholders agree, at or prior to the Closing, to cause the Company to execute and deliver the Plan of Merger in form and substance substantially similar to the form attached hereto as Exhibit A. 2.2 Closing Date. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the last day of the month in which all conditions set forth in Article VIII hereof are satisfied or waived or at such other time and place and on such other date as Group 1 and the Company shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date." 2.3 Effective Time. As soon as practicable after all conditions set forth in Article VIII hereof are satisfied or waived, the parties hereto will file with the Secretary of State of the State of Florida, articles of merger in such form as required by, and executed in accordance with, the relevant provisions of the Florida Business Corporation Act, with instructions that such articles of merger are to be issued and effective as of the Closing Date (the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Florida being the "Effective Time"). -2- 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS The Stockholders hereby represent and warrant to Group 1 and Merger Sub as follows: 3.1 Corporate Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation with all requisite corporate power and authority to own or lease its properties and conduct its business as now owned, leased or conducted and to execute, deliver and perform this Agreement and each instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing. True and complete copies of the articles of incorporation and bylaws (or other organizational documents) of the Company are included in Schedule 3.1. The minute books of the Company previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by their respective boards of directors and stockholders in their capacities as such. 3.2 Qualification. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary. Schedule 3.2 sets forth a list of the jurisdictions in which the Company is qualified to do business, if any. 3.3 Authorization. The execution and delivery by the Company, the performance of its obligations pursuant to this Agreement and the execution, delivery and performance of each instrument, document or agreement required hereby to be executed and delivered by the Company at, or prior to, the Closing have been duly and validly authorized by all requisite corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or any other instrument, document or agreement required hereby to be executed by the Company at, or prior to, the Closing. The Board of Directors of the Company has voted to recommend approval of the Merger to the stockholders of the Company and such determination remains in effect. THE EXECUTION OF THIS AGREEMENT BY THE STOCKHOLDERS CONSTITUTES UNANIMOUS STOCKHOLDER CONSENT TO THE MERGER, THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY WITHIN IN ACCORDANCE WITH SECTION 607.0704 FLORIDA STATUTES, AND THIS EXECUTED AGREEMENT SHALL BE FILED IN THE MINUTE BOOKS OF THE COMPANY AS EVIDENCE OF SUCH SHAREHOLDER ACTION. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by the Company at, or prior to, the Closing will then be, duly executed and delivered by it, and this Agreement constitutes, and, to the extent it purports to obligate the Company, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of the Company enforceable against it in accordance with its terms. 3.4 Approvals. Except for the applicable filings with the Secretary of State of the State of Florida relating to the Merger and except for applicable requirements, if any, of the HSR Act, and -3- 9 except to the extent set forth in Schedule 3.4, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit the Company to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. 3.5 Absence of Conflicts. Except to the extent set forth in the Schedule 3.5, neither the execution and delivery by the Company of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by the Company of its obligations under this Agreement or any such instrument, document or agreement will (assuming receipt of all consents, approvals, authorizations, permits, certificates and orders disclosed as requisite in Schedule 3.4) (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) any applicable permits received from any Governmental Authority (iv) the articles of incorporation or bylaws or other organizational documents of the Company or (v) any contract or agreement to which the Company is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of the Company, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 3.6 Subsidiaries; Equity Investments. The Company has not controlled directly or indirectly, or had any direct or indirect equity participation in any corporation during the five-year period preceding the date hereof. 3.7 Capitalization. (a) The authorized capital stock of the Company consists of 5,000 shares of common stock, par value $.10 per share, of which 1,000 shares are issued and outstanding (no shares being held in treasury) (the "Company Common Stock"). Each outstanding share of the Company Common Stock has been duly authorized, is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights of any stockholder. Set forth in Schedule 3.7(a) are the names, social security or I.R.S. identification numbers and addresses (as reflected in the corporate records of the Company) of each record holder of the Company Common Stock, together with the number of shares held by each such person. (b) There is not outstanding any capital stock or other security, including without limitation any option, warrant or right, entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the Company. Except as disclosed in Schedule 3.7(b), there are no contracts, agreements, commitments or arrangements obligating the Company (i) to issue, sell, pledge, dispose of or encumber any shares of, or any options, warrants or -4- 10 rights of any kind to acquire, or any securities that are convertible into or exercisable or exchangeable for, any shares of, any class of capital stock of the Company or (ii) to redeem, purchase or acquire or offer to acquire any shares of, or any outstanding option, warrant or right to acquire, or any securities that are convertible into or exercisable or exchangeable for, any shares of, any class of capital stock of the Company. 3.8 Financial Statements. Included in Schedule 3.8 are copies of the financial statements of the Company consisting of (i) an unaudited balance sheet of the Company as of October 31, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the ten month period then ended (collectively with the Interim Balance Sheet, the "Company Interim Financial Statements") and (ii) an audited balance sheet of the Company as of December 31, 1996 (the "Company 1996 Balance Sheet") and the related audited statements of income, changes in stockholders' equity and cash flows for the year then ended (including the notes thereto) (collectively with the Company 1996 Balance Sheet, the "Company 1996 Financial Statements") and (collectively with the Company Interim Financial Statements, the "Company Financial Statements"). The Company Interim Financial Statements are true and complete in all material respects. The Company 1996 Financial Statements are true and complete in all respects. The Company Financial Statements present fairly the financial position of the Company and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. The Company Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of the Company reflected in the Company Financial Statements and as incurred since October 31, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful accounts shown in the Company Interim Financial Statements) in the ordinary course of business and, except as set forth in Schedule 3.8, are not in dispute or subject to counterclaim, set-off or renegotiation. Schedule 3.8 contains an aged schedule of accounts receivable included in the Interim Balance Sheet. References regarding GAAP compliance in this Section 3.8 shall be qualified by the exceptions set forth in Section 3.9 below. 3.9 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet, or relating to the items listed below in this Section 3.9, or as set forth in Schedule 3.9, the Company does not have any material liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP, except for possible adjustments to current year's depreciation provisions, LIFO adjustments, management company fees, profit sharing provisions, general manager year-end bonuses and the month-end payroll tax accrual. 3.10 Certain Agreements. Except as set forth in Schedule 3.10, neither the Company, nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a noncompetition, territorial exclusivity or other provision covering such subject matter purportedly enforceable by a third party against the Company, or any of its officers or directors, the scope of the business or operations of the Company, or any of its officers or directors, geographically or otherwise. -5- 11 3.11 Contracts and Commitments. Schedule 3.11 includes (i) a list of all contracts to which the Company is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of the Company ("Material Contracts"); (ii) a list of all real or personal property leases to which the Company is a party involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which the Company is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between the Company and any of its officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. 3.12 Absence of Changes. Except as set forth in Schedule 3.12, there has not been, since October 31, 1997, any adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of the Company. Except as set forth in Schedule 3.12, since October 31, 1997, the Company has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. Notwithstanding the preceding sentence, the Company makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since October 31, 1997, for any employee who after such increase would receive annual compensation of less than $50,000. 3.13 Tax Matters. (a) Except as set forth in Schedule 3.13(a) (and except for filings and payments of assessments the failure of which to file or pay will not materially adversely affect the Company), (i) all Tax Returns which are required to be filed on or before the Closing Date by or with respect to the Company have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to the Company have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. (b) All Tax Returns of, or with respect to, the Company have been audited by the applicable governmental authority, or the applicable statute of limitations has expired, for all periods up to and including December 31, 1996 except as included on Schedule 3.13(b). (c) There is no claim against the Company for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or -6- 12 with respect to the Company, other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.13(c). (d) Except as set forth in Schedule 3.13(d), there is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company, or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to the Company. (e) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes (except for payroll tax accrual for October 31, 1997), whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to the Company up to and through the periods covered thereby. (f) All Tax allocation or sharing agreements affecting the Company shall be terminated prior to the Closing Date and no payments shall be due or will become due by the Company on or after the Closing Date pursuant to any such agreement or arrangement. (g) Except as set forth in Schedule 3.13(g), the Company will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. (h) The Company has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (i) The Company has been a validly electing S corporation within the meaning of sections 1361 and 1362 of the Code at all times since January 1, 1985 and the Company will be an S corporation up to and including the Closing Date. From the end of its most recent tax year through the Closing Date, each Stockholder has been an individual resident of the United States or an estate or trust described in section 1361(c)(2) of the Code that is permitted to hold the stock of an S corporation. The Company will not be liable for any tax under section 1374 of the Code in connection with the deemed sale of the Company's assets caused by the Section 338(h)(10) Elections. In the past 10 years, the Company has not (a) acquired assets from another corporation in a transaction in which the Company's federal income tax basis in the acquired assets was determined, in whole or in part, by reference to the federal income tax basis of the acquired assets (or any other property) in the hands of the transferor or (b) acquired the stock of any corporation which is a qualified subchapter S subsidiary, as defined in section 1361(b)(3)(B) of the Code. 3.14 Litigation. (a) Except as set forth in Schedule 3.14(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of the Company, -7- 13 threatened against or specifically affecting the Company before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent set forth in Schedule 3.14(b), the Company has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of the Company, no event has occurred which, with the lapse of time or action by a third party could result in a default under any contract or other agreement to which any of the Company is a party or by which it or any of its properties is bound or under any applicable Order of any Court or Governmental Authority. 3.15 Compliance with Law. Except as set forth in Schedule 3.15, the Company is in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. 3.16 Permits. Except as set forth in Schedule 3.16, the Company owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities necessary for the conduct of its business. A listing of all such items, with their expiration dates, is included in Schedule 3.16. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and the Company is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. 3.17 Employee Benefit Plans and Policies. (a) Schedule 3.17(a) provides a description of each of the following which is sponsored, maintained or contributed to by any of the Company for the benefit of its employees, or has been so sponsored, maintained or contributed to within six years prior to the Closing Date: (i) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA ("Plan"); and (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not described in Section 3.17(a)(i) ("Benefit Program or Agreement"). True and complete copies of each of the Plans, Benefit Programs or Agreements, related trusts, if applicable, and all amendments thereto, have been furnished to Group 1. -8- 14 (b) The Company does not contribute to or have an obligation to contribute to, and has not at any time contributed to or had an obligation to contribute to, a plan subject to Title IV of ERISA, including, without limitation, a multiemployer plan within the meaning of Section 3(37) of ERISA. (c) Except as otherwise set forth in Schedule 3.17(c), (i) Each Plan and each Benefit Program or Agreement has been administered, maintained and operated in accordance with the terms thereof and in compliance with its governing documents and applicable law (including, where applicable, ERISA and the Code); (ii) There is no matter pending with respect to any of the Plans before any governmental agency, and there are no actions, suits or claims pending (other than routine claims for benefits) or threatened against, or with respect to, any of the Plans or Benefit Programs or Agreements or their assets; (iii) No act, omission or transaction has occurred which would result in imposition on the Company of (A) breach of fiduciary duty liability damages under Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (iv) Each of the Plans intended to be qualified under Section 401 of the Code satisfies the requirements of such Section, has received a favorable determination letter from the Internal Revenue Service regarding such qualified status and has not, since receipt of the most recent favorable determination letter, been amended or operated in a way which would adversely affect such qualified status; (v) As to any Plan intended to be qualified under Section 401 of the Code, there has been no termination or partial termination of the Plan within the meaning of Section 411(d)(3) of the Code; and (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (A) require the Company to make a larger contribution to, or pay greater benefits under, any Plan or Benefit Program or Agreement than it otherwise would or (B) create or give rise to any additional vested rights or service credits under any Plan or Benefit Program or Agreement. (d) There does not currently exist, and there has not at any time existed, any corporation, trade, business or entity under common control with the Company, within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA. -9- 15 (e) Termination of employment of any employee of any of the Company after consummation of the transactions contemplated by this Agreement would not result in payments under the Plans or Benefit Programs or Agreements which, in the aggregate, would result in imposition of the sanctions imposed under Sections 280G and 4999 of the Code. (f) Each Plan which is an "employee welfare benefit plan", as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued thereunder prior to such amendment or termination. (g) Schedule 3.17(g) sets forth by name and job description of the employees of the Company as of the date of this Agreement (the "Company Employees"). None of said employees are subject to union or collective bargaining agreements. The Company has not at any time had or been threatened with any work stoppages or other labor disputes or controversies with respect to its employees. 3.18 Leased Properties. (a) On the Closing Date, the Company will not own any real property or any interest therein. Schedule 3.18(a) sets forth the location and size of, principal improvements and buildings on, and Liens on all parcels of real estate leased by the Company (individually a "Leased Property" and collectively the "Leased Properties"). True and correct copies of all Liens are attached to Schedule 3.18(a). Except as set forth in Schedule 3.18(a), with respect to each Leased Property: (i) the Company has good and valid leasehold interests in each parcel of its Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of the Company or the Stockholders, threatened condemnation proceedings, suits or administrative actions relating to the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) except as set forth in Schedule 3.18(a)(iii), the legal descriptions for the parcels of Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; -10- 16 (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the leasing or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Leased Property, except as set forth in Schedule 3.18(a)(v); (vi) there are no outstanding options or rights of first refusal to purchase the parcels of Leased Property, or any portion thereof or interest therein; (vii) there are no parties (other than the Company) in possession of the parcels of Leased Property, other than tenants under any leases disclosed in Schedule 3.18(a)(vii) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Leased Property are supplied with utilities and other services necessary for the operation of such facilities; (ix) each parcel of Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Leased Property are in good repair and adequate for the use of such Leased Property in the manner in which presently used; and (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Leased Property, except as set forth in Schedule 3.18(a)(xi). (b) Except as set forth in Schedule 3.18(b), the Company has good and marketable title to all of its Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of the Company are in good operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.19 Insurance. Schedule 3.19 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Company (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. The Company is presently insured, and since the inception of operations by the Company has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. The Company has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as set forth in Schedule 3.19, no insurer has denied -11- 17 coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. The Company has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. The execution of this Agreement and the consummation of the transactions contemplated hereby will not cause such insurance policies to lapse, terminate or be canceled and will not result in any party thereto having the right to terminate or cancel such insurance policies. 3.20 Affiliate Interests. Except as set forth in Schedule 3.20, no employee, officer or director, or former employee, officer or director, of the Company has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business information, trademarks, service marks or trade names, used in or pertaining to the business of the Company, except for the normal rights of employees and stockholders. 3.21 Environmental Matters. Except as set forth in Schedule 3.21, to the best of the knowledge of the Stockholders: (a) The Company is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, dumping, discharging, release or disposal of Hazardous Substances, or other Waste. The Company is not currently liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. The Company is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. (b) The Company has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of their business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.21(b)), and the Company is in compliance with all the terms, conditions and requirements of such Licenses, and copies of such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or threatened by any Governmental Authority or third parties against the Company or its business, operations, properties, or assets, which question the validity or entitlement of the Company to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of the Company and the operation of its business. (c) The Company has not received and is not aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving the Company or its business, operations, properties, or assets, issued by any Governmental -12- 18 Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of its business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) The Company is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Owned Properties or the Leased Properties. (e) The Company has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. The Company has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. (f) The Company has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto. (g) The Company has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor have they allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified the Company that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Neither the Company nor the Stockholders have received notice or have knowledge of any facts which could give rise to any notice, that the Company is a potentially responsible party -13- 19 for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. The Company has not submitted and has not been required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, the Company. The Company has not received any written or, to the knowledge of the Stockholders, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where the Company has transported, transferred or disposed of other Wastes. The Company has not been required to and has not undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. The Company has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) The Company has no Aboveground Storage Tanks or Underground Storage Tanks, except as listed in Schedule 3.21(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which the Company is aware undertaken by the Company or its agents, or by the Stockholders, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Owned Properties or the Leased Properties; (ii) the results of which the Company is aware of any ground, water, soil, air or asbestos monitoring undertaken by the Company or their agents, or by the Stockholders, or by any Governmental Authority, or by any third party, relating to the Company or any of the Owned Properties or the Leased Properties; (iii) all written communications between the Company and any Governmental Authority arising under or related to Environmental Laws; and (iv) all citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting the Company or any of the Owned Properties or the Leased Properties. (j) Schedule 3.21(j) contains a list of the assets of the Company which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as set forth in Schedule 3.21(j), the Company has operated and continue to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as set forth in Schedule 3.21(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, or threatened against or directly affecting the Company or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with their assets and operations. (k) Any references in this Section 3.21 to the "Leased Properties" are deemed to also refer to any properties previously leased by the Company. -14- 20 3.22 Intellectual Property. Except as set forth in Schedule 3.22, the Company owns, or is licensed or otherwise has the right to use all Intellectual Property that are necessary for the conduct of the business and operations of the Company as currently conducted. To the knowledge of the Stockholders, (a) the use of the Intellectual Property by the Company does not infringe on the rights of any Person, and (b) no Person is infringing on any right of the Company with respect to any Intellectual Property. No claims are pending or, to the knowledge of the Stockholders, threatened that the Company is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Stockholders, no Person is infringing the rights of the Company with respect to any Intellectual Property. All of the Intellectual Property that is owned by the Company is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by the Company is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.23 Bank Accounts. Schedule 3.23 includes the names and locations of all banks in which the Company has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.24 Brokers. Except as disclosed in Schedule 3.24, no broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. 3.25 Disclosure. The Stockholders have disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of the Company. No representation or warranty to Group 1 by the Stockholders contained in this Agreement, and no statement contained in the Schedules attached hereto, any certificate, list or other writing furnished to Group 1 by the Stockholders pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, and any certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of the Stockholders for all purposes of this Agreement. -15- 21 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each Stockholder hereby, severally and not jointly, represents and warrants to Group 1 and Merger Sub that: 4.1 Capital Stock. Such Stockholder is the beneficial and record owner of the number of shares of Company Common Stock as set forth in Schedule 3.7(a). On the Closing Date all such shares will be owned free and clear of any lien, claim, pledge, encumbrance or other adverse claim. Except for such shares of Company Common Stock set forth in Schedule 3.7(a) hereto, such Stockholder does not own, beneficially or of record, any capital stock or other security, including without limitation any option, warrant or right entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the Company. 4.2 Authorization of Agreement. (a) Such Stockholder has full legal right, power, capacity and authority to execute, deliver and perform its obligations pursuant to this Agreement and to execute, deliver and perform its obligations under each instrument, document or agreement required hereby to be executed and delivered by such Stockholder at, or prior to, the Closing. (b) This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by such Stockholder at, or prior to, the Closing will then be, duly executed and delivered by such Stockholder, and this Agreement constitutes and, to the extent it purports to obligate such Stockholder, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of such Stockholder enforceable against it in accordance with its terms. 4.3 Approvals. Except for filings with the Secretary of State of Florida relating to the Merger, and except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit such Stockholder to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. 4.4 Absence of Conflicts. Except to the extent set forth in Schedule 4.4, neither the execution and delivery by such Stockholder of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by such Stockholder of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the -16- 22 organizational documents of such Stockholder or (iv) any contract or agreement to which such Stockholder is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of such Stockholder, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 4.5 Investment Intent. Each Stockholder makes the following representations relating to its acquisition of shares of Group 1 Common Stock: (i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be issued pursuant to the Merger to such Stockholder solely for such Stockholder's account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of any of those shares in connection with any distribution; (ii) such Stockholder is not a party to any agreement or other arrangement for the disposition of any shares of Group 1 Common Stock; (iii) such Stockholder is an "accredited investor" as defined in Securities Act Rule 501(a); (iv) such Stockholder (A) is able to bear the economic risk of an investment in the Group 1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a total loss of that investment, (C) has such knowledge and experience in financial and business matters, and such past participation in investments, that he or she is capable of evaluating the merits and risks of the proposed investment in the Group 1 Common Stock, (D) has received and reviewed the SEC Documents, (E) has had an adequate opportunity to ask questions and receive answers from the officers of Group 1 concerning any and all matters relating to the transactions contemplated hereby, including the background and experience of the current officers and directors of Group 1, the plans for the operations of the business of Group 1, the business, operations and financial condition of Group 1 and any plans of Group 1 for additional mergers or acquisitions of automotive dealerships, and (F) has asked all questions of the nature described in the preceding clause (E), and all those questions have been answered to his or her satisfaction; (v) such Stockholder acknowledges that the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Merger have not been and will not be registered under the Securities Act or qualified under applicable blue sky laws and therefore may not be resold by such Stockholder without compliance with Rule 144 of the Securities Act; (vi) such Stockholder acknowledges that he or she has agreed, pursuant to Section 10.8 herein, not to sell the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Merger for a period of one year (or two years with respect to James S. Carroll) from the Closing Date; (vii) such Stockholder, if a corporation, partnership, trust or other entity, acknowledges that it was not formed for the specific purpose of acquiring the Group 1 Common Stock; and (viii) without limiting any of the foregoing, such Stockholder agrees not to dispose of any portion of Group 1 Common Stock unless either (1) a registration statement under the Securities Act is in effect as to the applicable shares and the disposition is made in accordance with that registration statement, or (2) the disposition is made in full compliance with SEC Rule 144 and any other requirements of the Securities Act. Additionally, for the three-year period following the Closing Date a disposition pursuant to (viii)(2) above may be made only if the Stockholder has notified Group 1 of the proposed disposition and the disposition is made through a national brokerage firm selected by Group 1 and the Stockholder to offer disposition services for Group 1 Common Stock (in the absence of agreement between Group 1 and -17- 23 the Stockholder seeking to make a disposition, Goldman, Sachs & Co., Inc. will be the firm to handle such disposition). ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 AND MERGER SUB Group 1 and Merger Sub hereby represent and warrant, jointly and severally, to the Company and the Stockholders that: 5.1 Corporate Organization. Group 1 is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by it at the Closing. 5.2 Authorization. The execution and delivery by Group 1 and Merger Sub of this Agreement, the performance by Group 1 and Merger Sub of their respective obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Group 1 or Merger Sub at the Closing have been duly and validly authorized by all requisite corporate action on the part of Group 1 or Merger Sub, as the case may be. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Group 1 or Merger Sub at, or prior to, the Closing will then be, duly executed and delivered by Group 1 or Merger Sub, as the case may be. This Agreement constitutes, and, to the extent it purports to obligate Group 1 or Merger Sub, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Group 1 or Merger Sub, as the case may be, enforceable against them in accordance with its terms. 5.3 Approvals. Except for filings with the Secretary of State of Florida relating to the Merger, and except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Group 1 or Merger Sub, as the case may be, to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by either of them at or prior to the Closing. 5.4 Absence of Conflicts. Neither the execution and delivery by Group 1 or Merger Sub, as the case may be, of this Agreement or any instrument required hereby to be executed by it at or prior to the Closing nor the performance by Group 1 or Merger Sub, as the case may be, of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of Group 1 or Merger Sub or (iv) any contract or agreement to which Group 1 or Merger Sub is a party or by which it or any of its property is bound, or (b) result in the creation or imposition of any Liens on -18- 24 any of the properties or assets of Group 1 or Merger Sub (other than any Lien created by the Company ), or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Group 1 and its subsidiaries, taken as a whole. 5.5 Authorization For Group 1 Common Stock. All shares of Group 1 Common Stock issuable pursuant to the Merger are duly authorized and will, when issued, be validly issued, fully paid and nonassessable and not issued in violation of the preemptive rights of any stockholder of Group 1. 5.6 SEC Documents. The SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Group 1 included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Group 1 and its consolidated subsidiaries as of the dates thereto and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information, for normal year-end adjustments). 5.7 Merger Sub. Merger Sub is a corporation recently and duly incorporated under the laws of the State of Florida, is validly existing and in good standing under such laws and is a wholly-owned subsidiary of Group 1. Merger Sub has no assets, liabilities or obligations and has engaged in no business except as contemplated by this Agreement. 5.8 No Knowledge of Misrepresentations or Omissions. Neither Group 1, Merger Sub nor any of their agents or representatives has any actual knowledge that the representations of the Stockholders made in this Agreement are not true and correct in all material respects, and none of such persons has any actual knowledge of any material errors in, or material omissions from, the Schedules to this Agreement. -19- 25 ARTICLE VI COVENANTS OF THE STOCKHOLDERS 6.1 Merger Proposals. Prior to the Closing Date, neither the Company, any of its officers, directors, employees or agents nor any Stockholder shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion of the assets of, or a substantial equity interest in, the Company, other than the transactions with Group 1 contemplated by this Agreement. The Company and Stockholders will notify Group 1 promptly of any unsolicited offer. 6.2 Access. The Company shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all its properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Group 1 any information concerning its business, properties and personnel as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by the Company or the Stockholders pursuant to this Agreement. 6.3 Conduct of Business by the Company Pending the Merger. The Stockholders covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that the Company may dealer trade vehicles for similar models, but the Company shall not liquidate or otherwise dispose of any of their new vehicles other than in the ordinary course of business to retail buyers. The Company agrees to maintain their advertising expenditures and activities commensurate with prior business practices. The Company shall not advertise a "Going Out of Business" sale; (b) The Company shall not directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of the Company or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any assets of the Company, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of the Company, (iii) split, combine or reclassify any outstanding capital stock of the Company, or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to its capital stock whether now or hereafter outstanding (except as provided in Section 6.3(j) below), (iv) redeem, purchase or acquire or offer to acquire any of its capital stock, (v) create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business), or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, -20- 26 agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) The Company shall use its best efforts (i) to preserve intact the business organization of the Company, (ii) to maintain in effect any franchises, authorizations or similar rights of the Company, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. (d) The Company shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $50,000; (e) The Company shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as the Company in good faith may dispute; (f) The Company shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of the Company other than consistent with past business practices of the Company; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $50,000; (g) The Company shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Merger set forth in Article VIII not being satisfied; (h) The Company shall not (i) amend or terminate any Plan or Benefit Program or Agreement except as may be required by applicable law, (ii) increase or accelerate the payment or vesting of the amounts payable under any Plan or Benefit Program or Agreement, or (iii) adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, -21- 27 program, practice or understanding (other than the Plans and the Benefit Programs or Agreements); (i) The Company shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; (j) Notwithstanding anything in this Agreement to the contrary, dividends or other form of distribution to the Stockholders may be made after the date of the Interim Balance Sheet so long as such distributions do not cause the Company to be in violation of any manufacturer working capital or equity guidelines or requirements; and (k) The Stockholders will not revoke the Company's election to be taxed as an S corporation within the meaning of sections 1361 and 1362 of the Code. 6.4 Confidentiality. The Company shall, and the Company's officers, directors, employees, representatives and consultants shall, hold in confidence, and not disclose to others for any reason whatsoever, any non-public information received by them or their representatives in connection with the transactions contemplated hereby, including but not limited to all terms, conditions and agreements related to this transaction, except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of the Company as necessary in connection with the transactions contemplated hereby; and (iii) for information which becomes publicly available other than through the actions of the Company or a Stockholder. In the event the Merger is not consummated, the Company and the Stockholders will return all non-public documents and other material obtained from Group 1 or its representatives in connection with the transactions contemplated hereby or certify to Group 1 that all such information has been destroyed. 6.5 Notification of Certain Matters. The Company shall give prompt notice to Group 1, orally and in writing, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Effective Time, (ii) any failure of the Company, or any officer, director, employee or agent thereof, or any Stockholder to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (iii) any litigation, or any claim or controversy or contingent liability of which the Company has knowledge of that might reasonably be expected to become the subject of litigation, against the Company or affecting any of its assets, in each case in an amount in controversy in excess of $50,000, or that is seeking to prohibit or restrict the transactions contemplated hereby. 6.6 Consents. Subject to the terms and conditions of this Agreement, the Company shall (i) obtain all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on the Company, Group 1 or Merger Sub), authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary -22- 28 or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 6.7 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Effective Time, the Company and the Stockholders shall cooperate and use reasonable efforts to defend against and respond thereto. Costs of this defense and response will be borne by Group 1. 6.8 Stockholders' Agreements Not to Sell. Each of the Stockholders hereby covenants and agrees not to sell, pledge, transfer or dispose of or encumber any shares of Company Common Stock currently owned, either beneficially or of record, by such Stockholder, except as contemplated by this Agreement and the Plan of Merger. 6.9 Intellectual Property Matters. The Company shall use its best efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or domestic patent, trademark, service mark, trade name or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. 6.10 Removal of Related Party Guarantees. The Company and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all guarantees by the Company (such guarantees shall be referred to herein as "Related Guarantees", as described in Schedule 6.10 pursuant to Section 3.11 of this Agreement) of indebtedness or other obligations of any of the Company's officers, directors, shareholders, employees or affiliates of any such Persons. 6.11 Termination of Related Party Agreements. The Company and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.11 as agreements that shall not be subject to this Section 6.11. 6.12 Related Party Agreements. The Company agrees, and the Stockholders agree to cause the Company, not to enter into any Related Party Agreements or engage in any transactions with the Stockholders or their affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.12 as agreements or transactions that shall not be subject to this Section 6.12. 6.13 Release. -23- 29 (a) AS OF THE CLOSING, EACH OF THE STOCKHOLDERS DOES HEREBY FOR HIMSELF OR HIS HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE THE COMPANY OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH EACH OF SUCH STOCKHOLDERS NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST THE COMPANY INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF THE COMPANY AND ITS EMPLOYEES AND AGENTS, EXISTING AS OF THE CLOSING OR RELATING TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT; AND PROVIDED FURTHER ANY LIABILITIES UNDER PLANS OR BENEFIT PROGRAMS OR AGREEMENTS LISTED ON THE SCHEDULES HERETO SHALL NOT BE RELEASED. (b) EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS RELEASED HEREIN. EACH OF THE STOCKHOLDERS COVENANTS AND AGREES THAT HE WILL NOT ASSIGN OR TRANSFER TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS TO BE RELEASED HEREIN. EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 6.13 AND THAT HE HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT. 6.14 Leases. Stockholders hereby agree to cause certain of their affiliates to enter into lease agreements with the Company on the basic terms, and covering the real properties and improvements, described on Exhibit B. 6.15 Employment Agreements. The Stockholders agree to enter into employment agreements with Group 1 and the Company in form and substance substantially similar to Exhibit C attached hereto. 6.16 Certain Tax Matters (a) The Stockholders shall use the amounts reflected in Section 1.6(b)(i) of the Plan of Merger for purposes of preparation of their Tax Returns. With respect to the shares of Group 1 Common Stock received by the Stockholders, $14.00 per share shall be used for purposes of determining the value of the stock portion of the purchase price. (b) The Stockholders shall (i) file all required 1998 federal income tax returns of the Company by September 30, 1998; (ii) use an interim closing of the books of the -24- 30 Company effective as of the Closing Date for the purposes of preparing such returns; and (iii) deliver such returns to Group 1 for its review at least five (5) days prior to the filing of such returns. 6.17 Section 338(h)(10) Elections. (a) The Stockholders and Group 1 shall join in making a timely, irrevocable and effective election under section 338(h)(10) of the Code and a similar election under any applicable state income tax law (collectively the "Section 338(h)(10) Elections") with respect to Group 1's purchase of the Company Common Stock. To facilitate such election, at the Closing the Stockholders shall deliver to Group 1 an Internal Revenue Service Form 8023 and any similar forms under applicable state income tax law (the "Forms") with respect to Group 1's purchase of the Company Common Stock, which Forms shall have been duly executed by an authorized person for the Stockholders. Group 1 shall cause the Forms to be duly executed by an authorized person for Group 1, shall complete the schedules required to be attached thereto, shall provide a copy of the executed Form and schedules to the Stockholders, and shall duly and timely file the Forms as prescribed by Treasury Regulation 1.338(h)(10)-1 or the corresponding provisions of applicable state income Tax law. None of the Stockholders or Group 1 shall take any action to rescind, revoke or modify the Section 338(h)(10) Election without the prior written approval of the other party. (b) The Stockholders and Group 1 shall jointly determine the liabilities of the Company and allocate the purchase price, such liabilities, and other relevant items in accordance with the Code and the Treasury Regulations promulgated thereunder. The Stockholders and Group 1 shall jointly prepare all schedules required to be attached to the Forms. Such schedules shall be attached to this Agreement as Schedule 6.15(b). The Stockholders and Group 1 shall prepare all relevant federal income tax returns in a manner consistent with the schedules. With respect to any items included in the schedules as to which Group 1 and the Stockholders are unable to jointly agree, the allocation proposed by Group 1 shall be reflected on the schedules. The parties have previously reviewed and examined the tangible personal property and other assets of the Company, and agree that the fair market value of such assets at the Closing Date will be equal to each such asset's adjusted tax basis, net of depreciation for the Company's tax period ending on the Closing Date, except that the fair market value of the Company's inventory will be determined on a first-in, first-out basis. The balance of the purchase price, the stock portion of which will be reported by the parties hereto based on $14 per share, will be allocated to goodwill of the Company. 6.18 Phase I Environmental Assessments. The Stockholders have delivered all Phase I Environmental Surveys requested by Group 1. Prior to Closing the Stockholders will complete at their cost all cure and remediation efforts recommended in such surveys, and, to the best of Stockholders' knowledge, the Company will have no residual liability with regard to any matter revealed in such surveys. -25- 31 ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence all, and not to disclose to others for any reason whatsoever, any non-public information received by it or its representatives in connection with the transactions contemplated hereby except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Group 1 as necessary in connection with the transactions contemplated hereby or as necessary to the operation of Group 1's business; and (iii) for information which becomes publicly available other than through the actions of Group 1. In the event the Merger is not consummated, Group 1 will return all non-public documents and other material obtained from the Company or its representatives in connection with the transactions contemplated hereby or certify to the Company that all such information has been destroyed. 7.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for issuance and shall issue, out of its authorized but unissued capital stock, such number of shares of Group 1 Common Stock as may be issuable upon consummation of the Merger. 7.3 Consents. Subject to the terms and conditions of this Agreement, Group 1 shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.4 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Effective Time, Group 1 agrees to cooperate and use reasonable efforts to defend against and respond thereto. Costs of this defense and response will be borne by Group 1. 7.5 Delivery of Certificates. On the Closing Date, Group 1 will deliver to each holder of certificates which represented Company Common Stock prior to the Effective Time a letter of transmittal and other information advising such holder of the consummation of the Merger and to enable such holder to effect the exchange of stock certificates as contemplated by Article II of this Agreement. 7.6 Certain Tax Matters (a) Group 1 shall use the amounts reflected in Section 1.6(b)(i) of the Plan of Merger for purposes of preparation of its Tax Returns. With respect to the shares of Group -26- 32 1 Common Stock received by the Stockholders, $14.00 per share shall be used for purposes of determining the value of the stock portion of the purchase price. (b) Group 1 shall act as reasonably necessary to assist the Stockholders in preparing their federal income tax returns in accordance with Section 6.16(b) hereof. (c) Group 1 shall cause the Company, as soon as practicable, to calculate and distribute pro rata to the Stockholders a cash amount equal to the net assets of the Company as of the Closing Date less the applicable manufacturer's minimum working capital requirement as of the Closing Date. ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Merger; (b) There shall have been obtained any and all permits, approvals and consents of securities or "blue sky" commissions of each jurisdiction and of any other governmental agency or authority, with respect to the consummation of the Merger; (c) The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated; and (d) Receipt of Ford Motor Company's approval of the Merger and the transactions contemplated thereby. 8.2 Additional Conditions Precedent to Obligations of Group 1. The obligation of Group 1 to effect the Merger is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of the Company and the Stockholders contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all of the terms, covenants and conditions of this Agreement to be complied with and performed by the Company and the Stockholders on or before the Closing Date shall have been duly complied with and performed in all respects, a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of the Company and each of the Stockholders shall have -27- 33 been delivered to Group 1, and a copy of the resolutions of each Company's Board of Directors, certified by the Secretary of the Company as of the Closing Date, approving the terms of this Agreement and all transactions contemplated hereby shall have been delivered to Group 1; (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Merger and the transactions contemplated thereby will be in compliance with applicable laws; (c) Satisfaction or waiver of the conditions set forth in Article VIII of each of the Other Agreements and the simultaneous closing of each of the Other Mergers; (d) Group 1 shall have received evidence, satisfactory to Group 1, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.10 and 6.11 hereto; (e) Group 1 shall have received executed representations from each Stockholder stating that such Stockholder (with respect to shares owned beneficially or of record by him or her) has no current plan or intention to sell or otherwise dispose of the Group 1 Common Stock to be received by him or her in the Merger; (f) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of the Company shall have occurred, and the Company shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of the Company and Group 1 shall have received a certificate signed by the chief executive officer of the Company dated the Closing Date to such effect; (g) Receipt by Group 1, at Stockholders' expense, of a Policy of Title Insurance, issued by a title company, approved by Group 1, subject only to the exceptions described in Schedule 8.2(g) ("Permitted Title Exceptions"); (h) Receipt by Group 1, at Stockholders' expense, of a current survey of the Leased Properties showing the location of any improvements, prepared by a licensed surveyor approved by Group 1; (i) Closing of the purchase by Group 1 of the Premier Auto Finance, L.P., limited partnership interest from J. Carroll Enterprises, Inc.; (j) Execution of employment agreements pursuant to Section 6.15; and (k) Execution of the lease agreements pursuant to Section 6.14. -28- 34 8.3 Additional Conditions Precedent to Obligations of the Stockholders. The obligation of the Stockholders to effect the Merger is also subject to the fulfillment at or prior to the Closing Date of the following condition: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date, all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects, a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to the Company, and a copy of the resolutions of the Board of Directors of Group 1, certified by the Secretary of Group 1 as of the Closing Date, approving the terms of this Agreement and all transactions contemplated hereby shall have been delivered to the Company; and (b) Receipt of an opinion from Crowe Chisek & Company, dated as of the Closing Date, to the effect that the Merger will constitute a non-taxable reorganization as defined in Section 368(a) of the Code. ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Stockholders to indemnify. Each of the Stockholders agrees to severally indemnify, defend and hold Group 1 harmless (subject to the limitations set forth in Section 9.1(e) below) from and against the aggregate of all Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Indemnifiable Damages" means, without duplication, the aggregate of all actual expenses, losses, costs, deficiencies, liabilities and damages (including reasonable related counsel and paralegal fees and expenses) incurred or suffered by Group 1, on a pre-tax consolidated basis to the extent (i) resulting from any breach of a representation or warranty made by the Company or such Stockholder in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by the Company or such Stockholder pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by the Company or any of the Stockholders pursuant to this Agreement; provided, however, that "Indemnifiable Damages" shall not include any damages arising from the employment agreements executed pursuant to Section 6.15, the lease agreements executed pursuant to Section 6.14 and the non- competition provisions of Section 10.4. (b) Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Group 1 shall have the right to be put in the same pre-tax consolidated financial position as Group 1 would have been in had each of the representations and warranties of the Company and such Stockholder hereunder been true -29- 35 and correct and had the covenants and agreements of the Company and such Stockholder hereunder been performed in full. (c) Each of the representations and warranties made by the Company and the Stockholders in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date, except that the representations and warranties of the Stockholders contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 4.1, 4.2, 4.3 and 4.4 shall not expire, but shall continue indefinitely. No claim for the recovery of Indemnifiable Damages may be asserted by Group 1 against the Stockholders after such representations and warranties shall expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) If Group 1 believes it is entitled to a claim for any Indemnifiable Damages hereunder, Group 1 shall promptly give written notice to the Stockholders of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If the Stockholders do not pay the amount of the claim for Indemnifiable Damages to Group 1 within 10 days, then Group 1 may exercise its respective rights under Section 9.3 and/or take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.1, the Stockholders' liability for Indemnifiable Damages shall be limited as follows: (1) Group 1 shall have no claim for Indemnifiable Damages unless and until all Indemnifiable Damages incurred by Group 1 exceed an aggregate of $350,000.00 with respect to this Agreement and the Other Agreements (the "Basket Amount"), in which event the Stockholders shall be liable for only such Indemnifiable Damages in excess of the Basket Amount; and (2) The total amount of Indemnifiable Damages for which each Stockholder shall be liable to Group 1 shall not exceed the total value of the Initial Stock Consideration and the Initial Cash Consideration received by such Stockholder in the Merger and the Other Mergers. For the purposes of this Section 9.1(e)(2), all Initial Stock Consideration shall be assigned a per share value of $14.00. -30- 36 THE STOCKHOLDERS ACKNOWLEDGE AND AGREE THAT FOR PURPOSES OF THE BASKET AMOUNT, INDEMNIFIABLE DAMAGES UNDER THE OTHER AGREEMENTS WILL AFFECT THEIR OBLIGATION TO INDEMNIFY GROUP 1 UNDER THIS AGREEMENT, EVEN THOUGH THE STOCKHOLDERS MAY OWN DIFFERING PERCENTAGES OF THE DEALERSHIPS BEING ACQUIRED BY GROUP 1 PURSUANT TO THE OTHER AGREEMENTS. FOR EXAMPLE, IF CLAIMS FOR INDEMNIFIABLE DAMAGES UNDER ONE OF THE OTHER AGREEMENTS EQUAL OR EXCEED $350,000, THEN THE STOCKHOLDERS UNDER THIS AGREEMENT WILL BE OBLIGATED TO INDEMNIFY GROUP 1 FOR CLAIMS FOR ALL AMOUNTS WITHOUT THE BENEFIT OF ANY BASKET AMOUNT. 9.2 Agreement by Group 1 to Indemnify. Group 1 agrees to indemnify, defend and hold the Stockholders harmless from and against the aggregate of all Stockholders Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Stockholders Indemnifiable Damages" means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including reasonable related counsel and paralegal fees and expenses) incurred or suffered by the Stockholders, on a pre-tax consolidated basis, to the extent (i) resulting from any breach of a representation or warranty made by Group 1 in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by Group 1 in or pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by Group 1 pursuant to this Agreement; provided, however, that "Stockholders Indemnifiable Damages" shall not include any damages arising from the employment agreements executed pursuant to Section 6.15, the lease agreements executed pursuant to Section 6.14 and the non-competition provisions of Section 10.4. (b) Without limiting the generality of the foregoing, with respect to the measurement of Stockholders Indemnifiable Damages, the Stockholders have the right to be put in the same pre-tax consolidated financial position as he, she or it would have been in had each of the representations and warranties of Group 1 hereunder been true and correct and had the covenants and agreements of Group 1 hereunder been performed in full. (c) Each of the representations and warranties made by Group 1 in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date, except that the representations and warranties of Group 1 contained in Sections 5.1, 5.2, 5.3, 5.4 and 5.5 shall not expire, but shall continue indefinitely. No claim for the recovery of Stockholders Indemnifiable Damages may be asserted by the Stockholders against Group 1 after such representations and warranties shall thus expire, provided, however, that claims for Stockholders Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. -31- 37 (d) In the event that the Stockholders believe they are entitled to a claim for any Stockholders Indemnifiable Damages hereunder, the Stockholders shall promptly give written notice to Group 1 of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If Group 1 does not pay the amount of the claim for Indemnifiable Damages to the Stockholders within 10 days, then the Stockholders may exercise their respective rights under Section 9.3 and/or take any action or exercise any remedy available to them by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.2, the Stockholders shall have no claim for Stockholders Indemnifiable Damages unless and until the aggregate Stockholders Indemnifiable Damages incurred by the Stockholders under this Agreement and the Other Agreements shall exceed an aggregate of $350,000, in which event Group 1 shall be liable for only such Stockholders Indemnifiable Damages in excess of $350,000. 9.3 Conditions of Indemnification. The obligations and liabilities of the Stockholders and Group 1 hereunder with respect to their respective indemnities pursuant to this Article IX resulting from any claim or other assertion of liabilities by third parties (hereinafter called collectively "Claims"), shall be subject to the following terms and conditions: (a) the party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claim 10 business days after the Indemnified Party receives notice thereof (provided that failure to give notice within such 10 day period does not relieve the Indemnifying Party of his obligations to indemnify the Indemnified Party hereunder, except to the extent that such Indemnifying Party is harmed by the failure of the Indemnified Party to provide timely notice); (b) the Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claim; provided, however, if a Claim is made against Group 1 or Merger Sub, then Group 1 shall have the right to control the defense of the Claim; (c) if the Indemnifying Party shall elect not to undertake such defense, or within a reasonable time after notice of any such Claim from the Indemnified Party shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claim at any time prior to settlement, compromise or final determination thereof); (d) anything in this Section 9.3 to the contrary notwithstanding, (A) the Indemnified Party shall have the right, at its own cost and expense, to have its own counsel -32- 38 to protect its own interests and participate in the defense, compromise or settlement of the Claim, (B) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claim or consent to entry of any judgement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim, and (C) the Indemnified Party, by counsel or other representatives of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claim, and the Indemnifying Party and the Indemnified Party and their respective counsel shall cooperate with respect to such Claim. 9.4 Section 338(h)(10) Elections. Group 1 agrees to indemnify the Stockholders for any federal income tax, interest and penalties divided by a factor of .8 or the reciprocal of the applicable capital gains rate in effect at that time if different, in the event of a federal income tax adjustment resulting from an IRS readjustment of the purchase price allocation completed by the parties hereto in accordance with Section 6.17(b) and shall also indemnify the Stockholders for any accounting and legal expenses incurred in connection with any federal income tax audit of said allocation. Any payment required under this Section 9.4 shall be made no later than ten (10) days after notice of any final adjustment to Group 1. The Basket Amount shall not apply to any amounts payable to the Stockholders under this Section 9.4. The provisions of this Section 9.4 shall survive the Closing and be independent of any other provisions of this Section 9. ARTICLE X MISCELLANEOUS 10.1 Certain Additional Rights. (a) In connection with Group 1's future dealership acquisitions in which the seller of such dealership seeks to sell the real estate and facilities component thereof (and Group 1 elects not to purchase such real estate and facilities), Group 1 agrees to introduce and recommend World Partner Associates, Ltd. as a suitable buyer of such real estate and facilities, with the understanding that World Partner Associates, Ltd. will lease such real estate and facilities to Group 1 under terms and conditions substantially similar to the lease agreement between Courtesy Ford, Inc. and K.C. Partnership entered into as of the Closing Date (and providing for an annual rental of 10% of the purchase price for such real estate), provided, however, that if Group 1 has a business arrangement with an affiliated real estate company or with a Group 1 lender providing for economic benefit to Group 1 as a result of the real estate company's acquisition of the real estate and facilities component of an acquired dealership, such business arrangement will supersede Group 1's obligations to World Associates, Ltd. hereunder. The rights and obligations created hereunder shall expire on the tenth anniversary of the Closing Date. (b) Group 1 agrees that if a third party makes an offer to purchase one or more of the Companies in a transaction not involving (i) a substantial portion of the other -33- 39 operations of Group 1 (other than the Companies) or (ii) a substantial portion of the Group 1 operations under the management of James S. Carroll in Florida and Georgia (other than the Companies), James S. Carroll has the right of first refusal to purchase the Company or Companies subject to the third party offer on the same terms as such offer, provided, however, that as a condition of closing such offer, all Designated Persons (as defined herein) who will own, operate or manage the repurchased Company or Companies shall resign from employment with Group 1. The right granted hereunder shall expire on the tenth anniversary of the Closing Date and is personal to James S. Carroll and is non-assignable and non-transferrable. 10.2 Certain Post-Closing Payments. (a) As additional consideration for the capital stock of the Company, Group 1 hereby agrees to pay the Stockholders certain additional amounts as provided in this Section 10.2(a). Beginning with the year ended December 31, 1999, the audited operations of the Carroll Group will be reviewed with respect to their operations during the full twelve calendar months of 1999. To the extent that Group 1's Incremental Return exceeds 11%, the Group 1 investment will be increased to a level which will yield this required rate of Incremental Return. This increase will be paid to the Stockholders no later than April 30 of the following year, as additional consideration for the Merger and the Other Mergers. This review will be conducted after each of the five years commencing with calendar 1999, and increases in investment as determined above will be paid until such time as the maximum increase has been reached. All additional consideration paid to the Stockholders pursuant to this Section 10.2(a) will be paid in cash and Group 1 Common Stock, in the same proportions as the aggregate consideration received by each Stockholder in the Merger and the Other Mergers. For the purposes of determining the number of shares of Group 1 Common Stock payable to the Stockholders hereunder, such shares shall be assigned a per share value of the average closing price of the Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding the date on which such shares are issued. The aggregate consideration paid by Group 1 pursuant to this Section 10.2(a) and Section 10.2(a) of the Other Agreements (the "Contingent Consideration") shall not exceed $7.5 million, $2.5 million of which (the "Guaranteed Payments") will be paid regardless of the results of the above computation, as follows: $900,000 on the first anniversary of the Closing Date, $900,000 on the second anniversary of the Closing Date, and $700,000 on the third anniversary of the Closing Date. The aggregate Guaranteed Payments actually paid to the Stockholders shall carry forward and be applied against any additional Contingent Consideration payable to the Stockholders hereunder. The Guaranteed Payments shall be reduced by the difference between the aggregate Contingent Consideration previously paid to the Stockholders and $2.5 million. The Contingent Consideration payable under this Section 10.2(a) is additional consideration for the Stockholders' interests in the Company, and the parties hereto agree to report such amounts on such basis for income tax purposes. -34- 40 (b) In addition to the compensation payable to the Stockholders pursuant to the Plan of Merger, Group 1 will pay to the Stockholders, on April 10, 1999, an aggregate cash amount computed as follows: (a) 20% of the Company's December 31, 1997 LIFO inventory reserve, (b) which product is then divided by 80%. The payment by Group 1 hereunder shall be allocated among the Stockholders pro rata based on the Initial Cash Consideration paid to such Stockholders pursuant to the Plan of Merger. 10.3 Schedules to this Agreement. The Schedules to this Agreement contain all disclosure required to be made by the Company under the various terms and provisions of this Agreement. 10.4 Non-Competition Obligations. (a) As part of the consideration for the Merger, and as an additional incentive for Group 1 to enter into this Agreement, James S. Carroll, William C. Carroll, Janet L. Giles and Ralph S. Kerr (each a "Designated Person" and collectively, the "Designated Persons") and Group 1 agree to the non-competition provisions of this Section 10.4. Each Designated Person agrees that during the period of such Designated Person's non-competition obligations hereunder, such Designated Person will not, directly or indirectly for such Designated Person or for others, within twelve miles of or in the county of any operations sold to Group 1 under this Agreement or operations subsequently managed by such Designated Person as of the date in question or during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates engaged in automotive retailing; (ii) render advice or services to, or otherwise assist, including financing, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates engaged in automotive retailing; or (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Group 1 or any of its subsidiaries or affiliates. For the purposes of this Section 10.4, "operations subsequently managed" shall mean (i) in the case of James S. Carroll, all Florida and Georgia operations of Group 1 and its affiliates under the executive management authority of James S. Carroll and (ii) in the case of the other Designated Persons, all operations of Group 1 and its affiliates under the day-to-day general management authority of such Designated Persons. -35- 41 These non-competition obligations shall apply until the later of (i) three years after the Closing or (ii) the period specified in any employment agreement entered into by such Designated Person with Group 1 or its Subsidiaries. If Group 1 or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this non-competition covenant shall not apply to such former aspect of that business. Notwithstanding the foregoing, the non-competition obligations of this Section 10.4 shall not apply to (x) the leasing of property or facilities owned by the Designated Persons or their affiliates to a competitor of Group 1 if such property or facilities were previously leased to Group 1 under a lease agreement which Group 1 materially breached, failed to renew or terminated (for reasons other than lessor's breach), or (y) any Designated Person's operation and management of any dealership purchased in accordance with Section 10.1(b) hereof. (b) During this non-competition period James S. Carroll will not engage in these restricted activities or assist in the industry consolidation efforts on behalf of any publicly held entity in the automotive retailing industry (nor any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity), regardless of geographic area or market; provided, however, that this paragraph (b) shall not prohibit James S. Carroll from selling, to a publicly held entity, any dealership acquired by him in full compliance with his post-employment non-competition obligations hereunder and held by him for at least one year. (c) The Designated Persons understand that the foregoing restrictions may limit their ability to engage in certain businesses during the period provided for above, but acknowledge that the Designated Persons will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. Each of the Designated Persons acknowledges that money damages would not be sufficient remedy for any breach of this Section 10.4 by such Designated Person, and such remedies shall not be deemed the exclusive remedies for a breach of this Section 10.4, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Group 1 and such Designated Person's agents involved in such breach. (d) It is expressly understood and agreed that Group 1 and the Designated Persons consider the restrictions contained in this Section 10.4 to be reasonably necessary to protect the legitimate business interests of Group 1 and its affiliates, including the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by -36- 42 such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. (e) The parties hereto expressly acknowledge that Group 1's rights under this Section 10.4 are assignable and that such rights shall be fully enforceable by any of Group 1's assignees or successors in interest. 10.5 Termination. This Agreement may be terminated and the Merger and the other transactions contemplated herein may be abandoned at any time prior to the Closing: b (a) by mutual consent of Group 1 and the Stockholders; (b) by either Group 1 or the Stockholders if the Merger has not been effected on or before March 31, 1998; (c) by Group 1 if the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate under this Section 10.5(c) shall expire at midnight on January 31, 1998; (d) by either Group 1 or the Stockholders if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Merger or the other transactions contemplated hereby shall have been entered; (e) by Group 1 if (i) since the date of this Agreement there has been a material adverse change in the business operations, financial condition or prospects of the Company; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by the Company or the Stockholders (except for any representation, warranty or covenant qualified by materiality or knowledge according to its terms, in which case any breach thereof will give rise to Group 1's right to terminate hereunder) which breach has not been cured within ten business days following receipt by the Company of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the aggregate projected 1998 pre-tax income of $6.8 million expected for the Company and the Other Companies, on which the consideration paid to the Stockholders in connection with the Merger was based; or (f) by the Stockholders if there has been a material breach of any representation or warranty set forth in this Agreement by Group 1 which breach has not been cured within ten business days following receipt by Group 1 of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice). -37- 43 10.6 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.5, the parties hereto shall have no obligation or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1, 7.4 and 10.7 survive any such termination. 10.7 Expenses. Regardless of whether the Merger is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby incurred by Group 1 shall be paid by Group 1 and all such costs and expenses incurred by the Stockholders shall be paid by the Company and the Stockholders; provided, that all expenses borne by the Company will be paid prior to the completion of the distributions contemplated by Sections 6.3(j) and 7.6(c) hereof, and that such expenses will be deducted from the Company's working capital for the purpose of calculating such distributions. The Stockholder and Group 1 each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.8 Restrictions on Transfer of Group 1 Common Stock. (a) During the one-year period ending on the anniversary of the Closing Date (the "Restricted Period") (two-year period with respect to James S. Carroll), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of Group 1 Common Stock received by any Stockholder in the Merger or (B) any interest in (including any option to buy or sell) any of those shares of Group 1 Common Stock, in whole or in part, and Group 1 will have no obligation to, and shall not, treat any such attempted transfer as effective for any purpose; or (ii) engage in any transaction, whether or not with respect to any shares of Group 1 Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning the shares of Group 1 Common Stock acquired pursuant to the Plan of Merger (including for example engaging in put, call, short-sale, straddle or similar market transactions). Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group 1 Common Stock, provided that the pledgee of such shares shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (ii) transfer shares to immediate family members or the estate of any such individual (including, without limitation, any transfer by such Stockholder to or among any trust, custodial or other similar accounts or funds that are for the benefit of his or her immediate family members), provided that such person or entity shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; and (iii) transfer shares by will or the laws of descent and distribution or otherwise by reason of such Stockholder's death. The certificates evidencing the Group 1 Common Stock delivered to each Stockholder pursuant to the Plan of Merger will bear a legend substantially in the form set forth below and containing such other information as Group 1 may deem necessary or appropriate: EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER -38- 44 DISPOSITION OF ANY OF THOSE SHARES, DURING THE [ONE-YEAR] [TWO-YEAR] PERIOD ENDING ON ______________ [DATE THAT IS THE [FIRST] [SECOND] ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. (b) Each Stockholder, severally and not jointly with any other Person, (i) acknowledges that the shares of Group 1 Common Stock to be delivered to that Stockholder pursuant to the Plan of Merger have not been and, if applicable, will not be registered under the Securities Act and therefore may not be resold by that Stockholder without compliance with the Securities Act and (ii) covenants that none of the shares of Group 1 Common Stock issued to that Stockholder pursuant to the Plan of Merger will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all the applicable provisions of the Securities Act and the rules and regulations of the Commission and applicable state securities laws and regulations. All certificates evidencing shares of Group 1 Common Stock issued pursuant to the Plan of Merger will bear the following legend in addition to the legend prescribed by Section 10.8(a): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." In addition, certificates evidencing shares of Group 1 Common Stock issued pursuant to the Plan of Merger to each Stockholder will bear any legend required by the securities or blue sky laws of the state in which that Stockholder resides. 10.9 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. -39- 45 10.10 Legal Fees. Except as otherwise provided herein, the losing party shall pay all reasonable legal fees and expenses and costs of litigation through appeal incurred by the prevailing party in any dispute arising from this Agreement. 10.11 Public Statements. The Stockholders and Group 1 agree to consult with each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law. 10.12 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other parties hereto. 10.13 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: if to the Company: J. Carroll Enterprises, Inc. 3101 N. State Road 7 Hollywood, Florida 33021 Telecopy: (954) 964-4760 Attention: James S. Carroll with a copy to: Bernard A. Singer, P.A. 4700-B Sheridan Street Hollywood, Florida 33021 Telecopy: (954) 985-0941 if to the Stockholders: J. Carroll Enterprises, Inc. 3101 N. State Road 7 Hollywood, Florida 33021 Telecopy: (954) 964-4760 Attention: James S. Carroll with a copy to: Bernard A. Singer, P.A. 4700-B Sheridan Street Hollywood, Florida 33021 Telecopy: (954) 985-0941 -40- 46 if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.13. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Delivery to the Stockholders' representative, if any, of any notice to Stockholders hereunder shall constitute delivery to all Stockholders and any notice given by such Stockholders' representative shall be deemed to be notice given by all Stockholders. 10.14 Governing Law. Except as otherwise specified herein, this Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.15 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.16 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.17 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10.18 Entire Agreement; Third Party Beneficiaries. This Agreement, including the Exhibits and the Schedules hereto, constitutes the entire agreement and supersedes all other prior agreements and understandings, both oral and written, among the parties or any of them, with respect to the subject matter hereof (except as contemplated otherwise by this Agreement) and neither this nor any -41- 47 document delivered in connection with this Agreement, confers upon any Person not a party hereto any rights or remedies hereunder. [signature page follows] -42- 48 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. ----------------------------------- Name: B.B. Hollingsworth, Jr. Title: Chairman, President and Chief Executive Officer KOONS MERGER, INC. By: /s/ JOHN T. TURNER ----------------------------------- Name: John T. Turner Title: President KOONS FORD, INC. By: /s/ JAMES S. CARROLL ----------------------------------- Name: James S. Carroll Title: President STOCKHOLDERS J. CARROLL ENTERPRISES TRUST /s/ JAMES S. CARROLL --------------------------------------- By: James S. Carroll, Trustee /s/ RALPH S. KERR --------------------------------------- Ralph S. Kerr 49 JANET L. GILES REVOCABLE LIVING TRUST /s/ JANET L. GILES --------------------------------------- By: Janet L. Giles, Trustee WILLIAM C. CARROLL REVOCABLE LIVING TRUST /s/ WILLIAM C. CARROLL --------------------------------------- By: William C. Carroll, Trustee 50 ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Agreement shall have the meanings set forth below unless the context shall otherwise require: "Aboveground Storage Tanks" and "Underground Storage Tanks" shall have the meanings given them in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree, as in effect as of the Closing Date, governing Aboveground Storage Tanks or Underground Storage Tanks. "affiliate" shall mean, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. "Agreement" shall mean the Agreement and Plan of Reorganization made and entered into as of December ____, 1997 by and among Group 1, Merger Sub, the Company and the Stockholders thereof, including any amendments thereto and each Annex (including this Annex A), Exhibit and schedule thereto (including the Schedules). "Assets" shall mean all of the properties and assets owned by the Company, other than the Leased Properties, whether personal or mixed, tangible or intangible, wherever located. "Benefit Program or Agreement" shall have the meaning set forth in Section 3.17. "Business Day" means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. "Carroll Group" shall mean all dealerships under the executive management responsibility of James S. Carroll in Florida and Georgia (including the Companies and any other dealerships acquired by Group 1 after the Closing Date) and additional dealerships acquired by Group 1 as a result of the efforts of James S. Carroll (whether or not such dealerships are under the executive management control of James S. Carroll). "Closing" shall mean a meeting, which shall be held in accordance with Section 2.2, of representatives of the parties to the Agreement at which, among other things, all documents deemed necessary by the parties to the Agreement to evidence the fulfillment or waiver of all conditions precedent to the consummation of the transactions contemplated by the Agreement are executed and delivered. "Closing Date" shall mean the date of the Closing as determined pursuant to Section 2.2. -1- 51 "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Company" shall mean Koons Ford, Inc., a Florida corporation, all predecessor entities of the Company and its successors from time to time. "Company Common Stock" shall mean the issued and outstanding common stock of the Company, as set forth in Section 3.7. "Company's 1996 Balance Sheet" shall have the meaning set forth in Section 3.8 herein. "Company's 1996 Financial Statements" shall have the meaning set forth in Section 3.8 herein. "Contingent Consideration" shall have the meaning set forth in Section 10.2(a) herein. "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Designated Person" and "Designated Persons" shall have the meanings set forth in Section 10.4 herein. "Effective Time" shall mean the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Florida recognizing the Merger. "Environmental Laws" shall mean all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, as in effect on the Closing Date, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the Regulations promulgated thereunder. -2- 52 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder. "Fixed Assets" shall mean all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures owned by the Company or set forth on the 1996 Balance Sheet or acquired by the Company since the date of the 1996 Balance Sheet. "GAAP" shall mean accounting principles generally accepted in the United States as in effect from time to time consistently applied by a specified Person. "Governmental Authority" shall mean any governmental agency or authority (other than a Court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. "Group 1" shall mean Group 1 Automotive, Inc., a Delaware corporation. "Group 1 Common Stock" shall mean the common stock, par value $.01 per share of Group 1. "Guaranteed Payments" shall have the meaning set forth in Section 10.2(a) herein. "Guarantees" shall have the meaning set forth in Section 3.11 herein. "Hazardous Substance" shall mean any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, metals, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires remediation under any Environmental, Health and Safety Laws in effect on the Closing Date, including, without limitation, the United States Department of Transportation Table (49 CFR 172, 101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and any amendments thereto; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state statute or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has -3- 53 been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Incremental Return" shall mean return on Group 1's investment in the operations of the Carroll Group that were not a part of the Companies on the date of this Agreement (total income after income taxes divided by total investment). " Income" and "investment" used for these purposes will be before any Group 1 management fees, allocations of indirect costs, cost of capital (including interest, loan origination fees, points and any other expenses incurred in obtaining or maintaining a loan) or amortization of goodwill. "Total investment" in these operations will include any loan proceeds, cash or stock invested by Group 1 to acquire the operations added to the Carroll Group after the date of this Agreement (including all investments made by Group 1 as a condition to manufacturer approval of such acquisitions). "Indemnifiable Damages" shall have the meaning set forth in Section 9.1 herein. "Indemnified Party" shall have the meaning set forth in Section 9.3 herein. "Indemnifying Party" shall have the meaning set forth in Section 9.3 herein. "Intellectual Property" shall mean all patents, trademarks, copyrights and other proprietary rights. "IRS" shall mean the Internal Revenue Service. "Law" shall mean all laws, statutes, ordinances, rules and regulations of the United States, any foreign country, or any domestic or foreign state, and any political subdivision or agency thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Leased Property" and "Leased Properties" shall have the meaning set forth in Section 3.18 herein. "Licenses" shall mean all licenses, certificates, permits, approvals and registrations. "Lien" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Law of any jurisdiction. -4- 54 "Material Contract" has the meaning set forth in Section 3.11 herein. "Material Leases" shall have the meaning set forth in Section 3.11 herein. "Merger" shall mean the merger of Merger Sub with and into the Company. "Merger Sub" shall mean Koons Merger, Inc., a Florida corporation and a wholly owned subsidiary of Group 1. "Order" shall mean any judgment, order or decree of any Court or Governmental Authority, federal, foreign, state or local. "Other Agreements" shall have the meaning set forth in the Recitals hereto. "Other Company" and "Other Companies" shall have the meanings set forth in the Recitals hereto. "Owned Properties" shall mean any real estate previously owned by the Company. "Permitted Encumbrances" shall mean the following: (1) liens for taxes, assessments and other governmental charges not delinquent or which are currently being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (2) mechanics' and materialmen's liens not filed of record and similar charges not delinquent or which are filed of record but are being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (3) liens in respect of judgments or awards with respect to which the specified Person shall in good faith currently be prosecuting an appeal or other proceeding for review and with respect to which such Person shall have secured a stay of execution pending such appeal or such proceeding for review; provided that such Person shall have set aside on its books adequate reserves with respect thereto; (4) easements, leases, reservations or other rights of others in, or minor defects and irregularities in title to, property or assets of a specified Person; provided that such easements, leases, reservations, rights, defects or irregularities do not materially impair the use of such property or assets for the purposes for which they are held; and -5- 55 (5) any lien or privilege vested in any lessor, licensor or permittor for rent or other obligations of a specified Person thereunder so long as the payment of such rent or the performance of such obligations is not delinquent. "Person" shall mean an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Court or Governmental Authority. "Phase I Environmental Surveys" shall mean the environmental reports of S.E. Environmental Consultants, Inc. dated September, 1997. "Plan" shall have the meaning set forth in Section 3.17. "Plan of Merger" shall mean the Agreement and Plan of Merger made and entered into as of __________, 1998 by and between Merger Sub and the Company. "Related Party Agreements" shall have the meaning set forth in Section 3.11 herein. "Release" and "Discharge" shall have the meanings given them in the Environmental, Health and Safety Laws "Reports" shall mean, with respect to a specified Person, all reports, registrations, filings and other documents and instruments required to be filed by the specified Person with any Governmental Authority. "Restricted Period" shall have the meaning set forth in Section 10.8 herein. "Schedules" shall mean all schedules required to be provided by the Company or the Stockholders under this Agreement, including any amendments or supplements thereto. "SEC Documents" shall mean the Group 1 Automotive, Inc. Prospectus dated October 29, 1997 and the Form 10-Q for the third quarter ended September 30, 1997. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Stockholders Indemnifiable Damages" shall have the meaning set forth in Section 9.2 herein. A "Subsidiary" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. -6- 56 "Tax Returns" shall mean all returns, reports and filings relating to Taxes. "Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, payroll and franchises imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof. "Terminated Benefit Plans" shall mean Benefit Plans that were sponsored, maintained, or contributed to by a specified Person within six years prior to the date of the Agreement but which have been terminated prior to the date of the Agreement. "Waste" shall mean toxic agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash; provided, however, the term "Waste" shall not include scrap metal. -7- 57 EXHIBIT A ______________, 1998 AGREEMENT AND PLAN OF MERGER Merging KOONS MERGER, INC. into KOONS FORD, INC. THIS AGREEMENT AND PLAN OF MERGER, dated as of _________, 1998 (this "Plan of Merger"), is by and between Koons Merger, Inc., a Florida corporation ("Merger Sub") and a wholly owned subsidiary of Group 1 Automotive, Inc., a Delaware corporation ("Group 1") and Koons Ford, Inc., a Florida corporation (the "Company"). Merger Sub and the Company are hereinafter sometimes referred to as the "Constituent Corporations." PRELIMINARY STATEMENT Group 1, Merger Sub and the Company desire that Merger Sub merge with and into the Company. This Plan of Merger is being entered into pursuant to an Agreement and Plan of Reorganization dated as of December 17, 1997 (the "Agreement") among Group 1, Merger Sub, the Company and the stockholders of the Company. Group 1 will acquire by merger (the "Other Mergers") Courtesy Ford, Inc., a Florida corporation and Perimeter Ford, Inc., a Delaware corporation (collectively, the "Other Companies") pursuant to plans of merger entered into among the Other Companies and subsidiaries of Group 1 (collectively, the "Other Plans of Merger"). The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value $.01 per share ("Merger Sub Common Stock"), of which 1,000 shares are outstanding, all of which are owned by Group 1. The authorized capital stock of the Company consists of 5,000 shares of common stock, par value $.10 per share ("Company Common Stock"), of which 1,000 shares are outstanding and no shares are held in the Company's treasury. The Boards of Directors of each of the Constituent Corporations, respectively, have approved the Agreement and the Plan of Merger. Accordingly, in consideration of the premises, and the mutual covenants and agreements herein contained, the parties hereto hereby agree, subject to the terms and conditions hereinafter set forth, as follows: 58 ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with and into the Company, the separate existence of Merger Sub shall cease, and the Company (i) shall continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation") under the corporate name "Koons Ford, Inc.", (ii) shall be governed by the laws of Florida (iii) shall maintain a registered office in the State of Florida at 3101 N. State Road 7, Hollywood, Florida 33021, and shall (iv) succeed to and assume all of the rights, properties and obligations of Merger Sub and the Company in accordance with the applicable provisions of the Florida Business Corporation Act (the "Code"). 1.2 Effect of the Merger. The Merger shall have the effects set forth in Section ______________ of the Code. 1.3 Consummation of the Merger. As soon as practicable after all conditions set forth in Article VIII of the Agreement have been satisfied or waived, the parties hereto will file with the Secretary of State of the State of Florida articles of merger in such form as required by, and executed in accordance with, the relevant provisions of the Code, with instructions that such articles of merger are to be issued and effective as of the last day of the month in which such articles are filed (the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Florida being the "Effective Time"). 1.4 Certificate of Incorporation; Bylaws. The certificate of incorporation and bylaws of the Company, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and bylaws of the Surviving Corporation and thereafter shall continue to be its certificate of incorporation and bylaws until amended as provided therein and under the Code. 1.5 Directors and Officers. The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The initial officers of the Surviving Corporation shall be as follows: (i) James S. Carroll--President, (ii) William C. Carroll--Vice President, (iii) Janet L. Giles--Chief Financial Officer and Treasurer, and (iv) Frank R. Todaro--Secretary, in each case until their respective successors are duly elected or appointed and qualified. 1.6 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Merger Sub or their respective stockholders: (a) The shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (the "Shares") shall be converted, subject to the provisions of this Section 1.6, into (i) the rights to receive, immediately following the Effective Date, 2 59 an amount in cash (the "Initial Cash Consideration") as set forth in Section 1.6(b) below, and (ii) the rights to receive, periodically upon satisfaction of the conditions set forth in Section 1.6(c) below, additional shares of Group 1 Common Stock (the "Contingent Stock Consideration") and amounts in cash (the "Contingent Cash Consideration," and together with the Contingent Stock Consideration, the "Contingent Consideration") as set forth in Section 1.6(c) hereof; provided, however, that no fractional shares of Group 1 Common Stock shall be issued, and, in lieu thereof, a cash payment shall be made pursuant to Sections 1.6(h) and 1.6(i) hereof. (b)(i) The Shares owned by J. Carroll Enterprises Trust shall be converted into the right to receive Initial Cash Consideration of $10,210,200 and the rights to receive a portion of any Contingent Consideration periodically payable to it in accordance with Section 1.6(c) hereof; (ii) the Shares owned by Janet L. Giles Revocable Living Trust shall be converted into the right to receive Initial Cash Consideration of $729,300 and the rights to receive a portion of any Contingent Consideration periodically payable to it in accordance with Section 1.6(c) hereof; (iii) the Shares owned by Ralph S. Kerr shall be converted into the right to receive Initial Cash Consideration of $729,300 and the rights to receive a portion of any Contingent Consideration periodically payable to him in accordance with Section 1.6(c) hereof; and (iv) the Shares owned by the William C. Carroll Revocable Living Trust shall be converted into the right to receive Initial Cash Consideration of $2,917,200 and the rights to receive a portion of any Contingent Consideration periodically payable to it in accordance with Section 1.6(c) hereof. (c) As additional consideration for the capital stock of the Company, Group 1 hereby agrees to pay the Stockholders certain additional amounts as provided in this Section 1.6(c). Beginning with the year ended December 31, 1999, the audited operations of the Carroll Group will be reviewed with respect to their operations during the full twelve calendar months of 1999. To the extent that Group 1's Incremental Return exceeds 11%, the Group 1 investment will be increased to a level which will yield this required rate of Incremental Return. This increase will be paid to the Stockholders no later than April 30 of the following year, as additional consideration for the Merger and the Other Mergers. This review will be conducted after each of the five years commencing with calendar 1999, and increases in investment as determined above will be paid until such time as the maximum increase has been reached. All additional consideration paid to the Stockholders pursuant to this Section 1.6(c) will be paid in cash and Group 1 Common Stock, in the same proportions as the aggregate consideration received by each Stockholder in the Merger and the Other Mergers. For the purposes of determining the number of shares of Group 1 Common Stock payable to the Stockholders hereunder, such shares shall be assigned a per share value of the average closing price of the Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding the date on which such shares are issued. The Contingent Consideration paid by Group 1 pursuant to this Section 1.6(c) and Section 1.6(c) of the Other Plans of Merger shall not exceed $7.5 million, $2.5 million of which (the "Guaranteed Payments") will be paid regardless of the results of the above computation, as follows: $900,000 on the first anniversary of the Closing Date, $900,000 on 3 60 the second anniversary of the Closing Date, and $700,000 on the third anniversary of the Closing Date. The aggregate Guaranteed Payments actually paid to the Stockholders shall carry forward and be applied against any additional Contingent Consideration payable to the Stockholders hereunder. The Guaranteed Payments shall be reduced by the difference between the aggregate Contingent Consideration previously paid to the Stockholders and $2.5 million. The Contingent Consideration payable under this Section 1.6(c) is additional consideration for the Stockholders' interests in the Company, and the parties hereto agree to report such amounts on such basis for income tax purposes. (d) Each share of Company Common Stock that immediately prior to the Effective Time was held in the treasury of the Company shall be canceled and retired as a result of the Merger and no securities or cash shall be issued or paid with respect thereto. Any shares of preferred stock of the Company and any options, warrants or other rights to purchase Company Common Stock or any other securities of the Company which remain outstanding at the Effective Time shall automatically be canceled and retired as a result of the Merger without consideration therefor, and each holder thereof shall cease to have any rights with respect thereto. (e) At or after the Effective Time, each holder of an outstanding certificate that prior thereto represented Shares shall be entitled, upon surrender thereof to Group 1, to receive immediately in exchange therefor (i) a certificate or certificates representing the number of whole shares of Initial Stock Consideration in such denominations and registered in such names as such holder may request and (ii) cash in the amount equal to the Initial Cash Consideration, into which the Shares so surrendered shall have been converted as described above. Each holder of Shares who would otherwise be entitled to a fraction of a share of Group 1 Common Stock shall, upon surrender of the certificates that, prior to the Effective Time, represented Shares held by such holder, to Group 1, be paid an amount in cash in accordance with the provisions of Sections 1.6(i) and 1.6(j). Until so surrendered, each outstanding certificate that, prior to the Effective Time, represented Shares shall be deemed from and after the Effective Time, for all corporate purposes, other than the payment of earlier dividends and distributions, to evidence the ownership of the number of full shares of Initial Stock Consideration and Initial Cash Consideration into which such Shares shall have been converted pursuant to this Section 1.6. Unless and until any such outstanding certificates shall be surrendered, no dividends or other distributions payable to the holders of Group 1 Common Stock, as of any time on or after the Effective Time, shall be paid to the holders of such outstanding certificates which prior to the Effective Time represented Shares; provided, however, that, upon surrender and exchange of such outstanding certificates, there shall be paid to the record holders of the certificates issued and exchanged therefor, the amount, without interest thereon, of dividends and other distributions, if any, that theretofore were declared and became payable since the Effective Time with respect to the number of full shares of Group 1 Common Stock issued to such holders. 4 61 (f) All shares of Group 1 Common Stock into which the Shares shall have been converted pursuant to this Section 1.6 shall be issued and paid in full satisfaction of all rights pertaining to such converted shares. (g) If any certificate for shares of Group 1 Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange shall have paid to Group 1 any transfer or other taxes required by reason of the issuance of a certificate for shares of Group 1 Common Stock in any name other than that of the registered holder of the certificate surrendered, or established to the satisfaction of Group 1 that such tax has been paid or is not payable. (h) In lieu of any fraction of a share of Initial Common Stock, each holder of Shares who would otherwise be entitled to a fraction of a share of Group 1 Common Stock shall, upon surrender of the Shares held by such holder to Group 1, be paid an amount in cash equal to the value of such fraction of a share based upon a per share price $14.00. No interest shall be paid on such amount. (i) In lieu of any fraction of a share of Contingent Common Stock, each person who would otherwise be entitled to a fraction of a share of Contingent Common Stock shall, upon satisfaction of the conditions precedent to such persons receipt of Contingent Common Stock, be paid an amount in cash equal to the value of such fraction of a share based upon the average closing price of Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding each respective issuance of Contingent Common Stock. No interest shall be paid on such amount. (j) None of Group 1, Merger Sub, the Company or the Surviving Corporation shall be liable to a holder of the Shares for any amount properly paid to a public official pursuant to applicable property, escheat or similar law. 1.8 Taking of Necessary Action; Further Action. Merger Sub and the Company shall take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger as promptly as possible. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company or Merger Sub, such corporations shall direct their respective officers and directors to take all such lawful and necessary action. 5 62 ARTICLE II MISCELLANEOUS 2.1 Counterparts. This Plan of Merger may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to each of the other parties. 2.2 Governing Law. This Plan of Merger shall be governed by and construed in accordance with the laws of the State of Florida. 2.3 Waiver and Amendment. Any provision of this Plan of Merger may be waived at any time by the party that is, or whose stockholders are, entitled to the benefits thereof. This Plan of Merger may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto, only as may be permitted by applicable provisions of the Code. The waiver by any party hereto of any condition or of a breach of another provision of this Plan of Merger shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Plan of Merger shall not preclude it from seeking redress for breach of this Plan of Merger other than with respect to the condition so waived. 2.4 Certain Definitions. (a) "Carroll Group" shall mean all dealerships under the executive management responsibility of James S. Carroll in Florida and Georgia (including the Companies and any other dealerships acquired by Group 1 after the Closing Date) and additional dealerships acquired by Group 1 as a result of the efforts of James S. Carroll (whether or not such dealerships are under the executive management control of James S. Carroll). (b) "Incremental Return" shall mean return on Group 1's investment in the operations of the Carroll Group that were not a part of the Companies on the date of this Agreement (total income after income taxes divided by total investment). " Income" and "investment" used for these purposes will be before any Group 1 management fees, allocations of indirect costs, cost of capital (including interest, loan origination fees, points and any other expenses incurred in obtaining or maintaining a loan) or amortization of goodwill. "Total investment" in these operations will include any loan proceeds, cash or stock invested by Group 1 to acquire the operations added to the Carroll Group after the date of this Agreement (including all investments made by Group 1 as a condition to manufacturer approval of such acquisitions). [signature page follows] 6 63 IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger to be duly executed as of the date first above written. KOONS MERGER, INC. By: --------------------------------------- Name: James S. Carroll Title: President KOONS FORD, INC. By: --------------------------------------- Name: James S. Carroll Title: President 7 EX-10.40 11 PLAN OF REORGANIZATION - PF MERGER, INC. 1 EXHIBIT 10.40 AGREEMENT AND PLAN OF REORGANIZATION AMONG GROUP 1 AUTOMOTIVE, INC., PF MERGER, INC., A WHOLLY OWNED SUBSIDIARY OF GROUP 1 AUTOMOTIVE, INC., PERIMETER FORD, INC. AND THE STOCKHOLDERS OF PERIMETER FORD, INC. DATED AS OF DECEMBER 17, 1997 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II THE MERGER 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4 Escrowed Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS 3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.18 Leased Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-i- 3 3.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.24 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS 4.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 AND MERGER SUB 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.5 Authorization For Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.7 Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.8 No Knowledge of Misrepresentations or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VI COVENANTS OF THE STOCKHOLDERS 6.1 Merger Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.3 Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . 20 6.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.10 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.11 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-ii- 4 6.12 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.13 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.15 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.16 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.17 Phase I Environmental Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.5 Delivery of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.6 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Merger . . . . . . . . . . . . . . . 26 8.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 26 8.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 28 ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Stockholders to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.2 Agreement by Group 1 to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE X MISCELLANEOUS 10.1 Certain Additional Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.2 Certain Post-Closing Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.3 Schedules to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.4 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.6 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.8 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-iii- 5 10.9 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.10 Legal Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.11 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.12 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.17 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.18 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
-iv- 6 AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization (this "Agreement"), dated as of the 17th day of December, 1997, is among Group 1 Automotive, Inc., a Delaware corporation ("Group 1"), PF Merger, Inc., a Delaware corporation and a wholly owned subsidiary of Group 1 (Merger Sub"), Perimeter Ford, Inc., a Delaware corporation ("the Company") and the persons listed on the signature pages hereof under the caption "Stockholders" (collectively, the "Stockholders," and each of those persons, individually, a "Stockholder"). RECITALS: WHEREAS, the parties to this Agreement have determined it is in their best long-term interests to effect a business combination pursuant to which: (A) The Company will merge with and into Merger Sub on the terms and subject to the conditions set forth herein (the "Merger"); (B) Group 1 will acquire by merger (the "Other Mergers") Koons Ford, Inc., a Florida corporation and Courtesy Ford, Inc., a Florida corporation (each an "Other Company" and, collectively with the Company, the "Companies") pursuant to agreements entered into among those entities and their equity owners, Group 1 and subsidiaries of Group 1 (collectively, the "Other Agreements"); and WHEREAS, the respective Boards of Directors of Group 1, Merger Sub and the Company have approved this Agreement and the Merger pursuant to the terms and conditions herein set forth. WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). WHEREAS, the parties hereto desire to set forth certain representations, warranties and covenants made by each to the other as an inducement to the consummation of the Merger. NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined 7 has the meaning ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. ARTICLE II THE MERGER 2.1 The Merger. Subject to and in accordance with the terms and conditions of this Agreement and pursuant to the Agreement and Plan of Merger between Merger Sub and the Company, a form of which is attached hereto as Exhibit A (the "Plan of Merger"), at the Effective Time (as hereinafter defined) the Company shall be merged with and into Merger Sub, the separate existence of the Company shall cease, and Merger Sub shall (i) continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation") under the corporate name "Perimeter Ford, Inc.", (ii) be governed by the laws of Delaware, (iii) maintain a registered office in the State of Delaware at c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware, and (iv) succeed to and assume all of the rights, properties and obligations of Merger Sub and the Company in accordance with the Delaware General Corporation Law. Subject to the terms and conditions of this Agreement and the Plan of Merger, Group 1 agrees, at or prior to the Closing, to cause Merger Sub to execute and deliver, the Plan of Merger in form and substance substantially similar to the form attached hereto as Exhibit A. Subject to the terms and conditions of this Agreement and the Plan of Merger, the Stockholders agree, at or prior to the Closing, to cause the Company to execute and deliver the Plan of Merger in form and substance substantially similar to the form attached hereto as Exhibit A. 2.2 Closing Date. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the last day of the month in which all conditions set forth in Article VIII hereof are satisfied or waived or at such other time and place and on such other date as Group 1 and the Company shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date." 2.3 Effective Time. As soon as practicable after all conditions set forth in Article VIII hereof are satisfied or waived, the parties hereto will file with the Secretary of State of the State of Delaware, articles of merger in such form as required by, and executed in accordance with, the relevant provisions of the Delaware General Corporation Law, with instructions that such articles of merger are to be issued and effective as of the Closing Date (the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Delaware being the "Effective Time"). -2- 8 2.4 Escrowed Shares. In the event that James S. Carroll has not been approved by American Honda Motor Co., Inc. ("Honda") as a 5% stockholder of Group 1 before Closing, 105,000 shares of Group 1 Common Stock due James S. Carroll under this Agreement will be placed in Escrow at Closing pending release as provided in this Section 2.4. These shares will remain in Escrow until the first of the following to occur: (1) the second anniversary of the Closing Date, (2) Honda's approval of James S. Carroll as a 5% stockholder of Group 1, or (3) such time as Group 1 is no longer required to obtain Honda's approval of each 5% stockholder of Group 1. In the event these shares become issuable from Escrow as a result of (1) above, Group 1 may, at its option, elect to pay cash to James S. Carroll in lieu of the escrowed shares in an amount equal to 105,000 times the greater of (i) the average closing price of Group 1 Common Stock on the New York Stock Exchange for the five trading days immediately preceding the date on which the escrowed shares become issuable or (ii) $14.00. In the event these shares become issuable from Escrow as a result of (2) or (3) above, the shares will be issued from escrow to James S. Carroll as soon as reasonably practicable after receipt of such approval. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS The Stockholders hereby represent and warrant to Group 1 and Merger Sub as follows: 3.1 Corporate Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation with all requisite corporate power and authority to own or lease its properties and conduct its business as now owned, leased or conducted and to execute, deliver and perform this Agreement and each instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing. True and complete copies of the articles of incorporation and bylaws (or other organizational documents) of the Company are included in Schedule 3.1. The minute books of the Company previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by their respective boards of directors and stockholders in their capacities as such. 3.2 Qualification. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary. Schedule 3.2 sets forth a list of the jurisdictions in which the Company is qualified to do business, if any. 3.3 Authorization. The execution and delivery by the Company, the performance of its obligations pursuant to this Agreement and the execution, delivery and performance of each instrument, document or agreement required hereby to be executed and delivered by the Company at, or prior to, the Closing have been duly and validly authorized by all requisite corporate action on the part of the Company and no other corporate proceedings on the part of the Company are -3- 9 necessary to authorize this Agreement or any other instrument, document or agreement required hereby to be executed by the Company at, or prior to, the Closing. The Board of Directors of the Company has voted to recommend approval of the Merger to the stockholders of the Company and such determination remains in effect. THE EXECUTION OF THIS AGREEMENT BY THE STOCKHOLDERS CONSTITUTES UNANIMOUS STOCKHOLDER CONSENT TO THE MERGER, THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY WITHIN IN ACCORDANCE WITH SECTION 228(a) OF THE DELAWARE GENERAL CORPORATION LAW. THIS EXECUTED AGREEMENT SHALL ALSO CONSTITUTE THE STOCKHOLDERS' WRITTEN WAIVER OF ALL APPLICABLE NOTICE REQUIREMENTS. THIS EXECUTED AGREEMENT SHALL BE FILED IN THE MINUTE BOOKS OF THE COMPANY AS EVIDENCE OF SUCH STOCKHOLDER ACTION. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by the Company at, or prior to, the Closing will then be, duly executed and delivered by it, and this Agreement constitutes, and, to the extent it purports to obligate the Company, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of the Company enforceable against it in accordance with its terms. 3.4 Approvals. Except for the applicable filings with the Secretary of State of the State of Delaware relating to the Merger and except for applicable requirements, if any, of the HSR Act, and except to the extent set forth in Schedule 3.4, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit the Company to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. 3.5 Absence of Conflicts. Except to the extent set forth in the Schedule 3.5, neither the execution and delivery by the Company of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by the Company of its obligations under this Agreement or any such instrument, document or agreement will (assuming receipt of all consents, approvals, authorizations, permits, certificates and orders disclosed as requisite in Schedule 3.4) (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) any applicable permits received from any Governmental Authority (iv) the articles of incorporation or bylaws or other organizational documents of the Company or (v) any contract or agreement to which the Company is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of the Company, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. -4- 10 3.6 Subsidiaries; Equity Investments. The Company has not controlled directly or indirectly, or had any direct or indirect equity participation in any corporation during the five-year period preceding the date hereof. 3.7 Capitalization. (a) The authorized capital stock of the Company consists of 5,000 shares of common stock, par value $100.00 per share, of which 1,579 shares are issued and outstanding (no shares being held in treasury) (the "Company Common Stock"). Each outstanding share of the Company Common Stock has been duly authorized, is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights of any stockholder. Set forth in Schedule 3.7(a) are the names, social security or I.R.S. identification numbers and addresses (as reflected in the corporate records of the Company) of each record holder of the Company Common Stock, together with the number of shares held by each such person. (b) There is not outstanding any capital stock or other security, including without limitation any option, warrant or right, entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the Company. Except as disclosed in Schedule 3.7(b), there are no contracts, agreements, commitments or arrangements obligating the Company (i) to issue, sell, pledge, dispose of or encumber any shares of, or any options, warrants or rights of any kind to acquire, or any securities that are convertible into or exercisable or exchangeable for, any shares of, any class of capital stock of the Company or (ii) to redeem, purchase or acquire or offer to acquire any shares of, or any outstanding option, warrant or right to acquire, or any securities that are convertible into or exercisable or exchangeable for, any shares of, any class of capital stock of the Company. 3.8 Financial Statements. Included in Schedule 3.8 are copies of the financial statements of the Company consisting of (i) an unaudited balance sheet of the Company as of October 31, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the ten month period then ended (collectively with the Interim Balance Sheet, the "Company Interim Financial Statements") and (ii) an audited balance sheet of the Company as of December 31, 1996 (the "Company 1996 Balance Sheet") and the related audited statements of income, changes in stockholders' equity and cash flows for the year then ended (including the notes thereto) (collectively with the Company 1996 Balance Sheet, the "Company 1996 Financial Statements") and (collectively with the Company Interim Financial Statements, the "Company Financial Statements"). The Company Financial Statements are true and complete in all material respects. The Company 1996 Financial Statements are true and complete in all respects. The Company Financial Statements present fairly the financial position of the Company and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. The Company Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of the Company reflected in the Company Financial Statements and as incurred since October 31, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful -5- 11 accounts shown in the Company Interim Financial Statements) in the ordinary course of business and, except as set forth in Schedule 3.8, are not in dispute or subject to counterclaim, set-off or renegotiation. Schedule 3.8 contains an aged schedule of accounts receivable included in the Interim Balance Sheet. References regarding GAAP compliance in this Section 3.8 shall be qualified by the exceptions set forth in Section 3.9 below. 3.9 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet, or relating to the items listed below in this Section 3.9, or as set forth in Schedule 3.9, the Company does not have any material liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP, except for possible adjustments to current year's depreciation provisions, LIFO adjustments, management company fees, profit sharing provisions, general manager year-end bonuses and the month-end payroll tax accrual. 3.10 Certain Agreements. Except as set forth in Schedule 3.10, neither the Company, nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a noncompetition, territorial exclusivity or other provision covering such subject matter purportedly enforceable by a third party against the Company, or any of its officers or directors, the scope of the business or operations of the Company, or any of its officers or directors, geographically or otherwise. 3.11 Contracts and Commitments. Schedule 3.11 includes (i) a list of all contracts to which the Company is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of the Company ("Material Contracts"); (ii) a list of all real or personal property leases to which the Company is a party involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which the Company is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between the Company and any of its officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. 3.12 Absence of Changes. Except as set forth in Schedule 3.12, there has not been, since October 31, 1997, any adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of the Company. Except as set forth in Schedule 3.12, since October 31, 1997, the Company has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. Notwithstanding the preceding sentence, the Company makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since October 31, 1997, for any employee who after such increase would receive annual compensation of less than $50,000. -6- 12 3.13 Tax Matters. (a) Except as set forth in Schedule 3.13(a) (and except for filings and payments of assessments the failure of which to file or pay will not materially adversely affect the Company), (i) all Tax Returns which are required to be filed on or before the Closing Date by or with respect to the Company have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to the Company have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. (b) All Tax Returns of, or with respect to, the Company have been audited by the applicable governmental authority, or the applicable statute of limitations has expired, for all periods up to and including December 31, 1996 except as included on Schedule 3.13(b). (c) There is no claim against the Company for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to the Company, other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.13(c). (d) Except as set forth in Schedule 3.13(d), there is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company, or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to the Company. (e) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes (except for payroll tax accrual for October 31, 1997), whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to the Company up to and through the periods covered thereby. (f) All Tax allocation or sharing agreements affecting the Company shall be terminated prior to the Closing Date and no payments shall be due or will become due by the Company on or after the Closing Date pursuant to any such agreement or arrangement. (g) Except as set forth in Schedule 3.13(g), the Company will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. -7- 13 (h) The Company has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (i) Since the date of the Company's S Corp election on December 31, 1986, the Company (a) continuously has been and will be an S Corporation within the meaning of section 1361 of the Code, and (b) each holder of common stock of the Company has been an individual resident of the United States or an estate or trust described in section 1361(c)(2) that is permitted to hold the stock of an S Corporation. 3.14 Litigation. (a) Except as set forth in Schedule 3.14(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of the Company, threatened against or specifically affecting the Company before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent set forth in Schedule 3.14(b), the Company has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of the Company, no event has occurred which, with the lapse of time or action by a third party could result in a default under any contract or other agreement to which any of the Company is a party or by which it or any of its properties is bound or under any applicable Order of any Court or Governmental Authority. 3.15 Compliance with Law. Except as set forth in Schedule 3.15, the Company is in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. 3.16 Permits. Except as set forth in Schedule 3.16, the Company owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities necessary for the conduct of its business. A listing of all such items, with their expiration dates, is included in Schedule 3.16. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and the Company is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. 3.17 Employee Benefit Plans and Policies. (a) Schedule 3.17(a) provides a description of each of the following which is sponsored, maintained or contributed to by any of the Company for the benefit of its employees, or has been so sponsored, maintained or contributed to within six years prior to the Closing Date: -8- 14 (i) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA ("Plan"); and (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not described in Section 3.17(a)(i) ("Benefit Program or Agreement"). True and complete copies of each of the Plans, Benefit Programs or Agreements, related trusts, if applicable, and all amendments thereto, have been furnished to Group 1. (b) The Company does not contribute to or have an obligation to contribute to, and has not at any time contributed to or had an obligation to contribute to, a plan subject to Title IV of ERISA, including, without limitation, a multiemployer plan within the meaning of Section 3(37) of ERISA. (c) Except as otherwise set forth in Schedule 3.17(c), (i) Each Plan and each Benefit Program or Agreement has been administered, maintained and operated in accordance with the terms thereof and in compliance with its governing documents and applicable law (including, where applicable, ERISA and the Code); (ii) There is no matter pending with respect to any of the Plans before any governmental agency, and there are no actions, suits or claims pending (other than routine claims for benefits) or threatened against, or with respect to, any of the Plans or Benefit Programs or Agreements or their assets; (iii) No act, omission or transaction has occurred which would result in imposition on the Company of (A) breach of fiduciary duty liability damages under Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (iv) Each of the Plans intended to be qualified under Section 401 of the Code satisfies the requirements of such Section, has received a favorable determination letter from the Internal Revenue Service regarding such qualified status and has not, since receipt of the most recent favorable determination letter, been amended or operated in a way which would adversely affect such qualified status; -9- 15 (v) As to any Plan intended to be qualified under Section 401 of the Code, there has been no termination or partial termination of the Plan within the meaning of Section 411(d)(3) of the Code; and (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (A) require the Company to make a larger contribution to, or pay greater benefits under, any Plan or Benefit Program or Agreement than it otherwise would or (B) create or give rise to any additional vested rights or service credits under any Plan or Benefit Program or Agreement. (d) There does not currently exist, and there has not at any time existed, any corporation, trade, business or entity under common control with the Company, within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA. (e) Termination of employment of any employee of any of the Company after consummation of the transactions contemplated by this Agreement would not result in payments under the Plans or Benefit Programs or Agreements which, in the aggregate, would result in imposition of the sanctions imposed under Sections 280G and 4999 of the Code. (f) Each Plan which is an "employee welfare benefit plan", as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued thereunder prior to such amendment or termination. (g) Schedule 3.17(g) sets forth by name and job description of the employees of the Company as of the date of this Agreement (the "Company Employees"). None of said employees are subject to union or collective bargaining agreements. The Company has not at any time had or been threatened with any work stoppages or other labor disputes or controversies with respect to its employees. 3.18 Leased Properties. (a) On the Closing Date, the Company will not own any real property or any interest therein. Schedule 3.18(a) sets forth the location and size of, principal improvements and buildings on, and Liens on all parcels of real estate leased by the Company (individually a "Leased Property" and collectively the "Leased Properties"). True and correct copies of all Liens are attached to Schedule 3.18(a). Except as set forth in Schedule 3.18(a), with respect to each Leased Property: -10- 16 (i) the Company has good and valid leasehold interests in each parcel of its Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of the Company or the Stockholders, threatened condemnation proceedings, suits or administrative actions relating to the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) except as set forth in Schedule 3.18(a)(iii), the legal descriptions for the parcels of Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the leasing or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Leased Property, except as set forth in Schedule 3.18(a)(v); (vi) there are no outstanding options or rights of first refusal to purchase the parcels of Leased Property, or any portion thereof or interest therein; (vii) there are no parties (other than the Company) in possession of the parcels of Leased Property, other than tenants under any leases disclosed in Schedule 3.18(a)(vii) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Leased Property are supplied with utilities and other services necessary for the operation of such facilities; (ix) each parcel of Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Leased Property are in good repair and adequate for the use of such Leased Property in the manner in which presently used; and -11- 17 (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Leased Property, except as set forth in Schedule 3.18(a)(xi). (b) Except as set forth in Schedule 3.18(b), the Company has good and marketable title to all of its Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of the Company are in good operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.19 Insurance. Schedule 3.19 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Company (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. The Company is presently insured, and since the inception of operations by the Company has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. The Company has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as set forth in Schedule 3.19, no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. The Company has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. The execution of this Agreement and the consummation of the transactions contemplated hereby will not cause such insurance policies to lapse, terminate or be canceled and will not result in any party thereto having the right to terminate or cancel such insurance policies. 3.20 Affiliate Interests. Except as set forth in Schedule 3.20, no employee, officer or director, or former employee, officer or director, of the Company has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business information, trademarks, service marks or trade names, used in or pertaining to the business of the Company, except for the normal rights of employees and stockholders. 3.21 Environmental Matters. Except as set forth in Schedule 3.21, to the best of the knowledge of the Stockholders: (a) The Company is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, dumping, discharging, release or disposal of Hazardous Substances, or other Waste. The Company is not currently liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. The Company is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. -12- 18 (b) The Company has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of their business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.21(b)), and the Company is in compliance with all the terms, conditions and requirements of such Licenses, and copies of such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or threatened by any Governmental Authority or third parties against the Company or its business, operations, properties, or assets, which question the validity or entitlement of the Company to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of the Company and the operation of its business. (c) The Company has not received and is not aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving the Company or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of its business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) The Company is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Owned Properties or the Leased Properties. (e) The Company has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. The Company has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. -13- 19 (f) The Company has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto. (g) The Company has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor have they allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified the Company that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Neither the Company nor the Stockholders have received notice or have knowledge of any facts which could give rise to any notice, that the Company is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. The Company has not submitted and has not been required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, the Company. The Company has not received any written or, to the knowledge of the Stockholders, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where the Company has transported, transferred or disposed of other Wastes. The Company has not been required to and has not undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. The Company has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) The Company has no Aboveground Storage Tanks or Underground Storage Tanks, except as listed in Schedule 3.21(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which the Company is aware undertaken by the Company or its agents, or by the Stockholders, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Owned Properties or the Leased Properties; (ii) the results of which the Company is aware of any ground, water, soil, air or asbestos monitoring undertaken by the Company or their agents, or by the Stockholders, or by any Governmental Authority, or by any third party, relating to the Company or any of the Owned Properties or the Leased Properties; (iii) all written communications between the Company and any Governmental Authority arising under or related to Environmental Laws; and (iv) all citations issued under OSHA, or similar -14- 20 state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting the Company or any of the Owned Properties or the Leased Properties. (j) Schedule 3.21(j) contains a list of the assets of the Company which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as set forth in Schedule 3.21(j), the Company has operated and continue to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as set forth in Schedule 3.21(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, or threatened against or directly affecting the Company or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with their assets and operations. (k) Any references in this Section 3.21 to the "Leased Properties" are deemed to also refer to any properties previously leased by the Company. 3.22 Intellectual Property. Except as set forth in Schedule 3.22, the Company owns, or is licensed or otherwise has the right to use all Intellectual Property that are necessary for the conduct of the business and operations of the Company as currently conducted. To the knowledge of the Stockholders, (a) the use of the Intellectual Property by the Company does not infringe on the rights of any Person, and (b) no Person is infringing on any right of the Company with respect to any Intellectual Property. No claims are pending or, to the knowledge of the Stockholders, threatened that the Company is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Stockholders, no Person is infringing the rights of the Company with respect to any Intellectual Property. All of the Intellectual Property that is owned by the Company is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by the Company is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.23 Bank Accounts. Schedule 3.23 includes the names and locations of all banks in which the Company has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.24 Brokers. Except as disclosed in Schedule 3.24, no broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. 3.25 Disclosure. The Stockholders have disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of the Company. No representation or warranty to Group 1 by the Stockholders contained in this Agreement, and no statement contained in the Schedules attached -15- 21 hereto, any certificate, list or other writing furnished to Group 1 by the Stockholders pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, and any certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of the Stockholders for all purposes of this Agreement. ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each Stockholder hereby, severally and not jointly, represents and warrants to Group 1 and Merger Sub that: 4.1 Capital Stock. Such Stockholder is the beneficial and record owner of the number of shares of Company Common Stock as set forth in Schedule 3.7(a). On the Closing Date all such shares will be owned free and clear of any lien, claim, pledge, encumbrance or other adverse claim. Except for such shares of Company Common Stock set forth in Schedule 3.7(a) hereto, such Stockholder does not own, beneficially or of record, any capital stock or other security, including without limitation any option, warrant or right entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the Company. 4.2 Authorization of Agreement. (a) Such Stockholder has full legal right, power, capacity and authority to execute, deliver and perform its obligations pursuant to this Agreement and to execute, deliver and perform its obligations under each instrument, document or agreement required hereby to be executed and delivered by such Stockholder at, or prior to, the Closing. (b) This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by such Stockholder at, or prior to, the Closing will then be, duly executed and delivered by such Stockholder, and this Agreement constitutes and, to the extent it purports to obligate such Stockholder, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of such Stockholder enforceable against it in accordance with its terms. 4.3 Approvals. Except for filings with the Secretary of State of Delaware relating to the Merger, and except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit such Stockholder to execute, deliver -16- 22 or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. 4.4 Absence of Conflicts. Except to the extent set forth in Schedule 4.4, neither the execution and delivery by such Stockholder of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by such Stockholder of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of such Stockholder or (iv) any contract or agreement to which such Stockholder is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of such Stockholder, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 4.5 Investment Intent. Each Stockholder makes the following representations relating to its acquisition of shares of Group 1 Common Stock: (i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be issued pursuant to the Merger to such Stockholder solely for such Stockholder's account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of any of those shares in connection with any distribution; (ii) such Stockholder is not a party to any agreement or other arrangement for the disposition of any shares of Group 1 Common Stock; (iii) such Stockholder is an "accredited investor" as defined in Securities Act Rule 501(a); (iv) such Stockholder (A) is able to bear the economic risk of an investment in the Group 1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a total loss of that investment, (C) has such knowledge and experience in financial and business matters, and such past participation in investments, that he or she is capable of evaluating the merits and risks of the proposed investment in the Group 1 Common Stock, (D) has received and reviewed the SEC Documents, (E) has had an adequate opportunity to ask questions and receive answers from the officers of Group 1 concerning any and all matters relating to the transactions contemplated hereby, including the background and experience of the current officers and directors of Group 1, the plans for the operations of the business of Group 1, the business, operations and financial condition of Group 1 and any plans of Group 1 for additional mergers or acquisitions of automotive dealerships, and (F) has asked all questions of the nature described in the preceding clause (E), and all those questions have been answered to his or her satisfaction; (v) such Stockholder acknowledges that the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Merger have not been and will not be registered under the Securities Act or qualified under applicable blue sky laws and therefore may not be resold by such Stockholder without compliance with Rule 144 of the Securities Act; (vi) such Stockholder acknowledges that he or she has agreed, pursuant to Section 10.8 herein, not to sell the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Merger for a period of one year (or two years with respect to James S. Carroll) from the Closing Date; (vii) such Stockholder, if a corporation, partnership, trust or other entity, acknowledges that it was not formed for the specific -17- 23 purpose of acquiring the Group 1 Common Stock; and (viii) without limiting any of the foregoing, such Stockholder agrees not to dispose of any portion of Group 1 Common Stock unless either (1) a registration statement under the Securities Act is in effect as to the applicable shares and the disposition is made in accordance with that registration statement, or (2) the disposition is made in full compliance with SEC Rule 144 and any other requirements of the Securities Act. Additionally, for the three-year period following the Closing Date a disposition pursuant to (viii)(2) above may be made only if the Stockholder has notified Group 1 of the proposed disposition and the disposition is made through a national brokerage firm selected by Group 1 and the Stockholder to offer disposition services for Group 1 Common Stock (in the absence of agreement between Group 1 and the Stockholder seeking to make a disposition, Goldman, Sachs & Co., Inc. will be the firm to handle such disposition). ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 AND MERGER SUB Group 1 and Merger Sub hereby represent and warrant, jointly and severally, to the Company and the Stockholders that: 5.1 Corporate Organization. Group 1 is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by it at the Closing. 5.2 Authorization. The execution and delivery by Group 1 and Merger Sub of this Agreement, the performance by Group 1 and Merger Sub of their respective obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Group 1 or Merger Sub at the Closing have been duly and validly authorized by all requisite corporate action on the part of Group 1 or Merger Sub, as the case may be. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Group 1 or Merger Sub at, or prior to, the Closing will then be, duly executed and delivered by Group 1 or Merger Sub, as the case may be. This Agreement constitutes, and, to the extent it purports to obligate Group 1 or Merger Sub, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Group 1 or Merger Sub, as the case may be, enforceable against them in accordance with its terms. 5.3 Approvals. Except for filings with the Secretary of State of Delaware relating to the Merger, and except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Group 1 or Merger Sub, as the case may be, to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by either of them at or prior to the Closing. -18- 24 5.4 Absence of Conflicts. Neither the execution and delivery by Group 1 or Merger Sub, as the case may be, of this Agreement or any instrument required hereby to be executed by it at or prior to the Closing nor the performance by Group 1 or Merger Sub, as the case may be, of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of Group 1 or Merger Sub or (iv) any contract or agreement to which Group 1 or Merger Sub is a party or by which it or any of its property is bound, or (b) result in the creation or imposition of any Liens on any of the properties or assets of Group 1 or Merger Sub (other than any Lien created by the Company ), or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Group 1 and its subsidiaries, taken as a whole. 5.5 Authorization For Group 1 Common Stock. All shares of Group 1 Common Stock issuable pursuant to the Merger are duly authorized and will, when issued, be validly issued, fully paid and nonassessable and not issued in violation of the preemptive rights of any stockholder of Group 1. 5.6 SEC Documents. The SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Group 1 included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Group 1 and its consolidated subsidiaries as of the dates thereto and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information, for normal year-end adjustments). 5.7 Merger Sub. Merger Sub is a corporation recently and duly incorporated under the laws of the State of Delaware, is validly existing and in good standing under such laws and is a wholly-owned subsidiary of Group 1. Merger Sub has no assets, liabilities or obligations and has engaged in no business except as contemplated by this Agreement. 5.8 No Knowledge of Misrepresentations or Omissions. Neither Group 1, Merger Sub nor any of their agents or representatives has any actual knowledge that the representations of the Stockholders made in this Agreement are not true and correct in all material respects, and none of -19- 25 such persons has any actual knowledge of any material errors in, or material omissions from, the Schedules to this Agreement. ARTICLE VI COVENANTS OF THE STOCKHOLDERS 6.1 Merger Proposals. Prior to the Closing Date, neither the Company, any of its officers, directors, employees or agents nor any Stockholder shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion of the assets of, or a substantial equity interest in, the Company, other than the transactions with Group 1 contemplated by this Agreement. The Company and Stockholders will notify Group 1 promptly of any unsolicited offer. 6.2 Access. The Company shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all its properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Group 1 any information concerning its business, properties and personnel as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by the Company or the Stockholders pursuant to this Agreement. 6.3 Conduct of Business by the Company Pending the Merger. The Stockholders covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that the Company may dealer trade vehicles for similar models, but the Company shall not liquidate or otherwise dispose of any of their new vehicles other than in the ordinary course of business to retail buyers. The Company agrees to maintain their advertising expenditures and activities commensurate with prior business practices. The Company shall not advertise a "Going Out of Business" sale; (b) The Company shall not directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of the Company or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any assets of the Company, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of the Company, (iii) split, combine or reclassify any outstanding capital stock of the Company, or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to its capital stock whether now or hereafter outstanding (except as provided in Section 6.3(j) below), (iv) redeem, purchase or acquire or offer to acquire any of its capital stock, (v) create, incur, assume, guarantee or otherwise -20- 26 become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business), or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) The Company shall use its best efforts (i) to preserve intact the business organization of the Company, (ii) to maintain in effect any franchises, authorizations or similar rights of the Company, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. (d) The Company shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $50,000; (e) The Company shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as the Company in good faith may dispute; (f) The Company shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of the Company other than consistent with past business practices of the Company; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $50,000; (g) The Company shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Merger set forth in Article VIII not being satisfied; (h) The Company shall not (i) amend or terminate any Plan or Benefit Program or Agreement except as may be required by applicable law, (ii) increase or accelerate the payment or vesting of the amounts payable under any Plan or Benefit Program or Agreement, or (iii) adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, -21- 27 executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, program, practice or understanding (other than the Plans and the Benefit Programs or Agreements); (i) The Company shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; and (j) Notwithstanding anything in this Agreement to the contrary, dividends or other form of distribution to the Stockholders may be made after the date of the Interim Balance Sheet so long as such distributions do not cause the Company to be in violation of any manufacturer working capital or equity guidelines or requirements. In computing the Company's manufacturer working capital requirements, the effect of the approximately $1,000,000 misclassification relating to the renovation of the Perimeter facility shall be excluded. 6.4 Confidentiality. The Company shall, and the Company's officers, directors, employees, representatives and consultants shall, hold in confidence, and not disclose to others for any reason whatsoever, any non-public information received by them or their representatives in connection with the transactions contemplated hereby, including but not limited to all terms, conditions and agreements related to this transaction, except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of the Company as necessary in connection with the transactions contemplated hereby; and (iii) for information which becomes publicly available other than through the actions of the Company or a Stockholder. In the event the Merger is not consummated, the Company and the Stockholders will return all non-public documents and other material obtained from Group 1 or its representatives in connection with the transactions contemplated hereby or certify to Group 1 that all such information has been destroyed. 6.5 Notification of Certain Matters. The Company shall give prompt notice to Group 1, orally and in writing, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Effective Time, (ii) any failure of the Company, or any officer, director, employee or agent thereof, or any Stockholder to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (iii) any litigation, or any claim or controversy or contingent liability of which the Company has knowledge of that might reasonably be expected to become the subject of litigation, against the Company or affecting any of its assets, in each case in an amount in controversy in excess of $50,000, or that is seeking to prohibit or restrict the transactions contemplated hereby. 6.6 Consents. Subject to the terms and conditions of this Agreement, the Company shall (i) obtain all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on the Company, Group 1 or Merger Sub), authorizations and orders required in connection with the -22- 28 authorization, execution and delivery of this Agreement and the consummation of the Merger; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 6.7 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Effective Time, the Company and the Stockholders shall cooperate and use reasonable efforts to defend against and respond thereto. Costs of this defense and response will be borne by Group 1. 6.8 Stockholders' Agreements Not to Sell. Each of the Stockholders hereby covenants and agrees not to sell, pledge, transfer or dispose of or encumber any shares of Company Common Stock currently owned, either beneficially or of record, by such Stockholder, except as contemplated by this Agreement and the Plan of Merger. 6.9 Intellectual Property Matters. The Company shall use its best efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or domestic patent, trademark, service mark, trade name or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. 6.10 Removal of Related Party Guarantees. The Company and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all guarantees by the Company (such guarantees shall be referred to herein as "Related Guarantees", as described in Schedule 6.10 pursuant to Section 3.11 of this Agreement) of indebtedness or other obligations of any of the Company's officers, directors, shareholders, employees or affiliates of any such Persons. 6.11 Termination of Related Party Agreements. The Company and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.11 as agreements that shall not be subject to this Section 6.11. 6.12 Related Party Agreements. The Company agrees, and the Stockholders agree to cause the Company, not to enter into any Related Party Agreements or engage in any transactions with the Stockholders or their affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.12 as agreements or transactions that shall not be subject to this Section 6.12. -23- 29 6.13 Release. (a) AS OF THE CLOSING, EACH OF THE STOCKHOLDERS DOES HEREBY FOR HIMSELF OR HIS HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE THE COMPANY OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH EACH OF SUCH STOCKHOLDERS NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST THE COMPANY INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF THE COMPANY AND ITS EMPLOYEES AND AGENTS, EXISTING AS OF THE CLOSING OR RELATING TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT; AND PROVIDED FURTHER ANY LIABILITIES UNDER PLANS OR BENEFIT PROGRAMS OR AGREEMENTS LISTED ON THE SCHEDULES HERETO SHALL NOT BE RELEASED. (b) EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS RELEASED HEREIN. EACH OF THE STOCKHOLDERS COVENANTS AND AGREES THAT HE WILL NOT ASSIGN OR TRANSFER TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS TO BE RELEASED HEREIN. EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 6.13 AND THAT HE HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT. 6.14 Leases. Stockholders hereby agree to cause certain of their affiliates to enter into a lease agreement with the Company on the basic terms, and covering the real property and improvements, described on Exhibit B. 6.15 Employment Agreements. The Stockholders agree to enter into employment agreements with Group 1 and the Company in form and substance substantially similar to Exhibit C attached hereto. 6.16 Certain Tax Matters (a) The Stockholders shall use the amounts reflected in Section 1.6(b)(i) of the Plan of Merger for purposes of preparation of their Tax Returns. With respect to the shares of Group 1 Common Stock received by the Stockholders, $14.00 per share shall be used for purposes of determining the value of the stock portion of the purchase price. (b) The Stockholders shall (i) file all required 1998 federal income tax returns of the Company by September 30, 1998; (ii) use an interim closing of the books of the -24- 30 Company effective as of the Closing Date for the purposes of preparing such returns; and (iii) deliver such returns to Group 1 for its review at least five (5) days prior to the filing of such returns. 6.17 Phase I Environmental Assessments. The Stockholders have delivered all Phase I Environmental Surveys requested by Group 1. Prior to Closing the Stockholders will complete at their cost all cure and remediation efforts recommended in such surveys, and, to the best of Stockholders' knowledge, the Company will have no residual liability with regard to any matter revealed in such surveys. ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence all, and not to disclose to others for any reason whatsoever, any non-public information received by it or its representatives in connection with the transactions contemplated hereby except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Group 1 as necessary in connection with the transactions contemplated hereby or as necessary to the operation of Group 1's business; and (iii) for information which becomes publicly available other than through the actions of Group 1. In the event the Merger is not consummated, Group 1 will return all non-public documents and other material obtained from the Company or its representatives in connection with the transactions contemplated hereby or certify to the Company that all such information has been destroyed. 7.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for issuance and shall issue, out of its authorized but unissued capital stock, such number of shares of Group 1 Common Stock as may be issuable upon consummation of the Merger. 7.3 Consents. Subject to the terms and conditions of this Agreement, Group 1 shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.4 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Effective Time, Group 1 agrees to cooperate and use reasonable efforts to defend against and respond thereto. Costs of this defense and response will be borne by Group 1. 7.5 Delivery of Certificates. On the Closing Date, Group 1 will deliver to each holder of certificates which represented Company Common Stock prior to the Effective Time a letter of -25- 31 transmittal and other information advising such holder of the consummation of the Merger and to enable such holder to effect the exchange of stock certificates as contemplated by Article II of this Agreement. 7.6 Certain Tax Matters (a) Group 1 shall use the amounts reflected in Section 1.6(b)(i) of the Plan of Merger for purposes of preparation of its Tax Returns. With respect to the shares of Group 1 Common Stock received by the Stockholders, $14.00 per share shall be used for purposes of determining the value of the stock portion of the purchase price. (b) Group 1 shall act as reasonably necessary to assist the Stockholders in preparing their federal income tax returns in accordance with Section 6.16(b) hereof. (c) Group 1 shall cause the Company, as soon as practicable, to calculate and distribute pro rata to the Stockholders a cash amount equal to the net assets of the Company as of the Closing Date less the applicable manufacturer's minimum working capital requirement as of the Closing Date. ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Merger; (b) There shall have been obtained any and all permits, approvals and consents of securities or "blue sky" commissions of each jurisdiction and of any other governmental agency or authority, with respect to the consummation of the Merger; (c) The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated; and (d) Receipt of Ford Motor Company's approval of the Merger and the transactions contemplated thereby. 8.2 Additional Conditions Precedent to Obligations of Group 1. The obligation of Group 1 to effect the Merger is also subject to the fulfillment at or prior to the Closing Date of the following conditions: -26- 32 (a) The representations and warranties of the Company and the Stockholders contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all of the terms, covenants and conditions of this Agreement to be complied with and performed by the Company and the Stockholders on or before the Closing Date shall have been duly complied with and performed in all respects, a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of the Company and each of the Stockholders shall have been delivered to Group 1, and a copy of the resolutions of each Company's Board of Directors, certified by the Secretary of the Company as of the Closing Date, approving the terms of this Agreement and all transactions contemplated hereby shall have been delivered to Group 1; (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Merger and the transactions contemplated thereby will be in compliance with applicable laws; (c) Satisfaction or waiver of the conditions set forth in Article VIII of each of the Other Agreements and the simultaneous closing of each of the Other Mergers; (d) Group 1 shall have received evidence, satisfactory to Group 1, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.10 and 6.11 hereto; (e) Group 1 shall have received executed representations from each Stockholder stating that such Stockholder (with respect to shares owned beneficially or of record by him or her) has no current plan or intention to sell or otherwise dispose of the Group 1 Common Stock to be received by him or her in the Merger; (f) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of the Company shall have occurred, and the Company shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of the Company and Group 1 shall have received a certificate signed by the chief executive officer of the Company dated the Closing Date to such effect; (g) Receipt by Group 1, at Stockholders' expense, of a Policy of Title Insurance, issued by a title company, approved by Group 1, subject only to the exceptions described in Schedule 8.2(g) ("Permitted Title Exceptions"); -27- 33 (h) Receipt by Group 1, at Stockholders' expense, of a current survey of the Leased Properties showing the location of any improvements, prepared by a licensed surveyor approved by Group 1; (i) Closing of the purchase by Group 1 of the Premier Auto Finance, L.P., limited partnership interest from J. Carroll Enterprises, Inc.; (j) Execution of employment agreements pursuant to Section 6.15; and (k) Execution of the lease agreement pursuant to Section 6.14. 8.3 Additional Conditions Precedent to Obligations of the Stockholders. The obligation of the Stockholders to effect the Merger is also subject to the fulfillment at or prior to the Closing Date of the following condition: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date, all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects, a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to the Company, and a copy of the resolutions of the Board of Directors of Group 1, certified by the Secretary of Group 1 as of the Closing Date, approving the terms of this Agreement and all transactions contemplated hereby shall have been delivered to the Company; and (b) Receipt of an opinion from Crowe Chisek & Company, dated as of the Closing Date, to the effect that the Merger will constitute a non-taxable reorganization as defined in Section 368(a) of the Code. ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Stockholders to indemnify. Each of the Stockholders agrees to severally indemnify, defend and hold Group 1 harmless (subject to the limitations set forth in Section 9.1(e) below) from and against the aggregate of all Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Indemnifiable Damages" means, without duplication, the aggregate of all actual expenses, losses, costs, deficiencies, liabilities and damages (including reasonable related counsel and paralegal fees and expenses) incurred or suffered by Group 1, on a pre-tax consolidated basis to the extent (i) resulting from any breach of a representation or warranty made by the Company or such Stockholder in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements -28- 34 made by the Company or such Stockholder pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by the Company or any of the Stockholders pursuant to this Agreement; provided, however, that "Indemnifiable Damages" shall not include any damages arising from the employment agreements executed pursuant to Section 6.15, the lease agreements executed pursuant to Section 6.14 and the non- competition provisions of Section 10.4. (b) Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Group 1 shall have the right to be put in the same pre-tax consolidated financial position as Group 1 would have been in had each of the representations and warranties of the Company and such Stockholder hereunder been true and correct and had the covenants and agreements of the Company and such Stockholder hereunder been performed in full. (c) Each of the representations and warranties made by the Company and the Stockholders in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date, except that the representations and warranties of the Stockholders contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 4.1, 4.2, 4.3 and 4.4 shall not expire, but shall continue indefinitely. No claim for the recovery of Indemnifiable Damages may be asserted by Group 1 against the Stockholders after such representations and warranties shall expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) If Group 1 believes it is entitled to a claim for any Indemnifiable Damages hereunder, Group 1 shall promptly give written notice to the Stockholders of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If the Stockholders do not pay the amount of the claim for Indemnifiable Damages to Group 1 within 10 days, then Group 1 may exercise its respective rights under Section 9.3 and/or take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.1, the Stockholders' liability for Indemnifiable Damages shall be limited as follows: -29- 35 (1) Group 1 shall have no claim for Indemnifiable Damages unless and until all Indemnifiable Damages incurred by Group 1 exceed an aggregate of $350,000.00 with respect to this Agreement and the Other Agreements (the "Basket Amount"), in which event the Stockholders shall be liable for only such Indemnifiable Damages in excess of the Basket Amount; and (2) The total amount of Indemnifiable Damages for which each Stockholder shall be liable to Group 1 shall not exceed the total value of the Initial Stock Consideration and the Initial Cash Consideration received by such Stockholder in the Merger and the Other Mergers. For the purposes of this Section 9.1(e)(2), all Initial Stock Consideration shall be assigned a per share value of $14.00. THE STOCKHOLDERS ACKNOWLEDGE AND AGREE THAT FOR PURPOSES OF THE BASKET AMOUNT, INDEMNIFIABLE DAMAGES UNDER THE OTHER AGREEMENTS WILL AFFECT THEIR OBLIGATION TO INDEMNIFY GROUP 1 UNDER THIS AGREEMENT, EVEN THOUGH THE STOCKHOLDERS MAY OWN DIFFERING PERCENTAGES OF THE DEALERSHIPS BEING ACQUIRED BY GROUP 1 PURSUANT TO THE OTHER AGREEMENTS. FOR EXAMPLE, IF CLAIMS FOR INDEMNIFIABLE DAMAGES UNDER ONE OF THE OTHER AGREEMENTS EQUAL OR EXCEED $350,000, THEN THE STOCKHOLDERS UNDER THIS AGREEMENT WILL BE OBLIGATED TO INDEMNIFY GROUP 1 FOR CLAIMS FOR ALL AMOUNTS WITHOUT THE BENEFIT OF ANY BASKET AMOUNT. 9.2 Agreement by Group 1 to Indemnify. Group 1 agrees to indemnify, defend and hold the Stockholders harmless from and against the aggregate of all Stockholders Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Stockholders Indemnifiable Damages" means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including reasonable related counsel and paralegal fees and expenses) incurred or suffered by the Stockholders, on a pre-tax consolidated basis, to the extent (i) resulting from any breach of a representation or warranty made by Group 1 in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by Group 1 in or pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by Group 1 pursuant to this Agreement; provided, however, that "Stockholders Indemnifiable Damages" shall not include any damages arising from the employment agreements executed pursuant to Section 6.15, the lease agreements executed pursuant to Section 6.14 and the non-competition provisions of Section 10.4. (b) Without limiting the generality of the foregoing, with respect to the measurement of Stockholders Indemnifiable Damages, the Stockholders have the right to be put in the same pre-tax consolidated financial position as he, she or it would have been in had -30- 36 each of the representations and warranties of Group 1 hereunder been true and correct and had the covenants and agreements of Group 1 hereunder been performed in full. (c) Each of the representations and warranties made by Group 1 in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date, except that the representations and warranties of Group 1 contained in Sections 5.1, 5.2, 5.3, 5.4 and 5.5 shall not expire, but shall continue indefinitely. No claim for the recovery of Stockholders Indemnifiable Damages may be asserted by the Stockholders against Group 1 after such representations and warranties shall thus expire, provided, however, that claims for Stockholders Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) In the event that the Stockholders believe they are entitled to a claim for any Stockholders Indemnifiable Damages hereunder, the Stockholders shall promptly give written notice to Group 1 of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If Group 1 does not pay the amount of the claim for Indemnifiable Damages to the Stockholders within 10 days, then the Stockholders may exercise their respective rights under Section 9.3 and/or take any action or exercise any remedy available to them by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.2, the Stockholders shall have no claim for Stockholders Indemnifiable Damages unless and until the aggregate Stockholders Indemnifiable Damages incurred by the Stockholders under this Agreement and the Other Agreements shall exceed an aggregate of $350,000, in which event Group 1 shall be liable for only such Stockholders Indemnifiable Damages in excess of $350,000. 9.3 Conditions of Indemnification. The obligations and liabilities of the Stockholders and Group 1 hereunder with respect to their respective indemnities pursuant to this Article IX resulting from any claim or other assertion of liabilities by third parties (hereinafter called collectively "Claims"), shall be subject to the following terms and conditions: (a) the party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claim 10 business days after the Indemnified Party receives notice thereof (provided that failure to give notice within such 10 day period does not relieve the Indemnifying Party of his obligations to indemnify the Indemnified Party hereunder, except to the extent that such -31- 37 Indemnifying Party is harmed by the failure of the Indemnified Party to provide timely notice); (b) the Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claim; provided, however, if a Claim is made against Group 1 or Merger Sub, then Group 1 shall have the right to control the defense of the Claim; (c) if the Indemnifying Party shall elect not to undertake such defense, or within a reasonable time after notice of any such Claim from the Indemnified Party shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claim at any time prior to settlement, compromise or final determination thereof); (d) anything in this Section 9.3 to the contrary notwithstanding, (A) the Indemnified Party shall have the right, at its own cost and expense, to have its own counsel to protect its own interests and participate in the defense, compromise or settlement of the Claim, (B) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claim or consent to entry of any judgement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim, and (C) the Indemnified Party, by counsel or other representatives of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claim, and the Indemnifying Party and the Indemnified Party and their respective counsel shall cooperate with respect to such Claim. ARTICLE X MISCELLANEOUS 10.1 Certain Additional Rights. (a) In connection with Group 1's future dealership acquisitions in which the seller of such dealership seeks to sell the real estate and facilities component thereof (and Group 1 elects not to purchase such real estate and facilities), Group 1 agrees to introduce and recommend World Partner Associates, Ltd. as a suitable buyer of such real estate and facilities, with the understanding that World Partner Associates, Ltd. will lease such real estate and facilities to Group 1 under terms and conditions substantially similar to the lease agreement between Courtesy Ford, Inc. and K.C. Partnership entered into as of the Closing Date (and providing for an annual rental of 10% of the purchase price for such real estate), provided, however, that if Group 1 has a business arrangement with an affiliated real estate company or with a Group 1 lender providing for economic benefit to Group 1 as a result of the real estate company's acquisition of the real estate and facilities component of an -32- 38 acquired dealership, such business arrangement will supersede Group 1's obligations to World Associates, Ltd. hereunder. The rights and obligations created hereunder shall expire on the tenth anniversary of the Closing Date. (b) Group 1 agrees that if a third party makes an offer to purchase one or more of the Companies in a transaction not involving (i) a substantial portion of the other operations of Group 1 (other than the Companies) or (ii) a substantial portion of the Group 1 operations under the management of James S. Carroll in Florida and Georgia (other than the Companies), James S. Carroll has the right of first refusal to purchase the Company or Companies subject to the third party offer on the same terms as such offer, provided, however, that as a condition of closing such offer, all Designated Persons (as defined herein) who will own, operate or manage the repurchased Company or Companies shall resign from employment with Group 1. The right granted hereunder shall expire on the tenth anniversary of the Closing Date and is personal to James S. Carroll and is non-assignable and non-transferrable. 10.2 Certain Post-Closing Payments. (a) As additional consideration for the capital stock of the Company, Group 1 hereby agrees to pay the Stockholders certain additional amounts as provided in this Section 10.2(a). Beginning with the year ended December 31, 1999, the audited operations of the Carroll Group will be reviewed with respect to their operations during the full twelve calendar months of 1999. To the extent that Group 1's Incremental Return exceeds 11%, the Group 1 investment will be increased to a level which will yield this required rate of Incremental Return. This increase will be paid to the Stockholders no later than April 30 of the following year, as additional consideration for the Merger and the Other Mergers. This review will be conducted after each of the five years commencing with calendar 1999, and increases in investment as determined above will be paid until such time as the maximum increase has been reached. All additional consideration paid to the Stockholders pursuant to this Section 10.2(a) will be paid in cash and Group 1 Common Stock, in the same proportions as the aggregate consideration received by each Stockholder in the Merger and the Other Mergers. For the purposes of determining the number of shares of Group 1 Common Stock payable to the Stockholders hereunder, such shares shall be assigned a per share value of the average closing price of the Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding the date on which such shares are issued. The aggregate consideration paid by Group 1 pursuant to this Section 10.2(a) and Section 10.2(a) of the Other Agreements (the "Contingent Consideration") shall not exceed $7.5 million, $2.5 million of which (the "Guaranteed Payments") will be paid regardless of the results of the above computation, as follows: $900,000 on the first anniversary of the Closing Date, $900,000 on the second anniversary of the Closing Date, and $700,000 on the third anniversary of the Closing Date. The aggregate Guaranteed Payments actually paid to the Stockholders shall carry forward and be applied against any additional Contingent Consideration payable to the Stockholders hereunder. The Guaranteed Payments shall be -33- 39 reduced by the difference between the aggregate Contingent Consideration previously paid to the Stockholders and $2.5 million. The Contingent Consideration payable under this Section 10.2(a) is additional consideration for the Stockholders' interests in the Company, and the parties hereto agree to report such amounts on such basis for income tax purposes. (b) If a Stockholder sells any of the Initial Stock Consideration received by such Stockholder pursuant to the Plan of Merger for a per share price of less than fourteen dollars ($14.00), Group 1 shall pay the difference between the price per share at which such shares were sold and $14.00 per share; provided, that this Section 10.2(b) shall only apply to sales (i) occurring after the expiration of the applicable Stockholder's Restricted Period and (ii) made in the public market; and provided, further that this Section 10.2(b) shall terminate five (5) years following the termination of the applicable Stockholder's Restricted Period. A Stockholder shall promptly notify Group 1 in writing of any sale of Group 1 Common Stock pursuant to this Section 10.2(b), and Group 1 shall make any payments due to such Stockholder hereunder within ten (10) business days of receipt of notice. 10.3 Schedules to this Agreement. The Schedules to this Agreement contain all disclosure required to be made by the Company under the various terms and provisions of this Agreement. 10.4 Non-Competition Obligations. (a) As part of the consideration for the Merger, and as an additional incentive for Group 1 to enter into this Agreement, James S. Carroll, Janet L. Giles and Ralph S. Kerr (each a "Designated Person" and collectively, the "Designated Persons") and Group 1 agree to the non-competition provisions of this Section 10.4. Each Designated Person agrees that during the period of such Designated Person's non-competition obligations hereunder, such Designated Person will not, directly or indirectly for such Designated Person or for others, within twelve miles of or in the county of any operations sold to Group 1 under this Agreement or operations subsequently managed by such Designated Person as of the date in question or during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates engaged in automotive retailing; (ii) render advice or services to, or otherwise assist, including financing, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates engaged in automotive retailing; or (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or -34- 40 affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Group 1 or any of its subsidiaries or affiliates. For the purposes of this Section 10.4, "operations subsequently managed" shall mean (i) in the case of James S. Carroll, all Florida and Georgia operations of Group 1 and its affiliates under the executive management authority of James S. Carroll and (ii) in the case of the other Designated Persons, all operations of Group 1 and its affiliates under the day-to-day general management authority of such Designated Persons. These non-competition obligations shall apply until the later of (i) three years after the Closing or (ii) the period specified in any employment agreement entered into by such Designated Person with Group 1 or its Subsidiaries. If Group 1 or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this non-competition covenant shall not apply to such former aspect of that business. Notwithstanding the foregoing, the non-competition obligations of this Section 10.4 shall not apply to (x) the leasing of property or facilities owned by the Designated Persons or their affiliates to a competitor of Group 1 if such property or facilities were previously leased to Group 1 under a lease agreement which Group 1 materially breached, failed to renew or terminated (for reasons other than lessor's breach), or (y) any Designated Person's operation and management of any dealership purchased in accordance with Section 10.1(b) hereof. (b) During this non-competition period James S. Carroll will not engage in these restricted activities or assist in the industry consolidation efforts on behalf of any publicly held entity in the automotive retailing industry (nor any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity), regardless of geographic area or market; provided, however, that this paragraph (b) shall not prohibit James S. Carroll from selling, to a publicly held entity, any dealership acquired by him in full compliance with his post-employment non-competition obligations hereunder and held by him for at least one year. (c) The Designated Persons understand that the foregoing restrictions may limit their ability to engage in certain businesses during the period provided for above, but acknowledge that the Designated Persons will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. Each of the Designated Persons acknowledges that money damages would not be sufficient remedy for any breach of this Section 10.4 by such Designated Person, and such remedies shall not be deemed the exclusive remedies for a breach of this Section 10.4, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, -35- 41 without limitation, the recovery of damages from Group 1 and such Designated Person's agents involved in such breach. (d) It is expressly understood and agreed that Group 1 and the Designated Persons consider the restrictions contained in this Section 10.4 to be reasonably necessary to protect the legitimate business interests of Group 1 and its affiliates, including the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. (e) The parties hereto expressly acknowledge that Group 1's rights under this Section 10.4 are assignable and that such rights shall be fully enforceable by any of Group 1's assignees or successors in interest. 10.5 Termination. This Agreement may be terminated and the Merger and the other transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual consent of Group 1 and the Stockholders; (b) by either Group 1 or the Stockholders if the Merger has not been effected on or before March 31, 1998; (c) by Group 1 if the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate under this Section 10.5(c) shall expire at midnight on January 31, 1998; (d) by either Group 1 or the Stockholders if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Merger or the other transactions contemplated hereby shall have been entered; (e) by Group 1 if (i) since the date of this Agreement there has been a material adverse change in the business operations, financial condition or prospects of the Company; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by the Company or the Stockholders (except for any representation, warranty or covenant qualified by materiality or knowledge according to its terms, in which case any breach thereof will give rise to Group 1's right to terminate hereunder) which breach has not been cured within ten business days following receipt by the Company of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the aggregate projected 1998 -36- 42 pre-tax income of $6.8 million expected for the Company and the Other Companies, on which the consideration paid to the Stockholders in connection with the Merger was based; or (f) by the Stockholders if there has been a material breach of any representation or warranty set forth in this Agreement by Group 1 which breach has not been cured within ten business days following receipt by Group 1 of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice). 10.6 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.5, the parties hereto shall have no obligation or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1, 7.4 and 10.7 survive any such termination. 10.7 Expenses. Regardless of whether the Merger is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby incurred by Group 1 shall be paid by Group 1 and all such costs and expenses incurred by the Stockholders shall be paid by the Company and the Stockholders; provided, that all expenses borne by the Company will be paid prior to the completion of the distributions contemplated by Sections 6.3(j) and 7.6(c) hereof, and that such expenses will be deducted from the Company's working capital for the purpose of calculating such distributions. The Stockholder and Group 1 each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.8 Restrictions on Transfer of Group 1 Common Stock. (a) During the one-year period ending on the anniversary of the Closing Date (the "Restricted Period") (two-year period with respect to James S. Carroll), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of Group 1 Common Stock received by any Stockholder in the Merger or (B) any interest in (including any option to buy or sell) any of those shares of Group 1 Common Stock, in whole or in part, and Group 1 will have no obligation to, and shall not, treat any such attempted transfer as effective for any purpose; or (ii) engage in any transaction, whether or not with respect to any shares of Group 1 Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning the shares of Group 1 Common Stock acquired pursuant to the Plan of Merger (including for example engaging in put, call, short-sale, straddle or similar market transactions). Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group 1 Common Stock, provided that the pledgee of such shares shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (ii) transfer shares to immediate family members or the estate of any such individual (including, without limitation, any transfer by such Stockholder to or among any trust, custodial or other similar accounts or funds that are for the benefit of his or her immediate family members), provided that such person or entity shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; and (iii) transfer shares by will or the laws of descent and distribution or otherwise by reason of such Stockholder's death. The certificates evidencing the Group 1 Common Stock delivered to each Stockholder pursuant to the Plan of Merger will bear a legend substantially in the form set forth below and containing such other information as Group 1 may deem necessary or appropriate: -37- 43 EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE [ONE-YEAR] [TWO-YEAR] PERIOD ENDING ON ______________ [DATE THAT IS THE [FIRST] [SECOND] ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. (b) Each Stockholder, severally and not jointly with any other Person, (i) acknowledges that the shares of Group 1 Common Stock to be delivered to that Stockholder pursuant to the Plan of Merger have not been and, if applicable, will not be registered under the Securities Act and therefore may not be resold by that Stockholder without compliance with the Securities Act and (ii) covenants that none of the shares of Group 1 Common Stock issued to that Stockholder pursuant to the Plan of Merger will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all the applicable provisions of the Securities Act and the rules and regulations of the Commission and applicable state securities laws and regulations. All certificates evidencing shares of Group 1 Common Stock issued pursuant to the Plan of Merger will bear the following legend in addition to the legend prescribed by Section 10.8(a): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." In addition, certificates evidencing shares of Group 1 Common Stock issued pursuant to the Plan of Merger to each Stockholder will bear any legend required by the securities or blue sky laws of the state in which that Stockholder resides. 10.9 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party entitled to the benefits thereof. This Agreement may not be amended or supplemented -38- 44 at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. 10.10 Legal Fees. Except as otherwise provided herein, the losing party shall pay all reasonable legal fees and expenses and costs of litigation through appeal incurred by the prevailing party in any dispute arising from this Agreement. 10.11 Public Statements. The Stockholders and Group 1 agree to consult with each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law. 10.12 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other parties hereto. 10.13 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: -39- 45 if to the Company: J. Carroll Enterprises, Inc. 3101 N. State Road 7 Hollywood, Florida 33021 Telecopy: (954) 964-4760 Attention: James S. Carroll with a copy to: Bernard A. Singer, P.A. 4700-B Sheridan Street Hollywood, Florida 33021 Telecopy: (954) 985-0941 if to the Stockholders: J. Carroll Enterprises, Inc. 3101 N. State Road 7 Hollywood, Florida 33021 Telecopy: (954) 964-4760 Attention: James S. Carroll with a copy to: Bernard A. Singer, P.A. 4700-B Sheridan Street Hollywood, Florida 33021 Telecopy: (954) 985-0941 if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.13. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Delivery to the Stockholders' representative, if any, of any notice to Stockholders hereunder shall constitute delivery to all -40- 46 Stockholders and any notice given by such Stockholders' representative shall be deemed to be notice given by all Stockholders. 10.14 Governing Law. Except as otherwise specified herein, this Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.15 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.16 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.17 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10.18 Entire Agreement; Third Party Beneficiaries. This Agreement, including the Exhibits and the Schedules hereto, constitutes the entire agreement and supersedes all other prior agreements and understandings, both oral and written, among the parties or any of them, with respect to the subject matter hereof (except as contemplated otherwise by this Agreement) and neither this nor any document delivered in connection with this Agreement, confers upon any Person not a party hereto any rights or remedies hereunder. [signature page follows] -41- 47 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. ------------------------------------- Name: B.B. Hollingsworth, Jr. Title: Chairman, President and Chief Executive Officer PF MERGER, INC. By: /s/ JOHN T. TURNER ------------------------------------- Name: John T. Turner Title: President PERIMETER FORD, INC. By: /s/ RALPH S. KERR ------------------------------------- Name: Ralph S. Kerr Title: President STOCKHOLDERS J. CARROLL ENTERPRISES TRUST /s/ JAMES S. CARROLL ----------------------------------------- By: James S. Carroll, Trustee /s/ RALPH S. KERR ----------------------------------------- Ralph S. Kerr JANET L. GILES REVOCABLE LIVING TRUST /s/ JANET L. GILES ----------------------------------------- By: Janet L. Giles, Trustee 48 ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Agreement shall have the meanings set forth below unless the context shall otherwise require: "Aboveground Storage Tanks" and "Underground Storage Tanks" shall have the meanings given them in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree, as in effect as of the Closing Date, governing Aboveground Storage Tanks or Underground Storage Tanks. "affiliate" shall mean, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. "Agreement" shall mean the Agreement and Plan of Reorganization made and entered into as of December ____, 1997 by and among Group 1, Merger Sub, the Company and the Stockholders thereof, including any amendments thereto and each Annex (including this Annex A), Exhibit and schedule thereto (including the Schedules). "Assets" shall mean all of the properties and assets owned by the Company, other than the Leased Properties, whether personal or mixed, tangible or intangible, wherever located. "Benefit Program or Agreement" shall have the meaning set forth in Section 3.17. "Business Day" means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. "Carroll Group" shall mean all dealerships under the executive management responsibility of James S. Carroll in Florida and Georgia (including the Companies and any other dealerships acquired by Group 1 after the Closing Date) and additional dealerships acquired by Group 1 as a result of the efforts of James S. Carroll (whether or not such dealerships are under the executive management control of James S. Carroll). "Closing" shall mean a meeting, which shall be held in accordance with Section 2.2, of representatives of the parties to the Agreement at which, among other things, all documents deemed necessary by the parties to the Agreement to evidence the fulfillment or waiver of all conditions precedent to the consummation of the transactions contemplated by the Agreement are executed and delivered. "Closing Date" shall mean the date of the Closing as determined pursuant to Section 2.2. -1- 49 "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Company" shall mean Perimeter Ford, Inc., a Delaware corporation, all predecessor entities of the Company and its successors from time to time. "Company Common Stock" shall mean the issued and outstanding common stock of the Company, as set forth in Section 3.7. "Company's 1996 Balance Sheet" shall have the meaning set forth in Section 3.8 herein. "Company's 1996 Financial Statements" shall have the meaning set forth in Section 3.8 herein. "Contingent Consideration" shall have the meaning set forth in Section 10.2(a) herein. "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Designated Person" and "Designated Persons" shall have the meanings set forth in Section 10.4 herein. "Effective Time" shall mean the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Delaware recognizing the Merger. "Environmental Laws" shall mean all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, as in effect on the Closing Date, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the Regulations promulgated thereunder. -2- 50 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder. "Fixed Assets" shall mean all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures owned by the Company or set forth on the 1996 Balance Sheet or acquired by the Company since the date of the 1996 Balance Sheet. "GAAP" shall mean accounting principles generally accepted in the United States as in effect from time to time consistently applied by a specified Person. "Governmental Authority" shall mean any governmental agency or authority (other than a Court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. "Group 1" shall mean Group 1 Automotive, Inc., a Delaware corporation. "Group 1 Common Stock" shall mean the common stock, par value $.01 per share of Group 1. "Guaranteed Payments" shall have the meaning set forth in Section 10.2(a) herein. "Guarantees" shall have the meaning set forth in Section 3.11 herein. "Hazardous Substance" shall mean any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, metals, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires remediation under any Environmental, Health and Safety Laws in effect on the Closing Date, including, without limitation, the United States Department of Transportation Table (49 CFR 172, 101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and any amendments thereto; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state statute or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has -3- 51 been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Incremental Return" shall mean return on Group 1's investment in the operations of the Carroll Group that were not a part of the Companies on the date of this Agreement (total income after income taxes divided by total investment). " Income" and "investment" used for these purposes will be before any Group 1 management fees, allocations of indirect costs, cost of capital (including interest, loan origination fees, points and any other expenses incurred in obtaining or maintaining a loan) or amortization of goodwill. "Total investment" in these operations will include any loan proceeds, cash or stock invested by Group 1 to acquire the operations added to the Carroll Group after the date of this Agreement (including all investments made by Group 1 as a condition to manufacturer approval of such acquisitions). "Indemnifiable Damages" shall have the meaning set forth in Section 9.1 herein. "Indemnified Party" shall have the meaning set forth in Section 9.3 herein. "Indemnifying Party" shall have the meaning set forth in Section 9.3 herein. "Intellectual Property" shall mean all patents, trademarks, copyrights and other proprietary rights. "IRS" shall mean the Internal Revenue Service. "Law" shall mean all laws, statutes, ordinances, rules and regulations of the United States, any foreign country, or any domestic or foreign state, and any political subdivision or agency thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Leased Property" and "Leased Properties" shall have the meaning set forth in Section 3.18 herein. "Licenses" shall mean all licenses, certificates, permits, approvals and registrations. "Lien" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Law of any jurisdiction. -4- 52 "Material Contract" has the meaning set forth in Section 3.11 herein. "Material Leases" shall have the meaning set forth in Section 3.11 herein. "Merger" shall mean the merger of Merger Sub with and into the Company. "Merger Sub" shall mean PF Merger, Inc., a Delaware corporation and a wholly owned subsidiary of Group 1. "Order" shall mean any judgment, order or decree of any Court or Governmental Authority, federal, foreign, state or local. "Other Agreements" shall have the meaning set forth in the Recitals hereto. "Other Company" and "Other Companies" shall have the meanings set forth in the Recitals hereto. "Owned Properties" shall mean any real estate previously owned by the Company. "Permitted Encumbrances" shall mean the following: (1) liens for taxes, assessments and other governmental charges not delinquent or which are currently being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (2) mechanics' and materialmen's liens not filed of record and similar charges not delinquent or which are filed of record but are being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (3) liens in respect of judgments or awards with respect to which the specified Person shall in good faith currently be prosecuting an appeal or other proceeding for review and with respect to which such Person shall have secured a stay of execution pending such appeal or such proceeding for review; provided that such Person shall have set aside on its books adequate reserves with respect thereto; (4) easements, leases, reservations or other rights of others in, or minor defects and irregularities in title to, property or assets of a specified Person; provided that such easements, leases, reservations, rights, defects or irregularities do not materially impair the use of such property or assets for the purposes for which they are held; and -5- 53 (5) any lien or privilege vested in any lessor, licensor or permittor for rent or other obligations of a specified Person thereunder so long as the payment of such rent or the performance of such obligations is not delinquent. "Person" shall mean an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Court or Governmental Authority. "Phase I Environmental Surveys" shall mean the environmental reports of S.E. Environmental Consultants, Inc. dated September, 1997. "Plan" shall have the meaning set forth in Section 3.17. "Plan of Merger" shall mean the Agreement and Plan of Merger made and entered into as of __________, 1998 by and between Merger Sub and the Company. "Related Party Agreements" shall have the meaning set forth in Section 3.11 herein. "Release" and "Discharge" shall have the meanings given them in the Environmental, Health and Safety Laws "Reports" shall mean, with respect to a specified Person, all reports, registrations, filings and other documents and instruments required to be filed by the specified Person with any Governmental Authority. "Restricted Period" shall have the meaning set forth in Section 10.8 herein. "Schedules" shall mean all schedules required to be provided by the Company or the Stockholders under this Agreement, including any amendments or supplements thereto. "SEC Documents" shall mean the Group 1 Automotive, Inc. Prospectus dated October 29, 1997 and the Form 10-Q for the third quarter ended September 30, 1997. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Stockholders Indemnifiable Damages" shall have the meaning set forth in Section 9.2 herein. A "Subsidiary" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. -6- 54 "Tax Returns" shall mean all returns, reports and filings relating to Taxes. "Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, payroll and franchises imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof. "Terminated Benefit Plans" shall mean Benefit Plans that were sponsored, maintained, or contributed to by a specified Person within six years prior to the date of the Agreement but which have been terminated prior to the date of the Agreement. "Waste" shall mean toxic agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash; provided, however, the term "Waste" shall not include scrap metal. -7- 55 EXHIBIT A ______________, 1998 AGREEMENT AND PLAN OF MERGER Merging PERIMETER FORD, INC. into PF MERGER, INC. THIS AGREEMENT AND PLAN OF MERGER, dated as of _________, 1998 (this "Plan of Merger"), is by and between PF Merger, Inc., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Group 1 Automotive, Inc., a Delaware corporation ("Group 1") and Perimeter Ford, Inc., a Delaware corporation (the "Company"). Merger Sub and the Company are hereinafter sometimes referred to as the "Constituent Corporations." PRELIMINARY STATEMENT Group 1, Merger Sub and the Company desire that the Company merge with and into Merger Sub. This Plan of Merger is being entered into pursuant to an Agreement and Plan of Reorganization dated as of December 17, 1997 (the "Agreement") among Group 1, Merger Sub, the Company and the stockholders of the Company. Group 1 will acquire by merger (the "Other Mergers") Koons Ford, Inc., a Florida corporation and Courtesy Ford, Inc., a Florida corporation (collectively, the "Other Companies") pursuant to plans of merger entered into among the Other Companies and subsidiaries of Group 1 (collectively, the "Other Plans of Merger"). The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value $.01 per share ("Merger Sub Common Stock"), of which 1,000 shares are outstanding, all of which are owned by Group 1. The authorized capital stock of the Company consists of 5,000 shares of common stock, par value $100.00 per share ("Company Common Stock"), of which 1,579 shares are outstanding and no shares are held in the Company's treasury. The Boards of Directors of each of the Constituent Corporations, respectively, have approved the Agreement and the Plan of Merger. Accordingly, in consideration of the premises, and the mutual covenants and agreements herein contained, the parties hereto hereby agree, subject to the terms and conditions hereinafter set forth, as follows: 56 ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.3), the Company shall be merged with and into the Merger Sub, the separate existence of the Company shall cease, and the Merger Sub (i) shall continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation") under the corporate name "Perimeter Ford, Inc.", (ii) shall be governed by the laws of Delaware (iii) shall maintain a registered office in the State of Delaware at c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware, and shall (iv) succeed to and assume all of the rights, properties and obligations of Merger Sub and the Company in accordance with the applicable provisions of the Delaware General Corporation Law (the "Code"). 1.2 Effect of the Merger. The Merger shall have the effects set forth in Section 251 of the Code. 1.3 Consummation of the Merger. As soon as practicable after all conditions set forth in Article VIII of the Agreement have been satisfied or waived, the parties hereto will file with the Secretary of State of the State of Delaware articles of merger in such form as required by, and executed in accordance with, the relevant provisions of the Code, with instructions that such articles of merger are to be issued and effective as of the last day of the month in which such articles are filed (the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Delaware being the "Effective Time"). 1.4 Certificate of Incorporation; Bylaws. The certificate of incorporation and bylaws of the Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and bylaws of the Surviving Corporation and thereafter shall continue to be its certificate of incorporation and bylaws until amended as provided therein and under the Code. 1.5 Directors and Officers. The directors of the Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The initial officers of the Surviving Corporation shall be as follows: (i) Ralph S. Kerr--President, (ii) James S. Carroll--Vice President, (iii) Janet L. Giles--Treasurer, and (iv) Frank R. Todaro--Secretary, in each case until their respective successors are duly elected or appointed and qualified. 1.6 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Merger Sub or their respective stockholders: (a) The shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (the "Shares") shall be converted, subject to the provisions of this Section 1.6, into (i) the rights to receive, immediately following the Effective Date, 2 57 a number of shares of Group 1 Common Stock (the "Initial Stock Consideration") and an amount in cash (the "Initial Cash Consideration," and together with the Initial Stock Consideration, the "Initial Consideration") as set forth in Section 1.6(b) below, and (ii) the rights to receive, periodically upon satisfaction of the conditions set forth in Section 1.6(c) below, additional shares of Group 1 Common Stock (the "Contingent Stock Consideration") and amounts in cash (the "Contingent Cash Consideration," and together with the Contingent Stock Consideration, the "Contingent Consideration") as set forth in Section 1.6(c) hereof; provided, however, that no fractional shares of Group 1 Common Stock shall be issued, and, in lieu thereof, a cash payment shall be made pursuant to Sections 1.6(h) and 1.6(i) hereof. (b)(i) The Shares owned by J. Carroll Enterprises Trust shall be converted into the right to receive Initial Stock Consideration of 311,383 shares and the rights to receive a portion of any Contingent Consideration periodically payable to it in accordance with Section 1.6(c) hereof; (ii) the Shares owned by Janet L. Giles Revocable Living Trust shall be converted into the right to receive Initial Stock Consideration of 26,760 shares, Initial Cash Consideration of $7,766 and the rights to receive a portion of any Contingent Consideration periodically payable to it in accordance with Section 1.6(c) hereof; and (iii) the Shares owned by Ralph S. Kerr shall be converted into the right to receive Initial Stock Consideration of 203,373 shares, Initial Cash Consideration of $59,025 and the rights to receive a portion of any Contingent Consideration periodically payable to him in accordance with Section 1.6(c) hereof. (c) As additional consideration for the capital stock of the Company, Group 1 hereby agrees to pay the Stockholders certain additional amounts as provided in this Section 1.6(c). Beginning with the year ended December 31, 1999, the audited operations of the Carroll Group will be reviewed with respect to their operations during the full twelve calendar months of 1999. To the extent that Group 1's Incremental Return exceeds 11%, the Group 1 investment will be increased to a level which will yield this required rate of Incremental Return. This increase will be paid to the Stockholders no later than April 30 of the following year, as additional consideration for the Merger and the Other Mergers. This review will be conducted after each of the five years commencing with calendar 1999, and increases in investment as determined above will be paid until such time as the maximum increase has been reached. All additional consideration paid to the Stockholders pursuant to this Section 1.6(c) will be paid in cash and Group 1 Common Stock, in the same proportions as the aggregate consideration received by each Stockholder in the Merger and the Other Mergers. For the purposes of determining the number of shares of Group 1 Common Stock payable to the Stockholders hereunder, such shares shall be assigned a per share value of the average closing price of the Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding the date on which such shares are issued. The Contingent Consideration paid by Group 1 pursuant to this Section 1.6(c) and Section 1.6(c) of the Other Plans of Merger shall not exceed $7.5 million, $2.5 million of which (the "Guaranteed Payments") will be paid regardless of the results of the above computation, as follows: $900,000 on the first anniversary of the Closing Date, $900,000 on 3 58 the second anniversary of the Closing Date, and $700,000 on the third anniversary of the Closing Date. The aggregate Guaranteed Payments actually paid to the Stockholders shall carry forward and be applied against any additional Contingent Consideration payable to the Stockholders hereunder. The Guaranteed Payments shall be reduced by the difference between the aggregate Contingent Consideration previously paid to the Stockholders and $2.5 million. The Contingent Consideration payable under this Section 1.6(c) is additional consideration for the Stockholders' interests in the Company, and the parties hereto agree to report such amounts on such basis for income tax purposes. (d) Each share of Company Common Stock that immediately prior to the Effective Time was held in the treasury of the Company shall be canceled and retired as a result of the Merger and no securities or cash shall be issued or paid with respect thereto. Any shares of preferred stock of the Company and any options, warrants or other rights to purchase Company Common Stock or any other securities of the Company which remain outstanding at the Effective Time shall automatically be canceled and retired as a result of the Merger without consideration therefor, and each holder thereof shall cease to have any rights with respect thereto. (e) At or after the Effective Time, each holder of an outstanding certificate that prior thereto represented Shares shall be entitled, upon surrender thereof to Group 1, to receive immediately in exchange therefor (i) a certificate or certificates representing the number of whole shares of Initial Stock Consideration in such denominations and registered in such names as such holder may request and (ii) cash in the amount equal to the Initial Cash Consideration, into which the Shares so surrendered shall have been converted as described above. Each holder of Shares who would otherwise be entitled to a fraction of a share of Group 1 Common Stock shall, upon surrender of the certificates that, prior to the Effective Time, represented Shares held by such holder, to Group 1, be paid an amount in cash in accordance with the provisions of Sections 1.6(i) and 1.6(j). Until so surrendered, each outstanding certificate that, prior to the Effective Time, represented Shares shall be deemed from and after the Effective Time, for all corporate purposes, other than the payment of earlier dividends and distributions, to evidence the ownership of the number of full shares of Initial Stock Consideration and Initial Cash Consideration into which such Shares shall have been converted pursuant to this Section 1.6. Unless and until any such outstanding certificates shall be surrendered, no dividends or other distributions payable to the holders of Group 1 Common Stock, as of any time on or after the Effective Time, shall be paid to the holders of such outstanding certificates which prior to the Effective Time represented Shares; provided, however, that, upon surrender and exchange of such outstanding certificates, there shall be paid to the record holders of the certificates issued and exchanged therefor, the amount, without interest thereon, of dividends and other distributions, if any, that theretofore were declared and became payable since the Effective Time with respect to the number of full shares of Group 1 Common Stock issued to such holders. 4 59 (f) All shares of Group 1 Common Stock into which the Shares shall have been converted pursuant to this Section 1.6 shall be issued and paid in full satisfaction of all rights pertaining to such converted shares. (g) If any certificate for shares of Group 1 Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange shall have paid to Group 1 any transfer or other taxes required by reason of the issuance of a certificate for shares of Group 1 Common Stock in any name other than that of the registered holder of the certificate surrendered, or established to the satisfaction of Group 1 that such tax has been paid or is not payable. (h) In lieu of any fraction of a share of Initial Common Stock, each holder of Shares who would otherwise be entitled to a fraction of a share of Group 1 Common Stock shall, upon surrender of the Shares held by such holder to Group 1, be paid an amount in cash equal to the value of such fraction of a share based upon a per share price $14.00. No interest shall be paid on such amount. (i) In lieu of any fraction of a share of Contingent Common Stock, each person who would otherwise be entitled to a fraction of a share of Contingent Common Stock shall, upon satisfaction of the conditions precedent to such persons receipt of Contingent Common Stock, be paid an amount in cash equal to the value of such fraction of a share based upon the average closing price of Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding each respective issuance of Contingent Common Stock. No interest shall be paid on such amount. (j) None of Group 1, Merger Sub, the Company or the Surviving Corporation shall be liable to a holder of the Shares for any amount properly paid to a public official pursuant to applicable property, escheat or similar law. 1.8 Taking of Necessary Action; Further Action. Merger Sub and the Company shall take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger as promptly as possible. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company or Merger Sub, such corporations shall direct their respective officers and directors to take all such lawful and necessary action. 5 60 ARTICLE II MISCELLANEOUS 2.1 Counterparts. This Plan of Merger may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to each of the other parties. 2.2 Governing Law. This Plan of Merger shall be governed by and construed in accordance with the laws of the State of Delaware. 2.3 Waiver and Amendment. Any provision of this Plan of Merger may be waived at any time by the party that is, or whose stockholders are, entitled to the benefits thereof. This Plan of Merger may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto, only as may be permitted by applicable provisions of the Code. The waiver by any party hereto of any condition or of a breach of another provision of this Plan of Merger shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Plan of Merger shall not preclude it from seeking redress for breach of this Plan of Merger other than with respect to the condition so waived. 2.4 Certain Definitions. (a) "Carroll Group" shall mean all dealerships under the executive management responsibility of James S. Carroll in Florida and Georgia (including the Companies and any other dealerships acquired by Group 1 after the Closing Date) and additional dealerships acquired by Group 1 as a result of the efforts of James S. Carroll (whether or not such dealerships are under the executive management control of James S. Carroll). (b) "Incremental Return" shall mean return on Group 1's investment in the operations of the Carroll Group that were not a part of the Companies on the date of this Agreement (total income after income taxes divided by total investment). " Income" and "investment" used for these purposes will be before any Group 1 management fees, allocations of indirect costs, cost of capital (including interest, loan origination fees, points and any other expenses incurred in obtaining or maintaining a loan) or amortization of goodwill. "Total investment" in these operations will include any loan proceeds, cash or stock invested by Group 1 to acquire the operations added to the Carroll Group after the date of this Agreement (including all investments made by Group 1 as a condition to manufacturer approval of such acquisitions). [signature page follows] 6 61 IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger to be duly executed as of the date first above written. PF MERGER, INC. By: ------------------------------------- Name: Ralph S. Kerr Title: President PERIMETER FORD, INC. By: ------------------------------------- Name: Ralph S. Kerr Title: President 7 EX-10.41 12 PLAN OF REORGANIZATION - COURTESY MERGER, INC. 1 EXHIBIT 10.41 AGREEMENT AND PLAN OF REORGANIZATION AMONG GROUP 1 AUTOMOTIVE, INC., COURTESY MERGER, INC., A WHOLLY OWNED SUBSIDIARY OF GROUP 1 AUTOMOTIVE, INC., COURTESY FORD, INC. AND THE STOCKHOLDERS OF COURTESY FORD, INC. DATED AS OF DECEMBER 17, 1997 2 TABLE OF CONTENTS
ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II THE MERGER 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4 Escrowed Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS 3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.18 Leased Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-i- 3 3.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.24 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS 4.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 AND MERGER SUB 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.5 Authorization For Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.7 Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.8 No Knowledge of Misrepresentations or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VI COVENANTS OF THE STOCKHOLDERS 6.1 Merger Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.3 Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . 20 6.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.10 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.11 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-ii- 4 6.12 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.13 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.15 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.16 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.17 Phase I Environmental Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.5 Delivery of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.6 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Merger . . . . . . . . . . . . . . . 26 8.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 26 8.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 28 ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Stockholders to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.2 Agreement by Group 1 to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE X MISCELLANEOUS 10.1 Certain Additional Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.2 Certain Post-Closing Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.3 Schedules to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.4 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.6 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.8 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-iii- 5 10.9 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.10 Legal Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.11 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.12 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.17 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.18 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-iv- 6 AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization (this "Agreement"), dated as of the 17th day of December, 1997, is among Group 1 Automotive, Inc., a Delaware corporation ("Group 1"), Courtesy Merger, Inc., a Florida corporation and a wholly owned subsidiary of Group 1 (Merger Sub"), Courtesy Ford, Inc., a Florida corporation ("the Company") and the persons listed on the signature pages hereof under the caption "Stockholders" (collectively, the "Stockholders," and each of those persons, individually, a "Stockholder"). RECITALS: WHEREAS, the parties to this Agreement have determined it is in their best long-term interests to effect a business combination pursuant to which: (A) The Company will merge with and into Merger Sub on the terms and subject to the conditions set forth herein (the "Merger"); (B) Group 1 will acquire by merger (the "Other Mergers") Koons Ford, Inc., a Florida corporation and Perimeter Ford, Inc., a Delaware corporation (each an "Other Company" and, collectively with the Company, the "Companies") pursuant to agreements entered into among those entities and their equity owners, Group 1 and subsidiaries of Group 1 (collectively, the "Other Agreements"); and WHEREAS, the respective Boards of Directors of Group 1, Merger Sub and the Company have approved this Agreement and the Merger pursuant to the terms and conditions herein set forth. WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). WHEREAS, the parties hereto desire to set forth certain representations, warranties and covenants made by each to the other as an inducement to the consummation of the Merger. NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined 7 has the meaning ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. ARTICLE II THE MERGER 2.1 The Merger. Subject to and in accordance with the terms and conditions of this Agreement and pursuant to the Agreement and Plan of Merger between Merger Sub and the Company, a form of which is attached hereto as Exhibit A (the "Plan of Merger"), at the Effective Time (as hereinafter defined) the Company shall be merged with and into Merger Sub, the separate existence of the Company shall cease, and Merger Sub shall (i) continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation") under the corporate name "Courtesy Ford, Inc.", (ii) be governed by the laws of Florida, (iii) maintain a registered office in the State of Florida at 15551 South Dixie Highway, Miami, Florida 33157, and (iv) succeed to and assume all of the rights, properties and obligations of Merger Sub and the Company in accordance with the Florida Business Corporation Act. Subject to the terms and conditions of this Agreement and the Plan of Merger, Group 1 agrees, at or prior to the Closing, to cause Merger Sub to execute and deliver, the Plan of Merger in form and substance substantially similar to the form attached hereto as Exhibit A. Subject to the terms and conditions of this Agreement and the Plan of Merger, the Stockholders agree, at or prior to the Closing, to cause the Company to execute and deliver the Plan of Merger in form and substance substantially similar to the form attached hereto as Exhibit A. 2.2 Closing Date. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the last day of the month in which all conditions set forth in Article VIII hereof are satisfied or waived or at such other time and place and on such other date as Group 1 and the Company shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date." 2.3 Effective Time. As soon as practicable after all conditions set forth in Article VIII hereof are satisfied or waived, the parties hereto will file with the Secretary of State of the State of Florida, articles of merger in such form as required by, and executed in accordance with, the relevant provisions of the Florida Business Corporation Act, with instructions that such articles of merger are to be issued and effective as of the Closing Date (the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Florida being the "Effective Time"). 2.4 Escrowed Shares. In the event that James S. Carroll has not been approved by American Honda Motor Co., Inc. ("Honda") as a 5% stockholder of Group 1 before Closing, 175,000 -2- 8 shares of Group 1 Common Stock due James S. Carroll under this Agreement will be placed in Escrow at Closing pending release as provided in this Section 2.4. These shares will remain in Escrow until the first of the following to occur: (1) the second anniversary of the Closing Date, (2) Honda's approval of James S. Carroll as a 5% stockholder of Group 1, or (3) such time as Group 1 is no longer required to obtain Honda's approval of each 5% stockholder of Group 1. In the event these shares become issuable from Escrow as a result of (1) above, Group 1 may, at its option, elect to pay cash to James S. Carroll in lieu of the escrowed shares in an amount equal to 175,000 times the greater of (i) the average closing price of Group 1 Common Stock on the New York Stock Exchange for the five trading days immediately preceding the date on which the escrowed shares become issuable or (ii) $14.00. In the event these shares become issuable from Escrow as a result of (2) or (3) above, the shares will be issued from escrow to James S. Carroll as soon as reasonably practicable after receipt of such approval. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS The Stockholders hereby represent and warrant to Group 1 and Merger Sub as follows: 3.1 Corporate Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation with all requisite corporate power and authority to own or lease its properties and conduct its business as now owned, leased or conducted and to execute, deliver and perform this Agreement and each instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing. True and complete copies of the articles of incorporation and bylaws (or other organizational documents) of the Company are included in Schedule 3.1. The minute books of the Company previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by their respective boards of directors and stockholders in their capacities as such. 3.2 Qualification. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary. Schedule 3.2 sets forth a list of the jurisdictions in which the Company is qualified to do business, if any. 3.3 Authorization. The execution and delivery by the Company, the performance of its obligations pursuant to this Agreement and the execution, delivery and performance of each instrument, document or agreement required hereby to be executed and delivered by the Company at, or prior to, the Closing have been duly and validly authorized by all requisite corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or any other instrument, document or agreement required hereby to be executed by the Company at, or prior to, the Closing. The Board of Directors of the -3- 9 Company has voted to recommend approval of the Merger to the stockholders of the Company and such determination remains in effect. THE EXECUTION OF THIS AGREEMENT BY THE STOCKHOLDERS CONSTITUTES UNANIMOUS STOCKHOLDER CONSENT TO THE MERGER, THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY WITHIN IN ACCORDANCE WITH SECTION 607.0704 FLORIDA STATUTES, AND THIS EXECUTED AGREEMENT SHALL BE FILED IN THE MINUTE BOOKS OF THE COMPANY AS EVIDENCE OF SUCH SHAREHOLDER ACTION. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by the Company at, or prior to, the Closing will then be, duly executed and delivered by it, and this Agreement constitutes, and, to the extent it purports to obligate the Company, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of the Company enforceable against it in accordance with its terms. 3.4 Approvals. Except for the applicable filings with the Secretary of State of the State of Florida relating to the Merger and except for applicable requirements, if any, of the HSR Act, and except to the extent set forth in Schedule 3.4, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit the Company to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. 3.5 Absence of Conflicts. Except to the extent set forth in the Schedule 3.5, neither the execution and delivery by the Company of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by the Company of its obligations under this Agreement or any such instrument, document or agreement will (assuming receipt of all consents, approvals, authorizations, permits, certificates and orders disclosed as requisite in Schedule 3.4) (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) any applicable permits received from any Governmental Authority (iv) the articles of incorporation or bylaws or other organizational documents of the Company or (v) any contract or agreement to which the Company is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of the Company, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 3.6 Subsidiaries; Equity Investments. The Company has not controlled directly or indirectly, or had any direct or indirect equity participation in any corporation during the five-year period preceding the date hereof. 3.7 Capitalization. -4- 10 (a) The authorized capital stock of the Company consists of 1,000 shares of common stock, par value $1.00 per share, of which 750 shares are issued and outstanding (no shares being held in treasury) (the "Company Common Stock"). Each outstanding share of the Company Common Stock has been duly authorized, is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights of any stockholder. Set forth in Schedule 3.7(a) are the names, social security or I.R.S. identification numbers and addresses (as reflected in the corporate records of the Company) of each record holder of the Company Common Stock, together with the number of shares held by each such person. (b) There is not outstanding any capital stock or other security, including without limitation any option, warrant or right, entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the Company. Except as disclosed in Schedule 3.7(b), there are no contracts, agreements, commitments or arrangements obligating the Company (i) to issue, sell, pledge, dispose of or encumber any shares of, or any options, warrants or rights of any kind to acquire, or any securities that are convertible into or exercisable or exchangeable for, any shares of, any class of capital stock of the Company or (ii) to redeem, purchase or acquire or offer to acquire any shares of, or any outstanding option, warrant or right to acquire, or any securities that are convertible into or exercisable or exchangeable for, any shares of, any class of capital stock of the Company. 3.8 Financial Statements. Included in Schedule 3.8 are copies of the financial statements of the Company consisting of (i) an unaudited balance sheet of the Company as of October 31, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the ten month period then ended (collectively with the Interim Balance Sheet, the "Company Interim Financial Statements") and (ii) an audited balance sheet of the Company as of December 31, 1996 (the "Company 1996 Balance Sheet") and the related audited statements of income, changes in stockholders' equity and cash flows for the year then ended (including the notes thereto) (collectively with the Company 1996 Balance Sheet, the "Company 1996 Financial Statements") and (collectively with the Company Interim Financial Statements, the "Company Financial Statements"). The Company Interim Financial Statements are true and complete in all material respects. The Company 1996 Financial Statements are true and complete in all respects. The Company Financial Statements present fairly the financial position of the Company and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. The Company Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of the Company reflected in the Company Financial Statements and as incurred since October 31, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful accounts shown in the Company Interim Financial Statements) in the ordinary course of business and, except as set forth in Schedule 3.8, are not in dispute or subject to counterclaim, set-off or renegotiation. Schedule 3.8 contains an aged schedule of accounts receivable included in the Interim Balance Sheet. References regarding GAAP compliance in this Section 3.8 shall be qualified by the exceptions set forth in Section 3.9 below. -5- 11 3.9 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet, or relating to the items listed below in this Section 3.9, or as set forth in Schedule 3.9, the Company does not have any material liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP, except for possible adjustments to current year's depreciation provisions, LIFO adjustments, management company fees, profit sharing provisions, general manager year-end bonuses and the month-end payroll tax accrual. 3.10 Certain Agreements. Except as set forth in Schedule 3.10, neither the Company, nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a noncompetition, territorial exclusivity or other provision covering such subject matter purportedly enforceable by a third party against the Company, or any of its officers or directors, the scope of the business or operations of the Company, or any of its officers or directors, geographically or otherwise. 3.11 Contracts and Commitments. Schedule 3.11 includes (i) a list of all contracts to which the Company is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of the Company ("Material Contracts"); (ii) a list of all real or personal property leases to which the Company is a party involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which the Company is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between the Company and any of its officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. 3.12 Absence of Changes. Except as set forth in Schedule 3.12, there has not been, since October 31, 1997, any adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of the Company. Except as set forth in Schedule 3.12, since October 31, 1997, the Company has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. Notwithstanding the preceding sentence, the Company makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since October 31, 1997, for any employee who after such increase would receive annual compensation of less than $50,000. 3.13 Tax Matters. (a) Except as set forth in Schedule 3.13(a) (and except for filings and payments of assessments the failure of which to file or pay will not materially adversely affect the Company), (i) all Tax Returns which are required to be filed on or before the Closing Date -6- 12 by or with respect to the Company have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to the Company have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. (b) All Tax Returns of, or with respect to, the Company have been audited by the applicable governmental authority, or the applicable statute of limitations has expired, for all periods up to and including December 31, 1996 except as included on Schedule 3.13(b). (c) There is no claim against the Company for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to the Company, other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.13(c). (d) Except as set forth in Schedule 3.13(d), there is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company, or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to the Company. (e) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes (except for payroll tax accrual for October 31, 1997), whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to the Company up to and through the periods covered thereby. (f) All Tax allocation or sharing agreements affecting the Company shall be terminated prior to the Closing Date and no payments shall be due or will become due by the Company on or after the Closing Date pursuant to any such agreement or arrangement. (g) Except as set forth in Schedule 3.13(g), the Company will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. (h) The Company has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (i) Since the date of the Company's S Corp election on December 31, 1986, the Company (a) continuously has been and will be an S Corporation within the meaning of -7- 13 section 1361 of the Code, and (b) each holder of common stock of the Company has been an individual resident of the United States or an estate or trust described in section 1361(c)(2) that is permitted to hold the stock of an S Corporation. 3.14 Litigation. (a) Except as set forth in Schedule 3.14(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of the Company, threatened against or specifically affecting the Company before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent set forth in Schedule 3.14(b), the Company has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of the Company, no event has occurred which, with the lapse of time or action by a third party could result in a default under any contract or other agreement to which any of the Company is a party or by which it or any of its properties is bound or under any applicable Order of any Court or Governmental Authority. 3.15 Compliance with Law. Except as set forth in Schedule 3.15, the Company is in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. 3.16 Permits. Except as set forth in Schedule 3.16, the Company owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities necessary for the conduct of its business. A listing of all such items, with their expiration dates, is included in Schedule 3.16. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and the Company is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. 3.17 Employee Benefit Plans and Policies. (a) Schedule 3.17(a) provides a description of each of the following which is sponsored, maintained or contributed to by any of the Company for the benefit of its employees, or has been so sponsored, maintained or contributed to within six years prior to the Closing Date: (i) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA ("Plan"); and (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, -8- 14 vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not described in Section 3.17(a)(i) ("Benefit Program or Agreement"). True and complete copies of each of the Plans, Benefit Programs or Agreements, related trusts, if applicable, and all amendments thereto, have been furnished to Group 1. (b) The Company does not contribute to or have an obligation to contribute to, and has not at any time contributed to or had an obligation to contribute to, a plan subject to Title IV of ERISA, including, without limitation, a multiemployer plan within the meaning of Section 3(37) of ERISA. (c) Except as otherwise set forth in Schedule 3.17(c), (i) Each Plan and each Benefit Program or Agreement has been administered, maintained and operated in accordance with the terms thereof and in compliance with its governing documents and applicable law (including, where applicable, ERISA and the Code); (ii) There is no matter pending with respect to any of the Plans before any governmental agency, and there are no actions, suits or claims pending (other than routine claims for benefits) or threatened against, or with respect to, any of the Plans or Benefit Programs or Agreements or their assets; (iii) No act, omission or transaction has occurred which would result in imposition on the Company of (A) breach of fiduciary duty liability damages under Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (iv) Each of the Plans intended to be qualified under Section 401 of the Code satisfies the requirements of such Section, has received a favorable determination letter from the Internal Revenue Service regarding such qualified status and has not, since receipt of the most recent favorable determination letter, been amended or operated in a way which would adversely affect such qualified status; (v) As to any Plan intended to be qualified under Section 401 of the Code, there has been no termination or partial termination of the Plan within the meaning of Section 411(d)(3) of the Code; and (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (A) require the Company to make -9- 15 a larger contribution to, or pay greater benefits under, any Plan or Benefit Program or Agreement than it otherwise would or (B) create or give rise to any additional vested rights or service credits under any Plan or Benefit Program or Agreement. (d) There does not currently exist, and there has not at any time existed, any corporation, trade, business or entity under common control with the Company, within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA. (e) Termination of employment of any employee of any of the Company after consummation of the transactions contemplated by this Agreement would not result in payments under the Plans or Benefit Programs or Agreements which, in the aggregate, would result in imposition of the sanctions imposed under Sections 280G and 4999 of the Code. (f) Each Plan which is an "employee welfare benefit plan", as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued thereunder prior to such amendment or termination. (g) Schedule 3.17(g) sets forth by name and job description of the employees of the Company as of the date of this Agreement (the "Company Employees"). None of said employees are subject to union or collective bargaining agreements. The Company has not at any time had or been threatened with any work stoppages or other labor disputes or controversies with respect to its employees. 3.18 Leased Properties. (a) On the Closing Date, the Company will not own any real property or any interest therein. Schedule 3.18(a) sets forth the location and size of, principal improvements and buildings on, and Liens on all parcels of real estate leased by the Company (individually a "Leased Property" and collectively the "Leased Properties"). True and correct copies of all Liens are attached to Schedule 3.18(a). Except as set forth in Schedule 3.18(a), with respect to each Leased Property: (i) the Company has good and valid leasehold interests in each parcel of its Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of the Company or the Stockholders, threatened condemnation proceedings, suits or administrative actions relating to the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; -10- 16 (iii) except as set forth in Schedule 3.18(a)(iii), the legal descriptions for the parcels of Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the leasing or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Leased Property, except as set forth in Schedule 3.18(a)(v); (vi) there are no outstanding options or rights of first refusal to purchase the parcels of Leased Property, or any portion thereof or interest therein; (vii) there are no parties (other than the Company) in possession of the parcels of Leased Property, other than tenants under any leases disclosed in Schedule 3.18(a)(vii) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Leased Property are supplied with utilities and other services necessary for the operation of such facilities; (ix) each parcel of Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Leased Property are in good repair and adequate for the use of such Leased Property in the manner in which presently used; and (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Leased Property, except as set forth in Schedule 3.18(a)(xi). (b) Except as set forth in Schedule 3.18(b), the Company has good and marketable title to all of its Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of the Company are in good -11- 17 operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.19 Insurance. Schedule 3.19 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Company (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. The Company is presently insured, and since the inception of operations by the Company has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. The Company has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as set forth in Schedule 3.19, no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. The Company has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. The execution of this Agreement and the consummation of the transactions contemplated hereby will not cause such insurance policies to lapse, terminate or be canceled and will not result in any party thereto having the right to terminate or cancel such insurance policies. 3.20 Affiliate Interests. Except as set forth in Schedule 3.20, no employee, officer or director, or former employee, officer or director, of the Company has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business information, trademarks, service marks or trade names, used in or pertaining to the business of the Company, except for the normal rights of employees and stockholders. 3.21 Environmental Matters. Except as set forth in Schedule 3.21, to the best of the knowledge of the Stockholders: (a) The Company is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, dumping, discharging, release or disposal of Hazardous Substances, or other Waste. The Company is not currently liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. The Company is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. (b) The Company has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of their business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.21(b)), and the Company is in compliance with all the terms, conditions and requirements of such Licenses, and copies of -12- 18 such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or threatened by any Governmental Authority or third parties against the Company or its business, operations, properties, or assets, which question the validity or entitlement of the Company to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of the Company and the operation of its business. (c) The Company has not received and is not aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving the Company or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of its business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) The Company is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Owned Properties or the Leased Properties. (e) The Company has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. The Company has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. (f) The Company has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto. -13- 19 (g) The Company has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor have they allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified the Company that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Neither the Company nor the Stockholders have received notice or have knowledge of any facts which could give rise to any notice, that the Company is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. The Company has not submitted and has not been required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, the Company. The Company has not received any written or, to the knowledge of the Stockholders, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where the Company has transported, transferred or disposed of other Wastes. The Company has not been required to and has not undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. The Company has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) The Company has no Aboveground Storage Tanks or Underground Storage Tanks, except as listed in Schedule 3.21(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which the Company is aware undertaken by the Company or its agents, or by the Stockholders, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Owned Properties or the Leased Properties; (ii) the results of which the Company is aware of any ground, water, soil, air or asbestos monitoring undertaken by the Company or their agents, or by the Stockholders, or by any Governmental Authority, or by any third party, relating to the Company or any of the Owned Properties or the Leased Properties; (iii) all written communications between the Company and any Governmental Authority arising under or related to Environmental Laws; and (iv) all citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting the Company or any of the Owned Properties or the Leased Properties. (j) Schedule 3.21(j) contains a list of the assets of the Company which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as set forth in Schedule 3.21(j), the Company has operated and continue to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as set -14- 20 forth in Schedule 3.21(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, or threatened against or directly affecting the Company or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with their assets and operations. (k) Any references in this Section 3.21 to the "Leased Properties" are deemed to also refer to any properties previously leased by the Company. 3.22 Intellectual Property. Except as set forth in Schedule 3.22, the Company owns, or is licensed or otherwise has the right to use all Intellectual Property that are necessary for the conduct of the business and operations of the Company as currently conducted. To the knowledge of the Stockholders, (a) the use of the Intellectual Property by the Company does not infringe on the rights of any Person, and (b) no Person is infringing on any right of the Company with respect to any Intellectual Property. No claims are pending or, to the knowledge of the Stockholders, threatened that the Company is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Stockholders, no Person is infringing the rights of the Company with respect to any Intellectual Property. All of the Intellectual Property that is owned by the Company is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by the Company is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.23 Bank Accounts. Schedule 3.23 includes the names and locations of all banks in which the Company has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.24 Brokers. Except as disclosed in Schedule 3.24, no broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. 3.25 Disclosure. The Stockholders have disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of the Company. No representation or warranty to Group 1 by the Stockholders contained in this Agreement, and no statement contained in the Schedules attached hereto, any certificate, list or other writing furnished to Group 1 by the Stockholders pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, and any certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of the Stockholders for all purposes of this Agreement. -15- 21 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each Stockholder hereby, severally and not jointly, represents and warrants to Group 1 and Merger Sub that: 4.1 Capital Stock. Such Stockholder is the beneficial and record owner of the number of shares of Company Common Stock as set forth in Schedule 3.7(a). On the Closing Date all such shares will be owned free and clear of any lien, claim, pledge, encumbrance or other adverse claim. Except for such shares of Company Common Stock set forth in Schedule 3.7(a) hereto, such Stockholder does not own, beneficially or of record, any capital stock or other security, including without limitation any option, warrant or right entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the Company. 4.2 Authorization of Agreement. (a) Such Stockholder has full legal right, power, capacity and authority to execute, deliver and perform its obligations pursuant to this Agreement and to execute, deliver and perform its obligations under each instrument, document or agreement required hereby to be executed and delivered by such Stockholder at, or prior to, the Closing. (b) This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by such Stockholder at, or prior to, the Closing will then be, duly executed and delivered by such Stockholder, and this Agreement constitutes and, to the extent it purports to obligate such Stockholder, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of such Stockholder enforceable against it in accordance with its terms. 4.3 Approvals. Except for filings with the Secretary of State of Florida relating to the Merger, and except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit such Stockholder to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. 4.4 Absence of Conflicts. Except to the extent set forth in Schedule 4.4, neither the execution and delivery by such Stockholder of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by such Stockholder of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the -16- 22 organizational documents of such Stockholder or (iv) any contract or agreement to which such Stockholder is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of such Stockholder, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 4.5 Investment Intent. Each Stockholder makes the following representations relating to its acquisition of shares of Group 1 Common Stock: (i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be issued pursuant to the Merger to such Stockholder solely for such Stockholder's account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of any of those shares in connection with any distribution; (ii) such Stockholder is not a party to any agreement or other arrangement for the disposition of any shares of Group 1 Common Stock; (iii) such Stockholder is an "accredited investor" as defined in Securities Act Rule 501(a); (iv) such Stockholder (A) is able to bear the economic risk of an investment in the Group 1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a total loss of that investment, (C) has such knowledge and experience in financial and business matters, and such past participation in investments, that he or she is capable of evaluating the merits and risks of the proposed investment in the Group 1 Common Stock, (D) has received and reviewed the SEC Documents, (E) has had an adequate opportunity to ask questions and receive answers from the officers of Group 1 concerning any and all matters relating to the transactions contemplated hereby, including the background and experience of the current officers and directors of Group 1, the plans for the operations of the business of Group 1, the business, operations and financial condition of Group 1 and any plans of Group 1 for additional mergers or acquisitions of automotive dealerships, and (F) has asked all questions of the nature described in the preceding clause (E), and all those questions have been answered to his or her satisfaction; (v) such Stockholder acknowledges that the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Merger have not been and will not be registered under the Securities Act or qualified under applicable blue sky laws and therefore may not be resold by such Stockholder without compliance with Rule 144 of the Securities Act; (vi) such Stockholder acknowledges that he or she has agreed, pursuant to Section 10.8 herein, not to sell the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Merger for a period of one year (or two years with respect to James S. Carroll) from the Closing Date; (vii) such Stockholder, if a corporation, partnership, trust or other entity, acknowledges that it was not formed for the specific purpose of acquiring the Group 1 Common Stock; and (viii) without limiting any of the foregoing, such Stockholder agrees not to dispose of any portion of Group 1 Common Stock unless either (1) a registration statement under the Securities Act is in effect as to the applicable shares and the disposition is made in accordance with that registration statement, or (2) the disposition is made in full compliance with SEC Rule 144 and any other requirements of the Securities Act. Additionally, for the three-year period following the Closing Date a disposition pursuant to (viii)(2) above may be made only if the Stockholder has notified Group 1 of the proposed disposition and the disposition is made through a national brokerage firm selected by Group 1 and the Stockholder to offer disposition services for Group 1 Common Stock (in the absence of agreement between Group 1 and -17- 23 the Stockholder seeking to make a disposition, Goldman, Sachs & Co., Inc. will be the firm to handle such disposition). ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 AND MERGER SUB Group 1 and Merger Sub hereby represent and warrant, jointly and severally, to the Company and the Stockholders that: 5.1 Corporate Organization. Group 1 is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by it at the Closing. 5.2 Authorization. The execution and delivery by Group 1 and Merger Sub of this Agreement, the performance by Group 1 and Merger Sub of their respective obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Group 1 or Merger Sub at the Closing have been duly and validly authorized by all requisite corporate action on the part of Group 1 or Merger Sub, as the case may be. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Group 1 or Merger Sub at, or prior to, the Closing will then be, duly executed and delivered by Group 1 or Merger Sub, as the case may be. This Agreement constitutes, and, to the extent it purports to obligate Group 1 or Merger Sub, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Group 1 or Merger Sub, as the case may be, enforceable against them in accordance with its terms. 5.3 Approvals. Except for filings with the Secretary of State of Florida relating to the Merger, and except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Group 1 or Merger Sub, as the case may be, to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by either of them at or prior to the Closing. 5.4 Absence of Conflicts. Neither the execution and delivery by Group 1 or Merger Sub, as the case may be, of this Agreement or any instrument required hereby to be executed by it at or prior to the Closing nor the performance by Group 1 or Merger Sub, as the case may be, of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of Group 1 or Merger Sub or (iv) any contract or agreement to which Group 1 or Merger Sub is a party or by which it or any of its property is bound, or (b) result in the creation or imposition of any Liens on -18- 24 any of the properties or assets of Group 1 or Merger Sub (other than any Lien created by the Company ), or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Group 1 and its subsidiaries, taken as a whole. 5.5 Authorization For Group 1 Common Stock. All shares of Group 1 Common Stock issuable pursuant to the Merger are duly authorized and will, when issued, be validly issued, fully paid and nonassessable and not issued in violation of the preemptive rights of any stockholder of Group 1. 5.6 SEC Documents. The SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Group 1 included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Group 1 and its consolidated subsidiaries as of the dates thereto and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information, for normal year-end adjustments). 5.7 Merger Sub. Merger Sub is a corporation recently and duly incorporated under the laws of the State of Florida, is validly existing and in good standing under such laws and is a wholly-owned subsidiary of Group 1. Merger Sub has no assets, liabilities or obligations and has engaged in no business except as contemplated by this Agreement. 5.8 No Knowledge of Misrepresentations or Omissions. Neither Group 1, Merger Sub nor any of their agents or representatives has any actual knowledge that the representations of the Stockholders made in this Agreement are not true and correct in all material respects, and none of such persons has any actual knowledge of any material errors in, or material omissions from, the Schedules to this Agreement. -19- 25 ARTICLE VI COVENANTS OF THE STOCKHOLDERS 6.1 Merger Proposals. Prior to the Closing Date, neither the Company, any of its officers, directors, employees or agents nor any Stockholder shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion of the assets of, or a substantial equity interest in, the Company, other than the transactions with Group 1 contemplated by this Agreement. The Company and Stockholders will notify Group 1 promptly of any unsolicited offer. 6.2 Access. The Company shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all its properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Group 1 any information concerning its business, properties and personnel as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by the Company or the Stockholders pursuant to this Agreement. 6.3 Conduct of Business by the Company Pending the Merger. The Stockholders covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that the Company may dealer trade vehicles for similar models, but the Company shall not liquidate or otherwise dispose of any of their new vehicles other than in the ordinary course of business to retail buyers. The Company agrees to maintain their advertising expenditures and activities commensurate with prior business practices. The Company shall not advertise a "Going Out of Business" sale; (b) The Company shall not directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of the Company or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any assets of the Company, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of the Company, (iii) split, combine or reclassify any outstanding capital stock of the Company, or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to its capital stock whether now or hereafter outstanding (except as provided in Section 6.3(j) below), (iv) redeem, purchase or acquire or offer to acquire any of its capital stock, (v) create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business), or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, -20- 26 agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) The Company shall use its best efforts (i) to preserve intact the business organization of the Company, (ii) to maintain in effect any franchises, authorizations or similar rights of the Company, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. (d) The Company shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $50,000; (e) The Company shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as the Company in good faith may dispute; (f) The Company shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of the Company other than consistent with past business practices of the Company; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $50,000; (g) The Company shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Merger set forth in Article VIII not being satisfied; (h) The Company shall not (i) amend or terminate any Plan or Benefit Program or Agreement except as may be required by applicable law, (ii) increase or accelerate the payment or vesting of the amounts payable under any Plan or Benefit Program or Agreement, or (iii) adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, -21- 27 program, practice or understanding (other than the Plans and the Benefit Programs or Agreements); (i) The Company shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; and (j) Notwithstanding anything in this Agreement to the contrary, dividends or other form of distribution to the Stockholders may be made after the date of the Interim Balance Sheet so long as such distributions do not cause the Company to be in violation of any manufacturer working capital or equity guidelines or requirements. 6.4 Confidentiality. The Company shall, and the Company's officers, directors, employees, representatives and consultants shall, hold in confidence, and not disclose to others for any reason whatsoever, any non-public information received by them or their representatives in connection with the transactions contemplated hereby, including but not limited to all terms, conditions and agreements related to this transaction, except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of the Company as necessary in connection with the transactions contemplated hereby; and (iii) for information which becomes publicly available other than through the actions of the Company or a Stockholder. In the event the Merger is not consummated, the Company and the Stockholders will return all non-public documents and other material obtained from Group 1 or its representatives in connection with the transactions contemplated hereby or certify to Group 1 that all such information has been destroyed. 6.5 Notification of Certain Matters. The Company shall give prompt notice to Group 1, orally and in writing, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Effective Time, (ii) any failure of the Company, or any officer, director, employee or agent thereof, or any Stockholder to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (iii) any litigation, or any claim or controversy or contingent liability of which the Company has knowledge of that might reasonably be expected to become the subject of litigation, against the Company or affecting any of its assets, in each case in an amount in controversy in excess of $50,000, or that is seeking to prohibit or restrict the transactions contemplated hereby. 6.6 Consents. Subject to the terms and conditions of this Agreement, the Company shall (i) obtain all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on the Company, Group 1 or Merger Sub), authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. -22- 28 6.7 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Effective Time, the Company and the Stockholders shall cooperate and use reasonable efforts to defend against and respond thereto. Costs of this defense and response will be borne by Group 1. 6.8 Stockholders' Agreements Not to Sell. Each of the Stockholders hereby covenants and agrees not to sell, pledge, transfer or dispose of or encumber any shares of Company Common Stock currently owned, either beneficially or of record, by such Stockholder, except as contemplated by this Agreement and the Plan of Merger. 6.9 Intellectual Property Matters. The Company shall use its best efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or domestic patent, trademark, service mark, trade name or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. 6.10 Removal of Related Party Guarantees. The Company and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all guarantees by the Company (such guarantees shall be referred to herein as "Related Guarantees", as described in Schedule 6.10 pursuant to Section 3.11 of this Agreement) of indebtedness or other obligations of any of the Company's officers, directors, shareholders, employees or affiliates of any such Persons. 6.11 Termination of Related Party Agreements. The Company and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.11 as agreements that shall not be subject to this Section 6.11. 6.12 Related Party Agreements. The Company agrees, and the Stockholders agree to cause the Company, not to enter into any Related Party Agreements or engage in any transactions with the Stockholders or their affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.12 as agreements or transactions that shall not be subject to this Section 6.12. 6.13 Release. (a) AS OF THE CLOSING, EACH OF THE STOCKHOLDERS DOES HEREBY FOR HIMSELF OR HIS HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE THE COMPANY OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR -23- 29 UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH EACH OF SUCH STOCKHOLDERS NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST THE COMPANY INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF THE COMPANY AND ITS EMPLOYEES AND AGENTS, EXISTING AS OF THE CLOSING OR RELATING TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT; AND PROVIDED FURTHER ANY LIABILITIES UNDER PLANS OR BENEFIT PROGRAMS OR AGREEMENTS LISTED ON THE SCHEDULES HERETO SHALL NOT BE RELEASED. (b) EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS RELEASED HEREIN. EACH OF THE STOCKHOLDERS COVENANTS AND AGREES THAT HE WILL NOT ASSIGN OR TRANSFER TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS TO BE RELEASED HEREIN. EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 6.13 AND THAT HE HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT. 6.14 Leases. Stockholders hereby agree to cause certain of their affiliates to enter into a lease agreement with the Company on the basic terms, and covering the real property and improvements, described on Exhibit B. 6.15 Employment Agreements. The Stockholders agree to enter into employment agreements with Group 1 and the Company in form and substance substantially similar to Exhibit C attached hereto. 6.16 Certain Tax Matters (a) The Stockholders shall use the amounts reflected in Section 1.6(b)(i) of the Plan of Merger for purposes of preparation of their Tax Returns. With respect to the shares of Group 1 Common Stock received by the Stockholders, $14.00 per share shall be used for purposes of determining the value of the stock portion of the purchase price. (b) The Stockholders shall (i) file all required 1998 federal income tax returns of the Company by September 30, 1998; (ii) use an interim closing of the books of the Company effective as of the Closing Date for the purposes of preparing such returns; and (iii) deliver such returns to Group 1 for its review at least five (5) days prior to the filing of such returns. -24- 30 6.17 Phase I Environmental Assessments. The Stockholders have delivered all Phase I Environmental Surveys requested by Group 1. Prior to Closing the Stockholders will complete at their cost all cure and remediation efforts recommended in such surveys, and, to the best of Stockholders' knowledge, the Company will have no residual liability with regard to any matter revealed in such surveys. ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence all, and not to disclose to others for any reason whatsoever, any non-public information received by it or its representatives in connection with the transactions contemplated hereby except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Group 1 as necessary in connection with the transactions contemplated hereby or as necessary to the operation of Group 1's business; and (iii) for information which becomes publicly available other than through the actions of Group 1. In the event the Merger is not consummated, Group 1 will return all non-public documents and other material obtained from the Company or its representatives in connection with the transactions contemplated hereby or certify to the Company that all such information has been destroyed. 7.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for issuance and shall issue, out of its authorized but unissued capital stock, such number of shares of Group 1 Common Stock as may be issuable upon consummation of the Merger. 7.3 Consents. Subject to the terms and conditions of this Agreement, Group 1 shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.4 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Effective Time, Group 1 agrees to cooperate and use reasonable efforts to defend against and respond thereto. Costs of this defense and response will be borne by Group 1. 7.5 Delivery of Certificates. On the Closing Date, Group 1 will deliver to each holder of certificates which represented Company Common Stock prior to the Effective Time a letter of transmittal and other information advising such holder of the consummation of the Merger and to enable such holder to effect the exchange of stock certificates as contemplated by Article II of this Agreement. -25- 31 7.6 Certain Tax Matters (a) Group 1 shall use the amounts reflected in Section 1.6(b)(i) of the Plan of Merger for purposes of preparation of its Tax Returns. With respect to the shares of Group 1 Common Stock received by the Stockholders, $14.00 per share shall be used for purposes of determining the value of the stock portion of the purchase price. (b) Group 1 shall act as reasonably necessary to assist the Stockholders in preparing their federal income tax returns in accordance with Section 6.16(b) hereof. (c) Group 1 shall cause the Company, as soon as practicable, to calculate and distribute pro rata to the Stockholders a cash amount equal to the net assets of the Company as of the Closing Date less the applicable manufacturer's minimum working capital requirement as of the Closing Date. ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Merger; (b) There shall have been obtained any and all permits, approvals and consents of securities or "blue sky" commissions of each jurisdiction and of any other governmental agency or authority, with respect to the consummation of the Merger; (c) The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated; and (d) Receipt of Ford Motor Company's approval of the Merger and the transactions contemplated thereby. 8.2 Additional Conditions Precedent to Obligations of Group 1. The obligation of Group 1 to effect the Merger is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of the Company and the Stockholders contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all of the terms, covenants and -26- 32 conditions of this Agreement to be complied with and performed by the Company and the Stockholders on or before the Closing Date shall have been duly complied with and performed in all respects, a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of the Company and each of the Stockholders shall have been delivered to Group 1, and a copy of the resolutions of each Company's Board of Directors, certified by the Secretary of the Company as of the Closing Date, approving the terms of this Agreement and all transactions contemplated hereby shall have been delivered to Group 1; (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Merger and the transactions contemplated thereby will be in compliance with applicable laws; (c) Satisfaction or waiver of the conditions set forth in Article VIII of each of the Other Agreements and the simultaneous closing of each of the Other Mergers; (d) Group 1 shall have received evidence, satisfactory to Group 1, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.10 and 6.11 hereto; (e) Group 1 shall have received executed representations from each Stockholder stating that such Stockholder (with respect to shares owned beneficially or of record by him or her) has no current plan or intention to sell or otherwise dispose of the Group 1 Common Stock to be received by him or her in the Merger; (f) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of the Company shall have occurred, and the Company shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of the Company and Group 1 shall have received a certificate signed by the chief executive officer of the Company dated the Closing Date to such effect; (g) Receipt by Group 1, at Stockholders' expense, of a Policy of Title Insurance, issued by a title company, approved by Group 1, subject only to the exceptions described in Schedule 8.2(g) ("Permitted Title Exceptions"); (h) Receipt by Group 1, at Stockholders' expense, of a current survey of the Leased Properties showing the location of any improvements, prepared by a licensed surveyor approved by Group 1; (i) Closing of the purchase by Group 1 of the Premier Auto Finance, L.P., limited partnership interest from J. Carroll Enterprises, Inc.; -27- 33 (j) Execution of employment agreements pursuant to Section 6.15; and (k) Execution of the lease agreement pursuant to Section 6.14. 8.3 Additional Conditions Precedent to Obligations of the Stockholders. The obligation of the Stockholders to effect the Merger is also subject to the fulfillment at or prior to the Closing Date of the following condition: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date, all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects, a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to the Company, and a copy of the resolutions of the Board of Directors of Group 1, certified by the Secretary of Group 1 as of the Closing Date, approving the terms of this Agreement and all transactions contemplated hereby shall have been delivered to the Company; and (b) Receipt of an opinion from Crowe Chisek & Company, dated as of the Closing Date, to the effect that the Merger will constitute a non-taxable reorganization as defined in Section 368(a) of the Code. ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Stockholders to indemnify. Each of the Stockholders agrees to severally indemnify, defend and hold Group 1 harmless (subject to the limitations set forth in Section 9.1(e) below) from and against the aggregate of all Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Indemnifiable Damages" means, without duplication, the aggregate of all actual expenses, losses, costs, deficiencies, liabilities and damages (including reasonable related counsel and paralegal fees and expenses) incurred or suffered by Group 1, on a pre-tax consolidated basis to the extent (i) resulting from any breach of a representation or warranty made by the Company or such Stockholder in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by the Company or such Stockholder pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by the Company or any of the Stockholders pursuant to this Agreement; provided, however, that "Indemnifiable Damages" shall not include any damages arising from the employment agreements executed pursuant to Section 6.15, the lease agreements executed pursuant to Section 6.14 and the non- competition provisions of Section 10.4. -28- 34 (b) Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Group 1 shall have the right to be put in the same pre-tax consolidated financial position as Group 1 would have been in had each of the representations and warranties of the Company and such Stockholder hereunder been true and correct and had the covenants and agreements of the Company and such Stockholder hereunder been performed in full. (c) Each of the representations and warranties made by the Company and the Stockholders in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date, except that the representations and warranties of the Stockholders contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 4.1, 4.2, 4.3 and 4.4 shall not expire, but shall continue indefinitely. No claim for the recovery of Indemnifiable Damages may be asserted by Group 1 against the Stockholders after such representations and warranties shall expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) If Group 1 believes it is entitled to a claim for any Indemnifiable Damages hereunder, Group 1 shall promptly give written notice to the Stockholders of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If the Stockholders do not pay the amount of the claim for Indemnifiable Damages to Group 1 within 10 days, then Group 1 may exercise its respective rights under Section 9.3 and/or take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.1, the Stockholders' liability for Indemnifiable Damages shall be limited as follows: (1) Group 1 shall have no claim for Indemnifiable Damages unless and until all Indemnifiable Damages incurred by Group 1 exceed an aggregate of $350,000.00 with respect to this Agreement and the Other Agreements (the "Basket Amount"), in which event the Stockholders shall be liable for only such Indemnifiable Damages in excess of the Basket Amount; and -29- 35 (2) The total amount of Indemnifiable Damages for which each Stockholder shall be liable to Group 1 shall not exceed the total value of the Initial Stock Consideration and the Initial Cash Consideration received by such Stockholder in the Merger and the Other Mergers. For the purposes of this Section 9.1(e)(2), all Initial Stock Consideration shall be assigned a per share value of $14.00. THE STOCKHOLDERS ACKNOWLEDGE AND AGREE THAT FOR PURPOSES OF THE BASKET AMOUNT, INDEMNIFIABLE DAMAGES UNDER THE OTHER AGREEMENTS WILL AFFECT THEIR OBLIGATION TO INDEMNIFY GROUP 1 UNDER THIS AGREEMENT, EVEN THOUGH THE STOCKHOLDERS MAY OWN DIFFERING PERCENTAGES OF THE DEALERSHIPS BEING ACQUIRED BY GROUP 1 PURSUANT TO THE OTHER AGREEMENTS. FOR EXAMPLE, IF CLAIMS FOR INDEMNIFIABLE DAMAGES UNDER ONE OF THE OTHER AGREEMENTS EQUAL OR EXCEED $350,000, THEN THE STOCKHOLDERS UNDER THIS AGREEMENT WILL BE OBLIGATED TO INDEMNIFY GROUP 1 FOR CLAIMS FOR ALL AMOUNTS WITHOUT THE BENEFIT OF ANY BASKET AMOUNT. 9.2 Agreement by Group 1 to Indemnify. Group 1 agrees to indemnify, defend and hold the Stockholders harmless from and against the aggregate of all Stockholders Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Stockholders Indemnifiable Damages" means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including reasonable related counsel and paralegal fees and expenses) incurred or suffered by the Stockholders, on a pre-tax consolidated basis, to the extent (i) resulting from any breach of a representation or warranty made by Group 1 in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by Group 1 in or pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by Group 1 pursuant to this Agreement; provided, however, that "Stockholders Indemnifiable Damages" shall not include any damages arising from the employment agreements executed pursuant to Section 6.15, the lease agreements executed pursuant to Section 6.14 and the non-competition provisions of Section 10.4. (b) Without limiting the generality of the foregoing, with respect to the measurement of Stockholders Indemnifiable Damages, the Stockholders have the right to be put in the same pre-tax consolidated financial position as he, she or it would have been in had each of the representations and warranties of Group 1 hereunder been true and correct and had the covenants and agreements of Group 1 hereunder been performed in full. (c) Each of the representations and warranties made by Group 1 in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date, except that the representations and warranties of Group 1 contained in Sections 5.1, 5.2, 5.3, 5.4 and 5.5 shall not expire, but shall continue indefinitely. No claim for the recovery of Stockholders Indemnifiable Damages may be asserted by the Stockholders against Group 1 after such representations and warranties shall thus expire, provided, however, that claims -30- 36 for Stockholders Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) In the event that the Stockholders believe they are entitled to a claim for any Stockholders Indemnifiable Damages hereunder, the Stockholders shall promptly give written notice to Group 1 of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If Group 1 does not pay the amount of the claim for Indemnifiable Damages to the Stockholders within 10 days, then the Stockholders may exercise their respective rights under Section 9.3 and/or take any action or exercise any remedy available to them by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.2, the Stockholders shall have no claim for Stockholders Indemnifiable Damages unless and until the aggregate Stockholders Indemnifiable Damages incurred by the Stockholders under this Agreement and the Other Agreements shall exceed an aggregate of $350,000, in which event Group 1 shall be liable for only such Stockholders Indemnifiable Damages in excess of $350,000. 9.3 Conditions of Indemnification. The obligations and liabilities of the Stockholders and Group 1 hereunder with respect to their respective indemnities pursuant to this Article IX resulting from any claim or other assertion of liabilities by third parties (hereinafter called collectively "Claims"), shall be subject to the following terms and conditions: (a) the party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claim 10 business days after the Indemnified Party receives notice thereof (provided that failure to give notice within such 10 day period does not relieve the Indemnifying Party of his obligations to indemnify the Indemnified Party hereunder, except to the extent that such Indemnifying Party is harmed by the failure of the Indemnified Party to provide timely notice); (b) the Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claim; provided, however, if a Claim is made against Group 1 or Merger Sub, then Group 1 shall have the right to control the defense of the Claim; (c) if the Indemnifying Party shall elect not to undertake such defense, or within a reasonable time after notice of any such Claim from the Indemnified Party shall fail to -31- 37 defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claim at any time prior to settlement, compromise or final determination thereof); (d) anything in this Section 9.3 to the contrary notwithstanding, (A) the Indemnified Party shall have the right, at its own cost and expense, to have its own counsel to protect its own interests and participate in the defense, compromise or settlement of the Claim, (B) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claim or consent to entry of any judgement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim, and (C) the Indemnified Party, by counsel or other representatives of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claim, and the Indemnifying Party and the Indemnified Party and their respective counsel shall cooperate with respect to such Claim. ARTICLE X MISCELLANEOUS 10.1 Certain Additional Rights. (a) In connection with Group 1's future dealership acquisitions in which the seller of such dealership seeks to sell the real estate and facilities component thereof (and Group 1 elects not to purchase such real estate and facilities), Group 1 agrees to introduce and recommend World Partner Associates, Ltd. as a suitable buyer of such real estate and facilities, with the understanding that World Partner Associates, Ltd. will lease such real estate and facilities to Group 1 under terms and conditions substantially similar to the lease agreement between the Company and K.C. Partnership entered into as of the Closing Date (and providing for an annual rental of 10% of the purchase price for such real estate), provided, however, that if Group 1 has a business arrangement with an affiliated real estate company or with a Group 1 lender providing for economic benefit to Group 1 as a result of the real estate company's acquisition of the real estate and facilities component of an acquired dealership, such business arrangement will supersede Group 1's obligations to World Associates, Ltd. hereunder. The rights and obligations created hereunder shall expire on the tenth anniversary of the Closing Date. (b) Group 1 agrees that if a third party makes an offer to purchase one or more of the Companies in a transaction not involving (i) a substantial portion of the other operations of Group 1 (other than the Companies) or (ii) a substantial portion of the Group 1 operations under the management of James S. Carroll in Florida and Georgia (other than the Companies), James S. Carroll has the right of first refusal to purchase the Company or Companies subject to the third party offer on the same terms as such offer, provided, -32- 38 however, that as a condition of closing such offer, all Designated Persons (as defined herein) who will own, operate or manage the repurchased Company or Companies shall resign from employment with Group 1. The right granted hereunder shall expire on the tenth anniversary of the Closing Date and is personal to James S. Carroll and is non-assignable and non-transferrable. 10.2 Certain Post-Closing Payments. (a) As additional consideration for the capital stock of the Company, Group 1 hereby agrees to pay the Stockholders certain additional amounts as provided in this Section 10.2(a). Beginning with the year ended December 31, 1999, the audited operations of the Carroll Group will be reviewed with respect to their operations during the full twelve calendar months of 1999. To the extent that Group 1's Incremental Return exceeds 11%, the Group 1 investment will be increased to a level which will yield this required rate of Incremental Return. This increase will be paid to the Stockholders no later than April 30 of the following year, as additional consideration for the Merger and the Other Mergers. This review will be conducted after each of the five years commencing with calendar 1999, and increases in investment as determined above will be paid until such time as the maximum increase has been reached. All additional consideration paid to the Stockholders pursuant to this Section 10.2(a) will be paid in cash and Group 1 Common Stock, in the same proportions as the aggregate consideration received by each Stockholder in the Merger and the Other Mergers. For the purposes of determining the number of shares of Group 1 Common Stock payable to the Stockholders hereunder, such shares shall be assigned a per share value of the average closing price of the Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding the date on which such shares are issued. The aggregate consideration paid by Group 1 pursuant to this Section 10.2(a) and Section 10.2(a) of the Other Agreements (the "Contingent Consideration") shall not exceed $7.5 million, $2.5 million of which (the "Guaranteed Payments") will be paid regardless of the results of the above computation, as follows: $900,000 on the first anniversary of the Closing Date, $900,000 on the second anniversary of the Closing Date, and $700,000 on the third anniversary of the Closing Date. The aggregate Guaranteed Payments actually paid to the Stockholders shall carry forward and be applied against any additional Contingent Consideration payable to the Stockholders hereunder. The Guaranteed Payments shall be reduced by the difference between the aggregate Contingent Consideration previously paid to the Stockholders and $2.5 million. The Contingent Consideration payable under this Section 10.2(a) is additional consideration for the Stockholders' interests in the Company, and the parties hereto agree to report such amounts on such basis for income tax purposes. (b) If a Stockholder sells any of the Initial Stock Consideration received by such Stockholder pursuant to the Plan of Merger for a per share price of less than fourteen dollars ($14.00), Group 1 shall pay the difference between the price per share at which such shares -33- 39 were sold and $14.00 per share; provided, that this Section 10.2(b) shall only apply to sales (i) occurring after the expiration of the applicable Stockholder's Restricted Period and (ii) made in the public market; and provided, further that this Section 10.2(b) shall terminate five (5) years following the termination of the applicable Stockholder's Restricted Period. A Stockholder shall promptly notify Group 1 in writing of any sale of Group 1 Common Stock pursuant to this Section 10.2(b), and Group 1 shall make any payments due to such Stockholder hereunder within ten (10) business days of receipt of notice. 10.3 Schedules to this Agreement. The Schedules to this Agreement contain all disclosure required to be made by the Company under the various terms and provisions of this Agreement. 10.4 Non-Competition Obligations. (a) As part of the consideration for the Merger, and as an additional incentive for Group 1 to enter into this Agreement, James S. Carroll, Janet L. Giles and Ralph S. Kerr (each a "Designated Person" and collectively, the "Designated Persons") and Group 1 agree to the non-competition provisions of this Section 10.4. Each Designated Person agrees that during the period of such Designated Person's non-competition obligations hereunder, such Designated Person will not, directly or indirectly for such Designated Person or for others, within twelve miles of or in the county of any operations sold to Group 1 under this Agreement or operations subsequently managed by such Designated Person as of the date in question or during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates engaged in automotive retailing; (ii) render advice or services to, or otherwise assist, including financing, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates engaged in automotive retailing; or (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Group 1 or any of its subsidiaries or affiliates. For the purposes of this Section 10.4, "operations subsequently managed" shall mean (i) in the case of James S. Carroll, all Florida and Georgia operations of Group 1 and its affiliates under the executive management authority of James S. Carroll and (ii) in the case of the other Designated Persons, all operations of Group 1 and its affiliates under the day-to-day general management authority of such Designated Persons. -34- 40 These non-competition obligations shall apply until the later of (i) three years after the Closing or (ii) the period specified in any employment agreement entered into by such Designated Person with Group 1 or its Subsidiaries. If Group 1 or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this non-competition covenant shall not apply to such former aspect of that business. Notwithstanding the foregoing, the non-competition obligations of this Section 10.4 shall not apply to (x) the leasing of property or facilities owned by the Designated Persons or their affiliates to a competitor of Group 1 if such property or facilities were previously leased to Group 1 under a lease agreement which Group 1 materially breached, failed to renew or terminated (for reasons other than lessor's breach), or (y) any Designated Person's operation and management of any dealership purchased in accordance with Section 10.1(b) hereof. (b) During this non-competition period James S. Carroll will not engage in these restricted activities or assist in the industry consolidation efforts on behalf of any publicly held entity in the automotive retailing industry (nor any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity), regardless of geographic area or market; provided, however, that this paragraph (b) shall not prohibit James S. Carroll from selling, to a publicly held entity, any dealership acquired by him in full compliance with his post-employment non-competition obligations hereunder and held by him for at least one year. (c) The Designated Persons understand that the foregoing restrictions may limit their ability to engage in certain businesses during the period provided for above, but acknowledge that the Designated Persons will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. Each of the Designated Persons acknowledges that money damages would not be sufficient remedy for any breach of this Section 10.4 by such Designated Person, and such remedies shall not be deemed the exclusive remedies for a breach of this Section 10.4, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Group 1 and such Designated Person's agents involved in such breach. (d) It is expressly understood and agreed that Group 1 and the Designated Persons consider the restrictions contained in this Section 10.4 to be reasonably necessary to protect the legitimate business interests of Group 1 and its affiliates, including the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise -35- 41 unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. (e) The parties hereto expressly acknowledge that Group 1's rights under this Section 10.4 are assignable and that such rights shall be fully enforceable by any of Group 1's assignees or successors in interest. 10.5 Termination. This Agreement may be terminated and the Merger and the other transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual consent of Group 1 and the Stockholders; (b) by either Group 1 or the Stockholders if the Merger has not been effected on or before March 31, 1998; (c) by Group 1 if the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate under this Section 10.5(c) shall expire at midnight on January 31, 1998; (d) by either Group 1 or the Stockholders if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Merger or the other transactions contemplated hereby shall have been entered; (e) by Group 1 if (i) since the date of this Agreement there has been a material adverse change in the business operations, financial condition or prospects of the Company; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by the Company or the Stockholders (except for any representation, warranty or covenant qualified by materiality or knowledge according to its terms, in which case any breach thereof will give rise to Group 1's right to terminate hereunder) which breach has not been cured within ten business days following receipt by the Company of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the aggregate projected 1998 pre-tax income of $6.8 million expected for the Company and the Other Companies, on which the consideration paid to the Stockholders in connection with the Merger was based; or (f) by the Stockholders if there has been a material breach of any representation or warranty set forth in this Agreement by Group 1 which breach has not been cured within ten business days following receipt by Group 1 of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice). -36- 42 10.6 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.5, the parties hereto shall have no obligation or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1, 7.4 and 10.7 survive any such termination. 10.7 Expenses. Regardless of whether the Merger is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby incurred by Group 1 shall be paid by Group 1 and all such costs and expenses incurred by the Stockholders shall be paid by the Company and the Stockholders; provided, that all expenses borne by the Company will be paid prior to the completion of the distributions contemplated by Sections 6.3(j) and 7.6(c) hereof, and that such expenses will be deducted from the Company's working capital for the purpose of calculating such distributions. The Stockholder and Group 1 each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.8 Restrictions on Transfer of Group 1 Common Stock. (a) During the one-year period ending on the anniversary of the Closing Date (the "Restricted Period") (two-year period with respect to James S. Carroll), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of Group 1 Common Stock received by any Stockholder in the Merger or (B) any interest in (including any option to buy or sell) any of those shares of Group 1 Common Stock, in whole or in part, and Group 1 will have no obligation to, and shall not, treat any such attempted transfer as effective for any purpose; or (ii) engage in any transaction, whether or not with respect to any shares of Group 1 Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning the shares of Group 1 Common Stock acquired pursuant to the Plan of Merger (including for example engaging in put, call, short-sale, straddle or similar market transactions). Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group 1 Common Stock, provided that the pledgee of such shares shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (ii) transfer shares to immediate family members or the estate of any such individual (including, without limitation, any transfer by such Stockholder to or among any trust, custodial or other similar accounts or funds that are for the benefit of his or her immediate family members), provided that such person or entity shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; and (iii) transfer shares by will or the laws of descent and distribution or otherwise by reason of such Stockholder's death. The certificates evidencing the Group 1 Common Stock delivered to each Stockholder pursuant to the Plan of Merger will bear a legend substantially in the form set forth below and containing such other information as Group 1 may deem necessary or appropriate: EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER -37- 43 DISPOSITION OF ANY OF THOSE SHARES, DURING THE [ONE-YEAR] [TWO-YEAR] PERIOD ENDING ON ______________ [DATE THAT IS THE [FIRST] [SECOND] ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. (b) Each Stockholder, severally and not jointly with any other Person, (i) acknowledges that the shares of Group 1 Common Stock to be delivered to that Stockholder pursuant to the Plan of Merger have not been and, if applicable, will not be registered under the Securities Act and therefore may not be resold by that Stockholder without compliance with the Securities Act and (ii) covenants that none of the shares of Group 1 Common Stock issued to that Stockholder pursuant to the Plan of Merger will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all the applicable provisions of the Securities Act and the rules and regulations of the Commission and applicable state securities laws and regulations. All certificates evidencing shares of Group 1 Common Stock issued pursuant to the Plan of Merger will bear the following legend in addition to the legend prescribed by Section 10.8(a): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." In addition, certificates evidencing shares of Group 1 Common Stock issued pursuant to the Plan of Merger to each Stockholder will bear any legend required by the securities or blue sky laws of the state in which that Stockholder resides. 10.9 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. -38- 44 10.10 Legal Fees. Except as otherwise provided herein, the losing party shall pay all reasonable legal fees and expenses and costs of litigation through appeal incurred by the prevailing party in any dispute arising from this Agreement. 10.11 Public Statements. The Stockholders and Group 1 agree to consult with each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law. 10.12 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other parties hereto. 10.13 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: if to the Company: J. Carroll Enterprises, Inc. 3101 N. State Road 7 Hollywood, Florida 33021 Telecopy: (954) 964-4760 Attention: James S. Carroll with a copy to: Bernard A. Singer, P.A. 4700-B Sheridan Street Hollywood, Florida 33021 Telecopy: (954) 985-0941 if to the Stockholders: J. Carroll Enterprises, Inc. 3101 N. State Road 7 Hollywood, Florida 33021 Telecopy: (954) 964-4760 Attention: James S. Carroll with a copy to: Bernard A. Singer, P.A. 4700-B Sheridan Street Hollywood, Florida 33021 Telecopy: (954) 985-0941 -39- 45 if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.13. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Delivery to the Stockholders' representative, if any, of any notice to Stockholders hereunder shall constitute delivery to all Stockholders and any notice given by such Stockholders' representative shall be deemed to be notice given by all Stockholders. 10.14 Governing Law. Except as otherwise specified herein, this Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.15 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.16 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.17 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10.18 Entire Agreement; Third Party Beneficiaries. This Agreement, including the Exhibits and the Schedules hereto, constitutes the entire agreement and supersedes all other prior agreements and understandings, both oral and written, among the parties or any of them, with respect to the subject matter hereof (except as contemplated otherwise by this Agreement) and neither this nor any -40- 46 document delivered in connection with this Agreement, confers upon any Person not a party hereto any rights or remedies hereunder. [signature page follows] -41- 47 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. --------------------------------------------- Name: B.B. Hollingsworth, Jr. Title: Chairman, President and Chief Executive Officer COURTESY MERGER, INC. By: /s/ JOHN T. TURNER --------------------------------------------- Name: John T. Turner Title: President COURTESY FORD, INC. By: /s/ JAMES S. CARROLL --------------------------------------------- Name: James S. Carroll Title: President STOCKHOLDERS J. CARROLL ENTERPRISES TRUST /s/ JAMES S. CARROLL ------------------------------------------------- By: James S. Carroll, Trustee /s/ RALPH S. KERR ------------------------------------------------- Ralph S. Kerr 48 JANET L. GILES REVOCABLE LIVING TRUST /s/ JANET L. GILES ------------------------------------------------- By: Janet L. Giles, Trustee 49 ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Agreement shall have the meanings set forth below unless the context shall otherwise require: "Aboveground Storage Tanks" and "Underground Storage Tanks" shall have the meanings given them in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree, as in effect as of the Closing Date, governing Aboveground Storage Tanks or Underground Storage Tanks. "affiliate" shall mean, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. "Agreement" shall mean the Agreement and Plan of Reorganization made and entered into as of December ____, 1997 by and among Group 1, Merger Sub, the Company and the Stockholders thereof, including any amendments thereto and each Annex (including this Annex A), Exhibit and schedule thereto (including the Schedules). "Assets" shall mean all of the properties and assets owned by the Company, other than the Leased Properties, whether personal or mixed, tangible or intangible, wherever located. "Benefit Program or Agreement" shall have the meaning set forth in Section 3.17. "Business Day" means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. "Carroll Group" shall mean all dealerships under the executive management responsibility of James S. Carroll in Florida and Georgia (including the Companies and any other dealerships acquired by Group 1 after the Closing Date) and additional dealerships acquired by Group 1 as a result of the efforts of James S. Carroll (whether or not such dealerships are under the executive management control of James S. Carroll). "Closing" shall mean a meeting, which shall be held in accordance with Section 2.2, of representatives of the parties to the Agreement at which, among other things, all documents deemed necessary by the parties to the Agreement to evidence the fulfillment or waiver of all conditions precedent to the consummation of the transactions contemplated by the Agreement are executed and delivered. "Closing Date" shall mean the date of the Closing as determined pursuant to Section 2.2. -1- 50 "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Company" shall mean Courtesy Ford, Inc., a Florida corporation, all predecessor entities of the Company and its successors from time to time. "Company Common Stock" shall mean the issued and outstanding common stock of the Company, as set forth in Section 3.7. "Company's 1996 Balance Sheet" shall have the meaning set forth in Section 3.8 herein. "Company's 1996 Financial Statements" shall have the meaning set forth in Section 3.8 herein. "Contingent Consideration" shall have the meaning set forth in Section 10.2(a) herein. "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Designated Person" and "Designated Persons" shall have the meanings set forth in Section 10.4 herein. "Effective Time" shall mean the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Florida recognizing the Merger. "Environmental Laws" shall mean all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, as in effect on the Closing Date, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the Regulations promulgated thereunder. -2- 51 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder. "Fixed Assets" shall mean all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures owned by the Company or set forth on the 1996 Balance Sheet or acquired by the Company since the date of the 1996 Balance Sheet. "GAAP" shall mean accounting principles generally accepted in the United States as in effect from time to time consistently applied by a specified Person. "Governmental Authority" shall mean any governmental agency or authority (other than a Court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. "Group 1" shall mean Group 1 Automotive, Inc., a Delaware corporation. "Group 1 Common Stock" shall mean the common stock, par value $.01 per share of Group 1. "Guaranteed Payments" shall have the meaning set forth in Section 10.2(a) herein. "Guarantees" shall have the meaning set forth in Section 3.11 herein. "Hazardous Substance" shall mean any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, metals, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires remediation under any Environmental, Health and Safety Laws in effect on the Closing Date, including, without limitation, the United States Department of Transportation Table (49 CFR 172, 101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and any amendments thereto; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state statute or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has -3- 52 been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Incremental Return" shall mean return on Group 1's investment in the operations of the Carroll Group that were not a part of the Companies on the date of this Agreement (total income after income taxes divided by total investment). " Income" and "investment" used for these purposes will be before any Group 1 management fees, allocations of indirect costs, cost of capital (including interest, loan origination fees, points and any other expenses incurred in obtaining or maintaining a loan) or amortization of goodwill. "Total investment" in these operations will include any loan proceeds, cash or stock invested by Group 1 to acquire the operations added to the Carroll Group after the date of this Agreement (including all investments made by Group 1 as a condition to manufacturer approval of such acquisitions). "Indemnifiable Damages" shall have the meaning set forth in Section 9.1 herein. "Indemnified Party" shall have the meaning set forth in Section 9.3 herein. "Indemnifying Party" shall have the meaning set forth in Section 9.3 herein. "Intellectual Property" shall mean all patents, trademarks, copyrights and other proprietary rights. "IRS" shall mean the Internal Revenue Service. "Law" shall mean all laws, statutes, ordinances, rules and regulations of the United States, any foreign country, or any domestic or foreign state, and any political subdivision or agency thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Leased Property" and "Leased Properties" shall have the meaning set forth in Section 3.18 herein. "Licenses" shall mean all licenses, certificates, permits, approvals and registrations. "Lien" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Law of any jurisdiction. -4- 53 "Material Contract" has the meaning set forth in Section 3.11 herein. "Material Leases" shall have the meaning set forth in Section 3.11 herein. "Merger" shall mean the merger of Merger Sub with and into the Company. "Merger Sub" shall mean Courtesy Merger, Inc., a Florida corporation and a wholly owned subsidiary of Group 1. "Order" shall mean any judgment, order or decree of any Court or Governmental Authority, federal, foreign, state or local. "Other Agreements" shall have the meaning set forth in the Recitals hereto. "Other Company" and "Other Companies" shall have the meanings set forth in the Recitals hereto. "Owned Properties" shall mean any real estate previously owned by the Company. "Permitted Encumbrances" shall mean the following: (1) liens for taxes, assessments and other governmental charges not delinquent or which are currently being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (2) mechanics' and materialmen's liens not filed of record and similar charges not delinquent or which are filed of record but are being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (3) liens in respect of judgments or awards with respect to which the specified Person shall in good faith currently be prosecuting an appeal or other proceeding for review and with respect to which such Person shall have secured a stay of execution pending such appeal or such proceeding for review; provided that such Person shall have set aside on its books adequate reserves with respect thereto; (4) easements, leases, reservations or other rights of others in, or minor defects and irregularities in title to, property or assets of a specified Person; provided that such easements, leases, reservations, rights, defects or irregularities do not materially impair the use of such property or assets for the purposes for which they are held; and -5- 54 (5) any lien or privilege vested in any lessor, licensor or permittor for rent or other obligations of a specified Person thereunder so long as the payment of such rent or the performance of such obligations is not delinquent. "Person" shall mean an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Court or Governmental Authority. "Phase I Environmental Surveys" shall mean the environmental reports of S.E. Environmental Consultants, Inc. dated September, 1997. "Plan" shall have the meaning set forth in Section 3.17. "Plan of Merger" shall mean the Agreement and Plan of Merger made and entered into as of __________, 1998 by and between Merger Sub and the Company. "Related Party Agreements" shall have the meaning set forth in Section 3.11 herein. "Release" and "Discharge" shall have the meanings given them in the Environmental, Health and Safety Laws "Reports" shall mean, with respect to a specified Person, all reports, registrations, filings and other documents and instruments required to be filed by the specified Person with any Governmental Authority. "Restricted Period" shall have the meaning set forth in Section 10.8 herein. "Schedules" shall mean all schedules required to be provided by the Company or the Stockholders under this Agreement, including any amendments or supplements thereto. "SEC Documents" shall mean the Group 1 Automotive, Inc. Prospectus dated October 29, 1997 and the Form 10-Q for the third quarter ended September 30, 1997. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Stockholders Indemnifiable Damages" shall have the meaning set forth in Section 9.2 herein. A "Subsidiary" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of -6- 55 the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. "Tax Returns" shall mean all returns, reports and filings relating to Taxes. "Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, payroll and franchises imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof. "Terminated Benefit Plans" shall mean Benefit Plans that were sponsored, maintained, or contributed to by a specified Person within six years prior to the date of the Agreement but which have been terminated prior to the date of the Agreement. "Waste" shall mean toxic agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash; provided, however, the term "Waste" shall not include scrap metal. -7- 56 EXHIBIT A ______________, 1998 AGREEMENT AND PLAN OF MERGER Merging COURTESY FORD, INC. into COURTESY MERGER, INC. THIS AGREEMENT AND PLAN OF MERGER, dated as of _________, 1998 (this "Plan of Merger"), is by and between Courtesy Merger, Inc., a Florida corporation ("Merger Sub") and a wholly owned subsidiary of Group 1 Automotive, Inc., a Delaware corporation ("Group 1") and Courtesy Ford, Inc., a Florida corporation (the "Company"). Merger Sub and the Company are hereinafter sometimes referred to as the "Constituent Corporations." PRELIMINARY STATEMENT Group 1, Merger Sub and the Company desire that the Company merge with and into Merger Sub. This Plan of Merger is being entered into pursuant to an Agreement and Plan of Reorganization dated as of December 17, 1997 (the "Agreement") among Group 1, Merger Sub, the Company and the stockholders of the Company. Group 1 will acquire by merger (the "Other Mergers") Koons Ford, Inc., a Florida corporation and Perimeter Ford, Inc., a Delaware corporation (collectively, the "Other Companies") pursuant to plans of merger entered into among the Other Companies and subsidiaries of Group 1 (collectively, the "Other Plans of Merger"). The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value $.01 per share ("Merger Sub Common Stock"), of which 1,000 shares are outstanding, all of which are owned by Group 1. The authorized capital stock of the Company consists of 1,000 shares of common stock, par value $1.00 per share ("Company Common Stock"), of which 750 shares are outstanding and no shares are held in the Company's treasury. The Boards of Directors of each of the Constituent Corporations, respectively, have approved the Agreement and the Plan of Merger. Accordingly, in consideration of the premises, and the mutual covenants and agreements herein contained, the parties hereto hereby agree, subject to the terms and conditions hereinafter set forth, as follows: 57 ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.3), the Company shall be merged with and into the Merger Sub, the separate existence of the Company shall cease, and the Merger Sub (i) shall continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation") under the corporate name "Courtesy Ford, Inc.", (ii) shall be governed by the laws of Florida (iii) shall maintain a registered office in the State of Florida at 15551 South Dixie Highway, Miami, Florida 33157, and shall (iv) succeed to and assume all of the rights, properties and obligations of Merger Sub and the Company in accordance with the applicable provisions of the Florida Business Corporation Act (the "Code"). 1.2 Effect of the Merger. The Merger shall have the effects set forth in Section ______________ of the Code. 1.3 Consummation of the Merger. As soon as practicable after all conditions set forth in Article VIII of the Agreement have been satisfied or waived, the parties hereto will file with the Secretary of State of the State of Florida articles of merger in such form as required by, and executed in accordance with, the relevant provisions of the Code, with instructions that such articles of merger are to be issued and effective as of the last day of the month in which such articles are filed (the effective time of the issuance of a certificate of merger by the Secretary of State of the State of Florida being the "Effective Time"). 1.4 Certificate of Incorporation; Bylaws. The certificate of incorporation and bylaws of the Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and bylaws of the Surviving Corporation and thereafter shall continue to be its certificate of incorporation and bylaws until amended as provided therein and under the Code. 1.5 Directors and Officers. The directors of the Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The initial officers of the Surviving Corporation shall be as follows: (i) James S. Carroll--President; (ii) Janet L. Giles--Treasurer, and (iii) Frank R. Todaro--Secretary, in each case until their respective successors are duly elected or appointed and qualified. 1.6 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Merger Sub or their respective stockholders: (a) The shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (the "Shares") shall be converted, subject to the provisions of this Section 1.6, into (i) the rights to receive, immediately following the Effective Date, a number of shares of Group 1 Common Stock (the "Initial Stock Consideration") and an 2 58 amount in cash (the "Initial Cash Consideration," and together with the Initial Stock Consideration, the "Initial Consideration") as set forth in Section 1.6(b) below, and (ii) the rights to receive, periodically upon satisfaction of the conditions set forth in Section 1.6(c) below, additional shares of Group 1 Common Stock (the "Contingent Stock Consideration") and amounts in cash (the "Contingent Cash Consideration," and together with the Contingent Stock Consideration, the "Contingent Consideration") as set forth in Section 1.6(c) hereof; provided, however, that no fractional shares of Group 1 Common Stock shall be issued, and, in lieu thereof, a cash payment shall be made pursuant to Sections 1.6(h) and 1.6(i) hereof. (b)(i) The Shares owned by J. Carroll Enterprises Trust shall be converted into the right to receive Initial Stock Consideration of 740,884 shares and the rights to receive a portion of any Contingent Consideration periodically payable to it in accordance with Section 1.6(c) hereof; (ii) the Shares owned by Janet L. Giles Revocable Living Trust shall be converted into the right to receive Initial Stock Consideration of 41,440 shares, Initial Cash Consideration of $217,722 and the rights to receive a portion of any Contingent Consideration periodically payable to it in accordance with Section 1.6(c) hereof; and (iii) the Shares owned by Ralph S. Kerr shall be converted into the right to receive Initial Stock Consideration of 104,318 shares, Initial Cash Consideration of $135,293 and the rights to receive a portion of any Contingent Consideration periodically payable to him in accordance with Section 1.6(c) hereof. (c) As additional consideration for the capital stock of the Company, Group 1 hereby agrees to pay the Stockholders certain additional amounts as provided in this Section 1.6(c). Beginning with the year ended December 31, 1999, the audited operations of the Carroll Group will be reviewed with respect to their operations during the full twelve calendar months of 1999. To the extent that Group 1's Incremental Return exceeds 11%, the Group 1 investment will be increased to a level which will yield this required rate of Incremental Return. This increase will be paid to the Stockholders no later than April 30 of the following year, as additional consideration for the Merger and the Other Mergers. This review will be conducted after each of the five years commencing with calendar 1999, and increases in investment as determined above will be paid until such time as the maximum increase has been reached. All additional consideration paid to the Stockholders pursuant to this Section 1.6(c) will be paid in cash and Group 1 Common Stock, in the same proportions as the aggregate consideration received by each Stockholder in the Merger and the Other Mergers. For the purposes of determining the number of shares of Group 1 Common Stock payable to the Stockholders hereunder, such shares shall be assigned a per share value of the average closing price of the Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding the date on which such shares are issued. The Contingent Consideration paid by Group 1 pursuant to this Section 1.6(c) and Section 1.6(c) of the Other Plans of Merger shall not exceed $7.5 million, $2.5 million of which (the "Guaranteed Payments") will be paid regardless of the results of the above computation, as follows: $900,000 on the first anniversary of the Closing Date, $900,000 on the second anniversary of the Closing Date, and $700,000 on the third anniversary of the 3 59 Closing Date. The aggregate Guaranteed Payments actually paid to the Stockholders shall carry forward and be applied against any additional Contingent Consideration payable to the Stockholders hereunder. The Guaranteed Payments shall be reduced by the difference between the aggregate Contingent Consideration previously paid to the Stockholders and $2.5 million. The Contingent Consideration payable under this Section 1.6(c) is additional consideration for the Stockholders' interests in the Company, and the parties hereto agree to report such amounts on such basis for income tax purposes. (d) Each share of Company Common Stock that immediately prior to the Effective Time was held in the treasury of the Company shall be canceled and retired as a result of the Merger and no securities or cash shall be issued or paid with respect thereto. Any shares of preferred stock of the Company and any options, warrants or other rights to purchase Company Common Stock or any other securities of the Company which remain outstanding at the Effective Time shall automatically be canceled and retired as a result of the Merger without consideration therefor, and each holder thereof shall cease to have any rights with respect thereto. (e) At or after the Effective Time, each holder of an outstanding certificate that prior thereto represented Shares shall be entitled, upon surrender thereof to Group 1, to receive immediately in exchange therefor (i) a certificate or certificates representing the number of whole shares of Initial Stock Consideration in such denominations and registered in such names as such holder may request and (ii) cash in the amount equal to the Initial Cash Consideration, into which the Shares so surrendered shall have been converted as described above. Each holder of Shares who would otherwise be entitled to a fraction of a share of Group 1 Common Stock shall, upon surrender of the certificates that, prior to the Effective Time, represented Shares held by such holder, to Group 1, be paid an amount in cash in accordance with the provisions of Sections 1.6(i) and 1.6(j). Until so surrendered, each outstanding certificate that, prior to the Effective Time, represented Shares shall be deemed from and after the Effective Time, for all corporate purposes, other than the payment of earlier dividends and distributions, to evidence the ownership of the number of full shares of Initial Stock Consideration and Initial Cash Consideration into which such Shares shall have been converted pursuant to this Section 1.6. Unless and until any such outstanding certificates shall be surrendered, no dividends or other distributions payable to the holders of Group 1 Common Stock, as of any time on or after the Effective Time, shall be paid to the holders of such outstanding certificates which prior to the Effective Time represented Shares; provided, however, that, upon surrender and exchange of such outstanding certificates, there shall be paid to the record holders of the certificates issued and exchanged therefor, the amount, without interest thereon, of dividends and other distributions, if any, that theretofore were declared and became payable since the Effective Time with respect to the number of full shares of Group 1 Common Stock issued to such holders. 4 60 (f) All shares of Group 1 Common Stock into which the Shares shall have been converted pursuant to this Section 1.6 shall be issued and paid in full satisfaction of all rights pertaining to such converted shares. (g) If any certificate for shares of Group 1 Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange shall have paid to Group 1 any transfer or other taxes required by reason of the issuance of a certificate for shares of Group 1 Common Stock in any name other than that of the registered holder of the certificate surrendered, or established to the satisfaction of Group 1 that such tax has been paid or is not payable. (h) In lieu of any fraction of a share of Initial Common Stock, each holder of Shares who would otherwise be entitled to a fraction of a share of Group 1 Common Stock shall, upon surrender of the Shares held by such holder to Group 1, be paid an amount in cash equal to the value of such fraction of a share based upon a per share price $14.00. No interest shall be paid on such amount. (i) In lieu of any fraction of a share of Contingent Common Stock, each person who would otherwise be entitled to a fraction of a share of Contingent Common Stock shall, upon satisfaction of the conditions precedent to such persons receipt of Contingent Common Stock, be paid an amount in cash equal to the value of such fraction of a share based upon the average closing price of Group 1 Common Stock on the New York Stock Exchange for the five trading days preceding each respective issuance of Contingent Common Stock. No interest shall be paid on such amount. (j) None of Group 1, Merger Sub, the Company or the Surviving Corporation shall be liable to a holder of the Shares for any amount properly paid to a public official pursuant to applicable property, escheat or similar law. 1.8 Taking of Necessary Action; Further Action. Merger Sub and the Company shall take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger as promptly as possible. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company or Merger Sub, such corporations shall direct their respective officers and directors to take all such lawful and necessary action. 5 61 ARTICLE II MISCELLANEOUS 2.1 Counterparts. This Plan of Merger may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to each of the other parties. 2.2 Governing Law. This Plan of Merger shall be governed by and construed in accordance with the laws of the State of Florida. 2.3 Waiver and Amendment. Any provision of this Plan of Merger may be waived at any time by the party that is, or whose stockholders are, entitled to the benefits thereof. This Plan of Merger may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto, only as may be permitted by applicable provisions of the Code. The waiver by any party hereto of any condition or of a breach of another provision of this Plan of Merger shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Plan of Merger shall not preclude it from seeking redress for breach of this Plan of Merger other than with respect to the condition so waived. 2.4 Certain Definitions. (a) "Carroll Group" shall mean all dealerships under the executive management responsibility of James S. Carroll in Florida and Georgia (including the Companies and any other dealerships acquired by Group 1 after the Closing Date) and additional dealerships acquired by Group 1 as a result of the efforts of James S. Carroll (whether or not such dealerships are under the executive management control of James S. Carroll). (b) "Incremental Return" shall mean return on Group 1's investment in the operations of the Carroll Group that were not a part of the Companies on the date of this Agreement (total income after income taxes divided by total investment). " Income" and "investment" used for these purposes will be before any Group 1 management fees, allocations of indirect costs, cost of capital (including interest, loan origination fees, points and any other expenses incurred in obtaining or maintaining a loan) or amortization of goodwill. "Total investment" in these operations will include any loan proceeds, cash or stock invested by Group 1 to acquire the operations added to the Carroll Group after the date of this Agreement (including all investments made by Group 1 as a condition to manufacturer approval of such acquisitions). [signature page follows] 6 62 IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger to be duly executed as of the date first above written. COURTESY MERGER, INC. By: ----------------------------------------- Name: James S. Carroll Title: President COURTESY FORD, INC. By: ----------------------------------------- Name: James S. Carroll Title: President 7 EX-10.42 13 LEASE AGREEMENT - DATED 3/16/98 1 EXHIBIT 10.42 ================================================================================ LEASE AGREEMENT between WORLD PARTNER ENTERPRISES LTD., A FLORIDA LIMITED PARTNERSHIP (Landlord) and KOONS FORD, INC. (Tenant) PINES BOULEVARD ================================================================================ 2 LEASE AGREEMENT TABLE OF CONTENTS
Page ---- ARTICLE 1 LEASE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Premises Leased . . . . . . . . . . . . . . . . . . 1 Section 1.2 Premises Defined . . . . . . . . . . . . . . . . . 1 Section 1.3 Habendum . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 TERM OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2.1 Initial Term and Commencement . . . . . . . . . . . 1 Section 2.2 Lease Year . . . . . . . . . . . . . . . . . . . . 1 Section 2.3 Lease Month . . . . . . . . . . . . . . . . . . . . 1 Section 2.4 Renewal Term . . . . . . . . . . . . . . . . . . . 1 Section 2.5 Rezoning . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 3.1 Base Rent . . . . . . . . . . . . . . . . . . . . . 2 Section 3.2 Additional Rent and Rent . . . . . . . . . . . . . 2 Section 3.3 Payment of Rent . . . . . . . . . . . . . . . . . . 3 Section 3.4 Late Charge . . . . . . . . . . . . . . . . . . . . 3 Section 3.5 Adjustment to Rent for Ford Improvements . . . . . 3 ARTICLE 4 TAXES; UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 4.1 Impositions Defined . . . . . . . . . . . . . . . . 3 Section 4.2 Tenant's Obligations . . . . . . . . . . . . . . . 3 Section 4.3 Tax Contest . . . . . . . . . . . . . . . . . . . . 4 Section 4.4 Evidence Concerning Impositions . . . . . . . . . . 4 Section 4.5 Utilities . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 5 IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 5.1 Construction of Premises . . . . . . . . . . . . . 4 Section 5.2 Alterations . . . . . . . . . . . . . . . . . . . . 5 Section 5.3 Mechanic's and Materialmen's Liens . . . . . . . . 6 Section 5.4 Ownership of Improvements . . . . . . . . . . . . . 6 Section 5.5 Asbestos and Other Hazardous Substances . . . . . . 6
i 3 ARTICLE 6 USE, ENVIRONMENTAL, MAINTENANCE, AND REPAIRS . . . . . . . . . . . . 7 Section 6.1 Use . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.2 Environmental. . . . . . . . . . . . . . . . . . . 7 Section 6.3 Maintenance and Repairs . . . . . . . . . . . . . . 10 Section 6.4 Americans with Disabilities Act . . . . . . . . . . 11 ARTICLE 7 INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . . . . . . 11 Section 7.1 Building Insurance . . . . . . . . . . . . . . . . 11 Section 7.2 Liability Insurance . . . . . . . . . . . . . . . . 12 Section 7.3 Policies . . . . . . . . . . . . . . . . . . . . . 12 Section 7.4 Tenant's Indemnity . . . . . . . . . . . . . . . . 12 Section 7.5 Landlord's Indemnity . . . . . . . . . . . . . . . 12 Section 7.6 Subrogation . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 8 CASUALTY; CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . 13 Section 8.1 Tenant's Obligation to Restore . . . . . . . . . . 13 Section 8.2 Restoration and Deposit of Funds . . . . . . . . . 14 Section 8.3 Notice of Damage . . . . . . . . . . . . . . . . . 16 Section 8.4 Total Taking . . . . . . . . . . . . . . . . . . . 16 Section 8.5 Partial Taking . . . . . . . . . . . . . . . . . . 16 Section 8.6 Temporary Taking . . . . . . . . . . . . . . . . . 16 Section 8.7 Notice of Taking, Cooperation . . . . . . . . . . . 17 ARTICLE 9 TENANT'S FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 9.1 Tenant's Right to Encumber . . . . . . . . . . . . 17 Section 9.2 Tenant's Mortgage . . . . . . . . . . . . . . . . . 17 ARTICLE 10 WARRANTY OF TITLE AND PEACEFUL POSSESSIONAND LANDLORD'S FINANCING . 18 Section 10.1 Warranty As to Encumbrances . . . . . . . . . . . . 18 Section 10.2 Landlord's Mortgage . . . . . . . . . . . . . . . . 19 Section 10.3 Representations of Landlord . . . . . . . . . . . . 19 ARTICLE 11 DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 11.1 Default . . . . . . . . . . . . . . . . . . . . . . 21 Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . 22
ii 4 ARTICLE 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 12.1 Notices . . . . . . . . . . . . . . . . . . . . . . 23 Section 12.2 Performance of Other Party's Obligations . . . . . 23 Section 12.3 Modification and Non-Waiver . . . . . . . . . . . . 24 Section 12.4 Governing Law . . . . . . . . . . . . . . . . . . . 24 Section 12.5 Number and Gender; Captions; References . . . . . . 24 Section 12.6 CPI . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 12.7 Estoppel Certificate . . . . . . . . . . . . . . . 24 Section 12.8 Severability . . . . . . . . . . . . . . . . . . . 24 Section 12.9 Attorney Fees . . . . . . . . . . . . . . . . . . . 25 Section 12.10 Surrender of Premises; Holding Over . . . . . . . . 25 Section 12.11 Relation of Parties . . . . . . . . . . . . . . . . 25 Section 12.12 Force Majeure . . . . . . . . . . . . . . . . . . . 25 Section 12.13 Non-Merger . . . . . . . . . . . . . . . . . . . . 25 Section 12.14 Entireties . . . . . . . . . . . . . . . . . . . . 25 Section 12.15 Recordation . . . . . . . . . . . . . . . . . . . . 25 Section 12.16 Successors and Assigns . . . . . . . . . . . . . . 26 Section 12.17 Landlord's Joinder . . . . . . . . . . . . . . . . 26 Section 12.18 No Third Parties Benefitted . . . . . . . . . . . . 26 Section 12.19 Survival . . . . . . . . . . . . . . . . . . . . . 26 Section 12.20 Perpetuities . . . . . . . . . . . . . . . . . . . 26 Section 12.21 Transfer of Landlord's Interest . . . . . . . . . . 26 Section 12.22 Tenant's Right To Assign . . . . . . . . . . . . . 26 Section 12.23 Past Due Amounts . . . . . . . . . . . . . . . . . 27 Section 12.24 Independent Counsel . . . . . . . . . . . . . . . . 27 Section 12.25 Cooperation with Landlord's Lender. . . . . . . . . 27 ARTICLE 13 OPTION TO PURCHASE PREMISES . . . . . . . . . . . . . . . . . . . . 27 Section 13.1 Right of First Refusal . . . . . . . . . . . . . . 27 Section 13.2 Option . . . . . . . . . . . . . . . . . . . . . . 28 Section 13.3 Specific Performance . . . . . . . . . . . . . . . 30 ARTICLE 14 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 14.1 Arbitration Provisions . . . . . . . . . . . . . . 30 ARTICLE 15 SUBORDINATION AND ATTORNMENT . . . . . . . . . . . . . . . . . . . . 31 Section 15.1 Subordination . . . . . . . . . . . . . . . . . . . 31 Section 15.2 Attornment . . . . . . . . . . . . . . . . . . . . 31 Section 15.3 Radon Gas Disclosure . . . . . . . . . . . . . . . 31
iii 5 EXHIBITS EXHIBIT A DESCRIPTION OF LAND EXHIBIT B EXCEPTIONS TO TITLE TO LAND EXHIBIT C BASE RENT DETERMINATION EXHIBIT D LANDLORD'S WORK EXHIBIT E TENANT'S WORK iv 6 LEASE AGREEMENT This Lease Agreement ("LEASE") is entered into as of the 16th day of March, 1998, between WORLD PARTNER ENTERPRISES LTD., A FLORIDA LIMITED PARTNERSHIP as ("LANDLORD"), and KOONS FORD, INC., a Florida corporation ("TENANT"). ARTICLE 1 LEASE OF PROPERTY SECTION 1.1 PREMISES LEASED. Landlord subleases to Tenant, and Tenant leases from Landlord the real property and premises described on EXHIBIT A (the "LAND"), including but not limited to all of the rights, interests, estates, and appurtenances thereto, all improvements thereon, and all other rights, titles, interests, and estates, if any, in adjacent streets and roads. SECTION 1.2 PREMISES DEFINED. All of the Land, properties, rights, estates, appurtenances, and interests leased to Tenant pursuant to Section 1.1, together with all improvements now or hereafter constructed thereon, are hereinafter collectively referred to as the "PREMISES". SECTION 1.3 HABENDUM. To have and to hold the Premises, together with all and singular the rights, privileges, and appurtenances thereunto attaching or in anywise belonging, exclusively unto Tenant, its successors and assigns, upon the terms and conditions set forth herein and subject to the matters set forth on EXHIBIT B. ARTICLE 2 TERM OF LEASE SECTION 2.1 INITIAL TERM AND COMMENCEMENT. The initial term ("INITIAL TERM") of this Lease shall commence as of the date of the later to occur of (i) the improvements to be constructed on the premises are certified by the architect for such improvements as complete in accordance with the plans and specifications approved in writing by Landlord and Tenant, and (ii) a certificate of occupancy has been issued for such improvements as hereinafter set forth ("COMMENCEMENT DATE") and unless sooner terminated pursuant to the terms of this Lease, the initial term of this Lease shall expire on the "EXPIRATION DATE" (herein so called), which shall be (i) the last day of the one hundred twentieth (120th) Lease Month from and after the first day of the calendar month following the Commencement Date. SECTION 2.2 LEASE YEAR. A "LEASE YEAR" shall mean a twelve (12) Lease Month period commencing with the first day of the calendar month following the Commencement Date or any anniversary date thereof. SECTION 2.3 LEASE MONTH. A "LEASE MONTH" shall mean a period of time during the term of this Lease commencing the first day of the calendar month and ending on the last day of the calendar month. The first Lease Month shall begin on the first day of the calendar month following the Commencement Date. 7 SECTION 2.4 RENEWAL TERM. (a) If on the Expiration Date and the date Tenant notifies Landlord of its intention to renew the term of this Lease (as provided below), (i) Tenant has not been given notice of default under this Lease (based upon a Default as hereinafter defined), and (ii) this Lease is in full force and effect, then Tenant, shall have and may exercise an option to renew this Lease for four (4) additional terms (each, a "RENEWAL TERM") of five (5) years each; upon the same Rent (hereinafter defined), as adjusted pursuant to the terms of Section 3.1, and other terms and conditions contained in this Lease. Whenever used in this Lease, "TERM", unless modified or specifically noted otherwise in the applicable context, shall mean the Initial Term together with each Renewal Term to the extent Tenant has exercised any option with respect to any Renewal Term. (b) If Tenant desires to renew this Lease, Tenant must notify Landlord in writing of its intention to renew on or before the date which is at least six (6) months but no more than twelve (12) months prior to the Expiration Date or the expiration date of any Renewal Term, as the case may be. SECTION 2.5 REZONING. The Land upon which improvements will be constructed for the Dealership contemplated by the Landlord and Tenant, is presently under consideration for rezoning so as to permit the use of the property contemplated by this Lease. In the event the Landlord is unable to secure all required governmental approvals (except for final approval of plans of the Improvements) for the construction and operation of the Dealership on or before May 1, 1998, then Tenant, at its option, may terminate this Lease upon written notice to the Landlord. Landlord hereby agrees to diligently pursue the obtaining of such governmental approvals. ARTICLE 3 RENT SECTION 3.1 BASE RENT. Subject to the terms and provisions contained in this Section 3.1, Tenant shall pay Landlord monthly "BASE RENT" (herein so called) in the amount determined in EXHIBIT C attached hereto, in advance on or before the first day of each Lease Month during the Term, subject to adjustment as hereafter provided. If the Term commences on a day other than the first day of a calendar month, or ends on a day other than the last day of a calendar month, then the Base Rent for such month shall be prorated on the basis of one thirtieth (1/30th) of the monthly Base Rent for each day of such month. If the CPI on any Adjustment Date shall be greater than the CPI for the Commencement Date, monthly Base Rent commencing on the Adjustment Date shall be adjusted to be the original monthly Base Rent specified in this Section 3.1 plus an amount equal to one-half (1/2) of the product obtained by multiplying: (i) the original monthly Base Rent specified in this Section 3.1 by (ii) the percentage increase in the CPI from the Commencement Date through the January 1st prior to the Adjustment Date. "ADJUSTMENT DATE" shall be the first day of the first Lease Month of each Renewal Term. The term "CPI" shall have the meaning specified therefor in Section 12.6. Tenant shall also pay at the same times and places as the rental installments such Florida State Sales Tax, other such applicable taxes due on rentals and all other sums due hereunder either city, state, county or federal as may be in effect from time to time. 2 8 SECTION 3.2 ADDITIONAL RENT AND RENT. All amounts required to be paid by Tenant under the terms of this Lease, other than Base Rent, are herein from time to time collectively referred to as "ADDITIONAL RENT." Base Rent and Additional Rent are herein collectively referred to as "RENT." SECTION 3.3 PAYMENT OF RENT. Base Rent shall be payable to Landlord at the original or changed address of Landlord as set forth in Section 12.1 or to such other persons or at such other addresses in the United States of America as Landlord may designate from time to time in writing to Tenant; however, if Tenant receives notice of a default under the Landlord's Financing (defined below), then Tenant shall have the right, but not the obligation, to pay to Landlord's Financing Lender (defined below) any sums due and owing on such Landlord's Financing and all such payments by Tenant shall reduce the amount of Rent owing to Landlord. Additional Rent shall be paid as herein set forth. SECTION 3.4 LATE CHARGE. Any rent or other sum which is not paid within fifteen (15) days after the date due shall bear interest at the Default Rate from the date when the same is payable under the terms of this Lease until the same shall be paid. SECTION 3.5 ADJUSTMENT TO RENT FOR FORD IMPROVEMENTS. Landlord and Tenant recognize that Ford Leasing or its related entities ("FORD") may from time to time require that structural improvements to the Premises be made as a condition to the continuation of a Ford Dealership upon the Premises. In the event that Ford requires that such structural improvements be made to the Premises, Landlord shall, at its expense, construct such improvements. The Base Rent due pursuant to Section 3.1 hereinabove shall be increased by an amount equal to the costs of the improvements required by Ford, amortized over a fifteen (15) year period. The new Base Rent shall commence effective the next monthly period following the completion of the required improvements. ARTICLE 4 TAXES; UTILITIES SECTION 4.1 IMPOSITIONS DEFINED. "IMPOSITIONS" means all real estate and ad valorem taxes, and associated levies, including penalties levied for failure of Tenant to pay any of same in a timely manner, which shall or may during the Term be assessed, levied or imposed by any Governmental Authority (defined below) upon (a) the Premises or any part thereof, (b) the buildings or improvements now or hereafter comprising a part thereof, the appurtenances thereto or the sidewalks, streets, or vaults adjacent thereto. Impositions shall not include any income tax, capital levy, estate, succession, inheritance or transfer taxes, or similar tax of Landlord; any franchise tax imposed upon any owner of the fee of the Premises; or any income, profits, or revenue tax, assessment, or charge imposed upon the rent or other benefit received by Landlord under this Lease by any municipality, county, state, the United States of America, or any other governmental body, subdivision, agency, or authority (all of such foregoing governmental bodies are collectively referred to herein as "GOVERNMENTAL AUTHORITIES"). SECTION 4.2 TENANT'S OBLIGATIONS. During the Term, Tenant will pay all Impositions before they become delinquent. Impositions that are payable by Tenant for the tax year in which this Lease commences as well as during the year in which the Term ends shall be apportioned so that Tenant shall pay its share of the Impositions payable by Tenant for the portion of such Taxes 3 9 allocable to the portion of such year occurring during the Term. Where any Imposition that Tenant is obligated to pay may be paid pursuant to law in installments, Tenant may pay such Imposition in installments as and when such installments become due. Tenant shall, if so requested, deliver to Landlord evidence of payment of all Impositions Tenant is obligated to pay hereunder, concurrently with the making of such payment. SECTION 4.3 TAX CONTEST. Tenant may, at its expense, contest the validity or amount of any Imposition for which it is responsible, in which event the payment thereof may be deferred, as permitted by law, during the pendency of such contest, if diligently prosecuted. Landlord shall cooperate with Tenant in connection with any such contest but Landlord shall not be required to spend any sums or incur any liability in cooperating with Tenant. All taxes must be paid prior to the date they become delinquent. In the event that the property subject to this Agreement is encumbered by financing, the Tenant shall pay all taxes within the time frame established by such lender. SECTION 4.4 EVIDENCE CONCERNING IMPOSITIONS. The certificate, advice, bill, or statement issued or given by the appropriate officials authorized by law to issue the same or to receive payment of any Imposition of the existence, nonpayment, or amount of such Imposition shall be prima facie evidence for all purposes of the existence, nonpayment, or amount of such Imposition. SECTION 4.5 UTILITIES. Tenant shall pay all charges for gas, electricity, light, heat, air conditioning, power, telephone, and other communication services, and all other utilities and similar services rendered or supplied to the Premises, and all water, refuse, sewer service charges, or other similar charges levied or charged against, or in connection with, the Premises. ARTICLE 5 IMPROVEMENTS SECTION 5.1 CONSTRUCTION OF PREMISES. Landlord will, at its sole expense, perform all work specified to be performed by Landlord more specifically set forth in EXHIBIT D attached hereto as "LANDLORD'S WORK", and Tenant will, at its sole expense, perform all other work necessary to complete the Premises for its business purposes including, without limitation, the work specified to be performed by Tenant more particularly described in EXHIBIT E attached hereto as "TENANT'S WORK". Nothing in this Lease shall prevent Landlord, in its construction of the Improvements (the "DEALERSHIP") or completion of Landlord's Work, from making such non-material variations, alterations or additions in such work and in any plans and specifications relating thereto as it may reasonably see fit, so long as the Dealership and its facilities as finally constructed are generally similar to the Dealership and its facilities as set out in the plans and specifications presented to Tenant by Landlord. Landlord agrees to complete construction of the Dealership in good faith prior to May 1, 1999, subject to Force Majeure, as hereinafter defined. The date at such time as the construction is completed in accordance with the plans and specifications approved in writing by Landlord and Tenant as certified by the supervising architect and a Certificate of Occupancy is issued by the applicable governmental agency, shall constitute the Commencement Date of this Lease for the purposes of payment of Rent pursuant to Section 3.1 and all other obligations of Tenant. Subject to Force Majeure, Tenant agrees to attempt to complete construction of Tenant's work in good faith prior to May 1, 1999. In the event that the Tenant fails to complete Tenant's Work in a timely fashion, subject to Force Majeure, and as a result the completion date of the Landlord's Work and/or the Commencement Date is delayed, then the Commencement Date shall be deemed to be the date 4 10 Tenant should have completed Tenant's Work and a Certificate of Final Completion issued were it not for the delays caused by Tenant's failure to timely complete Tenant's Work. Nothing hereinabove withstanding to the contrary, the Tenant will be advancing to Landlord (or Landlord's associated enterprise Koons Ford, Inc.) a portion of the costs associated with the carry and construction of the improvements preceding the Commencement Date of this Lease, said amounts as set forth in EXHIBIT D attached hereto. The advances will be preceded by periodic written "advance requests" from the Landlord, accompanied by documentation supporting the nature of the disposition of the funds to be so advanced. The Tenant will review the advance request prior to payment of any advance to Landlord. Each advance request for payment by Landlord shall be made on ten (10) days prior written notice to Tenant and shall be accompanied by a certificate to be made by the architect or engineer supervising Landlord's Work, stating, among such other matters as may be reasonably required by Tenant that: all of the Landlord's Work completed has been done in compliance with the approved plans and specifications of Tenant; the sum requested is justly required to reimburse Landlord for payments by Landlord to, or is justly due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Landlord's Work (giving a brief description of such services and materials); when added to all sums previously paid out by Tenant for Landlord's Work, the sum requested does not exceed the value of the Landlord's Work done to the date of such certificate; and the remaining amount to be disbursed as set forth on EXHIBIT C under "Advances Pursuant to Section 5.1" will be sufficient on completion of the Landlord's Work to pay for the same in full (giving in such reasonable detail as Tenant may require an estimate of the cost of such completion); each request shall be accompanied by waivers of lien satisfactory in form and substance to Tenant covering that part of Landlord's Work for which payment or reimbursement is being requested and by a search prepared by a title company or licensed abstracter or by other evidence satisfactory to Tenant that there has not been filed with respect to the Premises any Mechanics lien or other lien, affidavit or instrument asserting any lien or any lien rights with respect to the Premises, there has not occurred any default by Landlord under this Lease; in the case of the request for the final disbursement, such request is accompanied by a copy of any Certificate of Occupancy or other certificate required by any law, rule, ordinance or regulation of any governmental authority to render occupancy of the Premises lawful. Nothing herein shall be interpreted to prohibit Tenant from withholding from each such disbursement ten percent (10%) (or a greater amount, if permitted or required by any law, rule, regulation or statute) of the amount otherwise herein provided to be disbursed, and from continuing to withhold such sum, until the time permitted for perfecting liens against the Premises, has expired, at which time the amount withheld shall be disbursed to Landlord (or to Landlord and any person or persons furnishing labor and/or material for the Landlord's Work or directly to such persons). The Tenant shall receive a credit against the Base Rent due pursuant to Section 3.1 hereinabove in an amount equal to the amount advanced pursuant to this Section 5.1, together with interest at the Tenant's parent company's customary borrowing rate as may be in effect from time to time. Such credit shall be charged against the monthly Base Rent installments, commencing as of the first monthly rental payment due, until such time as the entire amount of such credit is exhausted. Thereafter, Base Rent shall commence in amounts required in Section 3.1 hereinabove, including payment of any partial installment which may be due as a result of a credit to the final monthly credit which is less than the full monthly Base Rent due. SECTION 5.2 ALTERATIONS. At any time and from time to time during the Term, Tenant may perform such alteration, renovation, repair, refurbishment, and other work (herein such matters being 5 11 collectively called the "ALTERATIONS") with regard to any Improvements as Tenant may elect. All buildings, structures, and other improvements located at any time on the Land are herein called the "IMPROVEMENTS." Any and all alterations, renovation, repair, refurbishment, or other work with regard thereto shall be performed, in accordance with the following "CONSTRUCTION STANDARDS" (herein so referenced): (i) All such construction or work shall be performed in a good and workmanlike manner in accordance with good industry practice for the type of work in question; (ii) All such construction or work shall be done in compliance with all applicable building codes, ordinances, and other laws or regulations of Governmental Authorities having jurisdiction; (iii) Tenant shall have obtained and shall maintain in force and effect the insurance coverage required in Article 7 with respect to the type of construction or work in question; (iv) After commencement, such construction or work shall be prosecuted with due diligence to its completion; and (v) With the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed and shall be deemed given if a request is not approved or denied within thirty (30) days after notice, no Alteration shall be made which (x) involves any material repairs or modifications to the structural portions of the Premises, or (y) would impair the market value, structural integrity or usefulness of the Premises for the purposes for which the same are presently being used. SECTION 5.3 MECHANIC'S AND MATERIALMEN'S LIENS. Tenant shall have no right, authority, or power to bind Landlord or any interest of Landlord in the Premises for any claim for labor or for material or for any other charge or expense incurred in construction of any Improvements or performing any alteration, renovation, repair, refurbishment, or other work with regard thereto, nor to render Landlord's interest in the Premises liable for any lien or right of lien for any labor, materials, or other charge or expense incurred in connection therewith, and Tenant shall in no way be considered as the agent of Landlord in the construction, erection, or operation of any such Improvements. If any liens or claims for labor or materials supplied or claimed to have been supplied to the Premises shall be filed against the interest of the Landlord, Tenant shall promptly pay or bond such liens to Landlord's reasonable satisfaction or otherwise obtain the release or discharge thereof. SECTION 5.4 OWNERSHIP OF IMPROVEMENTS. During the Term all currently existing Improvements shall be solely the property of Landlord. All other Improvements created by Alterations or pursuant to Section 5.1 under Landlord's Work (and to the extent not credited against rent due as provided in Section 5.1 above) and Tenant's Work which have been paid for by Tenant to or which may be added by Tenant (which do not constitute replacements of existing Improvements) shall be the property of Tenant, but at the end of the Term, all then-existing Improvements shall be the property of Landlord. However, upon expiration or earlier termination of this Lease, Tenant shall have the right to remove all trade fixtures, movable equipment, furniture, furnishings and other personal property located in the Premises and other items not permanently attached to the Premises provided that Tenant repairs any damages caused by the removal of such items. Nothing hereinabove withstanding to the contrary, any lifts or hydraulics installed upon the Premises by Tenant, whether as an original installation or replacement, shall remain on the Premises and shall become the property of the Landlord upon the expiration or termination of this Lease. SECTION 5.5 ASBESTOS AND OTHER HAZARDOUS SUBSTANCES. Landlord shall remain fully liable and responsible for any asbestos and other Hazardous Substances as hereinafter defined present on any portion of the Premises prior to the Commencement Date even if such asbestos is in an unfriable or undisturbed state on the Commencement Date and Tenant thereafter disturbs such 6 12 materials in any manner including, without limitation, in connection with any Alterations performed by Tenant on the Premises. If Tenant intentionally disturbs or causes to be disturbed by any contractor or other party any asbestos presently located on the Premises of which Tenant has actual knowledge, then any such disturbance of such asbestos shall only be done in accordance with all laws, regulations, ordinances, or requirements of any Governmental Authority having jurisdiction in the Premises including, without limitation, those which govern the disposition of Hazardous Substances. Any expenses associated with correction of such disturbance caused by the Tenant or its contractors shall be borne by the Tenant. ARTICLE 6 USE, ENVIRONMENTAL, MAINTENANCE, AND REPAIRS SECTION 6.1 USE. Subject to the terms and provisions hereof, Tenant may use and enjoy the Premises for the sale, lease, trade, repair or service of motor or other vehicles and other uses normally associated therewith including, without limitation, the sale of parts and services. Without limiting the generality of the foregoing, the provisions relating to use of the Premises shall be broadly construed to encompass all uses normally associated with premises occupied by automobile, boat and recreational vehicle dealerships. Tenant shall not use or occupy, permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises in a manner which would constitute a public or private nuisance, or which would violate any laws, regulations, ordinances, or requirements of any Governmental Authority having jurisdiction in the Premises including, without limitation, those which relate to Hazardous Substances. SECTION 6.2 ENVIRONMENTAL. (a) For purposes of this Lease, the term "HAZARDOUS SUBSTANCE" means (i) any substance, product, waste or other material of any nature whatsoever which is or becomes listed, regulated, or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. ("CERCLA"); the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. ("RCRA"); the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Water Act, 33 U.S.C. Section 1251 et seq.; the Federal Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Federal Clean Water Act, 33 U.S.C. Section 1151 et seq.; the National Environmental Policy Act, 42 U.S.C. Section 1857 et seq.; the Regulations of the Environmental Protection Agency, 33 C.F.R. and 40 C.F.R.; Chapters 373, 376, 380 and 403 of the Florida Statutes and rules related thereto, including Chapters 17, 27 and 40 of the Florida Administrative Code; and all Broward County environmental protection ordinances, (the above-cited Florida state statutes are hereinafter collectively referred to as the "STATE TOXIC SUBSTANCES LAWS") or any other federal, state or local statute, law, ordinance, resolution, 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, (ii) any substance, product, waste or other material of any nature whatsoever which may give rise to liability under any of the above statutes or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decisions of a state or 7 13 federal court, (iii) petroleum or crude oil other than petroleum and petroleum products which are contained within regularly operated motor vehicles, and (iv) asbestos. (b) Tenant represents, warrants, acknowledges and agrees that: (i) Subject to the terms and provisions of this Lease, Tenant will not undertake, permit, authorize or suffer, the manufacture, handling, generation, transportation, storage, treatment, discharge, release, burial or disposal on, under or about the Premises of any Hazardous Substance, or the transportation to or from the Premises of any Hazardous Substance; (ii) Tenant will not cause, permit, authorize or suffer any Hazardous Substance to be placed, held, located or disposed of, on, under or about any other real property all or any portion of which is legally or beneficially owned (or any interest or estate therein which is owned) by the Tenant in any jurisdiction now or hereafter having in effect a so-called "Superlien" law or ordinance or any part thereof the effect of which law or ordinance would be to create a lien on the Premises to secure any obligation in connection with the real property in such other jurisdiction. (c) From and after the Commencement Date, Tenant shall keep and maintain the Premises in compliance with, and shall not cause or permit the Premises to be in violation of, any federal, state or local laws, ordinances or regulations relating to health and safety, industrial hygiene or to the environmental conditions on, under or about the Premises including, but not limited to, air, soil and ground water conditions. Tenant hereby covenants and agrees that neither it nor any agent, servant, employee, or tenant shall generate, manufacture, handle, store, treat, discharge, release, bury or dispose of on, under or about the Premises, any Hazardous Substance. Without limiting the generality of the foregoing provisions of this Subsection, Tenant agrees at all times to comply fully and in a timely manner with, and to cause all of its employees, agents, contractors, subcontractors, tenants and any other persons occupying or present on the Premises to so comply with, all federal, state and local laws, regulations, guidelines, codes, statutes and ordinances applicable to the generation, manufacture, handling, storage, treatment, discharge, release, burial or disposal of any Hazardous Substance located or present on, under or about the Premises by, through or under Tenant after the Commencement Date, or the transportation to or from the Premises of any Hazardous Substance. Any sublease executed after the date hereof concerning the Premises shall contain a provision prohibiting the lessee, and any agent, servant, employee or tenant of the lessee, from generating, manufacturing, storing, treating, discharging, releasing, burying or disposing on, under or about the Premises, or transporting to or from the Premises, any Hazardous Substance. (d) If the release, threat of release, placement on, under or about the Premises, or the use, generation, manufacture, storage, treatment, discharge, release, burial or disposal on, under or about the Premises, or transportation to or from the Premises, of any Hazardous Substance: (i) gives rise to liability, costs or damages (including, but not limited to, a response action, remedial action, or removal action) under RCRA, CERCLA, the State Toxic Substances Laws, or any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decision of a state or federal court, (ii) causes or threatens to cause a significant public health effect, or (iii) pollutes or threatens to pollute the environment, the Tenant shall 8 14 promptly take any and all response, remedial and removal action necessary to clean up the Premises and any other effected property and mitigate exposure to liability arising from the Hazardous Substance, if required by law or by any governmental authority. (e) Tenant shall indemnify, defend with counsel reasonably satisfactory to Landlord, protect and hold harmless Landlord, its directors, officers, employees, agents, assigns and any successor or successors to Landlord's interest under this Lease from and against all claims, actual damages (including but not limited to special and consequential damages), punitive damages, injuries, costs, response costs, losses, demands, debts, liens, liabilities, causes of action, suits, legal or administrative proceedings, interest, fines, charges, penalties and expenses (including but not limited to attorneys' and expert witness fees and costs incurred in connection with defending against any of the foregoing or in enforcing this indemnity) of any kind whatsoever paid, incurred or suffered by, or asserted against, any indemnified party at any time prior to any retaking of the Premises by Landlord directly or indirectly arising from or attributable to (i) any breach by Tenant of any of its agreements, warranties or representations set forth in this Section 6.2, or (ii) any repair, cleanup or detoxification, or preparation and implementation of any removal, remedial, response, closure or other plan concerning any Hazardous Substance which arises on, under or about the Premises after the Commencement Date and is attributable to Tenant and not to Landlord or any other party not under the control, employed by, contracted with or affiliated with Tenant, regardless of whether undertaken due to governmental action. Without limiting the generality of the foregoing indemnity, such indemnity is intended to operate as an agreement pursuant to Section 107 (e) of CERCLA, 42 U.S.C. Section 9607(e), to insure, protect, hold harmless and indemnify Landlord for any liability pursuant to such statute, to the extent Tenant is liable pursuant to this Section 6.2. (f) Tenant shall promptly give Landlord (i) a copy of any notice, correspondence or information it receives from any federal, state or other governmental authority regarding Hazardous Substances on, under or about the Premises or Hazardous Substances which affect or may affect the Premises, or regarding any actions instituted, completed or threatened by any such governmental authority concerning Hazardous Substances which affect or may affect the Premises, (ii) written notice of any knowledge or information Tenant obtains regarding Hazardous Substances on, under or about the Premises or incurred by Tenant (other than commercially reasonable quantities of customarily used cleaning compounds and the like and the matters covered in subsections (h) and (i) of this Section 6.2), a third party or any government agency to study, assess, contain or remove any Hazardous Substances on, under, about or near the Premises for which expense or loss Tenant may be liable or for which a lien may be imposed on the Premises, (iii) written notice of any knowledge or information Tenant obtains regarding the release or discovery of Hazardous Substances on, under or about the Premises or on other sites owned, occupied or operated by Tenant or by any person for whose conduct Tenant is or may be responsible, or whose liability may result in a lien on or otherwise affect the Premises, (iv) written notice of all claims made or threatened by any third party against Tenant or the Premises relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Substance, and (v) written notice of Tenant's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Premises that could subject the Premises to any restrictions on the ownership, occupancy, transferability or use of the Premises under any of the statutes cited in Subsection (a) of this Section or any regulation adopted pursuant thereto. Notwithstanding anything to the contrary contained herein, Tenant shall not be under any obligation to provide notice of any contamination so long as 9 15 any of the principal(s) of Landlord (currently being James S. Carroll, William C. Carroll, Janet L. Giles and Ralph S. Kerr) are responsible for the operation of the dealership at the Premises. (g) Notwithstanding anything to the contrary contained herein, the indemnity contained in this Section 6.2 shall continue indefinitely from the date of Tenant's execution of this Lease and shall survive the termination of all agreements between Tenant and Landlord. The indemnity contained in this Section 6.2 in no way limits the scope or enforceability of any other indemnity contained herein. (h) Commercially reasonable quantities of customarily used cleaning compounds and the like, which are stored, used and disposed of in compliance with applicable environmental laws, shall be excluded from any obligation of Tenant hereunder this Section 6.2. Commercially reasonable quantities of products customarily used in Tenant's business and the like, which are stored, used and disposed of in compliance with applicable environmental laws, are hereby permitted by Landlord. (i) Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no liability or obligation under this Section 6.2 or elsewhere in this Lease for any matter existing on, under or about the Premises prior to the Commencement Date, including, without limitation, the removal or remediation of any Hazardous Substances and Landlord shall maintain full liability for such pre-Commencement Date contamination. Landlord shall indemnify, defend with counsel reasonably satisfactory to Tenant, protect and hold harmless Tenant, its directors, officers, employees, agents, assigns and any successor or successors to Tenant's interest under this Lease from and against all claims, actual damages (including but not limited to special and consequential damages), punitive damages, injuries, costs, response costs, losses, demands, debts, liens, liabilities, causes of action, suits, legal or administrative proceedings, interest, fines, charges, penalties and expenses (including but not limited to attorneys' and expert witness fees and costs incurred in connection with defending against any of the foregoing or in enforcing this indemnity) of any kind whatsoever paid, incurred or suffered by, or asserted against, any indemnified party directly or indirectly arising from or attributable to (1) any breach by Landlord any of its agreements, warranties or representations set forth in this Section 6.2(i), or (2) any repair, cleanup or detoxification, or preparation and implementation of any removal, remedial, response, closure or other plan concerning any Hazardous Substance on, under or about the Premises prior to the Commencement Date attributable to Landlord or any other party under the control, employed by, contracted with or otherwise associated with Landlord in any manner, regardless of whether undertaken due to governmental action. Without limiting the generality of the foregoing indemnity, such indemnity is intended to operate as an agreement pursuant to Section 107 (e) of CERCLA, 42 U.S.C. Section 9607(e), to insure, protect, hold harmless and indemnify Tenant for any liability pursuant to such statute, to the extent Landlord is liable pursuant to this Section 6.2(i). SECTION 6.3 MAINTENANCE AND REPAIRS. During the Term of this Lease, in addition to the Rent herein provided, Tenant agrees to pay all costs and charges for repair and maintenance of the Premises, except as otherwise provided herein. Tenant agrees to surrender the Premises at the expiration or earlier termination of this Lease in as good condition as at the commencement of the term of this Lease. Tenant shall also make any repairs to the electrical equipment, air conditioning equipment, heating equipment or to any other portions of the Premises, except when a manufacturer or supplier is obligated to make or pay for the repairs under an expressed or implied warranty and such repairs are made by such warranting manufacturer or supplier. Tenant agrees to replace any 10 16 plate, window or door glass broken in the Premises with glass of like kind and quality. Tenant shall, comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act. Any repairs required to be made by the Tenant shall be made in a prompt and workmanlike manner. All goods and materials used shall be in quality equal to or better than that being replaced. The Tenant shall supply the Landlord with copies of all warranties offered as to any replacements and shall supply Landlord with copies of any invoices for repairs or replacements, the cost of which exceeds $5,000.00. Tenant's failure to supply such warranties and invoices shall not be deemed a default under the terms of this Lease. Subject to the other terms of this Lease, Tenant acknowledges that it has inspected and that the Premises, including all fixtures, equipment and furnishings contained therein, are in satisfactory or excellent condition and accepts the Premises in its "AS IS" condition, without requiring Landlord to make any repairs or replacements thereof. Tenant hereby waives any objection to and releases Landlord from any liability arising from the condition of the Premises from and after the Commencement Date, except for matters as herein set forth. The Improvements being constructed upon the Land together with all equipment and hardware, may be warrantied by third party vendors who have performed labor or rendered materials thereto. The Tenant shall be entitled to the benefit of all such warranties and the Landlord shall fully cooperate in securing the services of such third party vendors for warranty work during the Term of this Lease. SECTION 6.4 AMERICANS WITH DISABILITIES ACT. Landlord shall be responsible for compliance with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act, attributable to the Premises as of the Commencement Date of this Lease. In the event the Tenant makes any modifications to the Premises, all such modifications shall comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act, including modifications which are required by such governmental agencies, as a result of such modifications, to remaining unmodified portions of the Premises. ARTICLE 7 INSURANCE AND INDEMNITY SECTION 7.1 BUILDING INSURANCE. Tenant will, at its cost and expense, keep and maintain in force the following policies of insurance: (1) Insurance on the Improvements against loss or damage by fire and against loss or damage by any other risk now and from time to time insured against by "extended coverage" provisions of policies generally in force on improvements of like type in the city in which the Premises are located, and in builder's risk completed value form during construction, in amounts sufficient to provide coverage for the full insurable value of the Improvements; the policy for such insurance shall have a replacement cost endorsement or similar provision. "FULL INSURABLE VALUE," shall mean actual replacement value (exclusive of cost of excavation, foundations, and footings below the surface of the ground or below the lowest basement level), and such full insurable value 11 17 shall be determined by Tenant's insurer, and confirmed from time to time at the request of Landlord by one of the insurers. The Tenant shall maintain all storm and flood insurances which are customarily maintained for properties similar to the Premises in the County in which the Premises are located, or which is required by Landlord's Lender (if any), and only if such coverage is available, to fully insure the Improvements including all such coverages which might later come into existence as a result of changes in the insurance coverages available or required in the future. (2) Worker's Compensation Insurance as to Tenant's employees involved in the construction, operation, or maintenance of the Premises in compliance with applicable law. (3) Such other insurance against other insurable hazards which at the time are commonly insured against in the case of improvements similarly situated, due regard being given to the height and type of the Improvements, their construction, location, use, and occupancy. SECTION 7.2 LIABILITY INSURANCE. Tenant shall secure and maintain in force comprehensive general liability insurance, including contractual liability specifically applying to the provisions of this Lease and completed operations liability, with limits of not less than Ten Million Dollars ($10,000,000) with respect to bodily injury or death to any number of persons in any one accident or occurrence and with respect to property damage in any one accident or occurrence, such limits to be increased in the event of request by Landlord by an amount which may be reasonable at the time. SECTION 7.3 POLICIES. All insurance maintained in accordance with the provisions of this Article 7 shall be issued by companies reasonably satisfactory to Landlord, and shall be carried in the name of both Landlord and Tenant, as their respective interests may appear, and shall contain a mortgagee clause acceptable to the Landlord's Financing Lender and the Permitted Mortgagees. All property policies shall (i) be subject to prior written approval of Landlord, which shall not be unreasonably withheld or delayed, and (ii) expressly provide that any loss thereunder may be adjusted with Tenant, Landlord's Financing Lender and Permitted Mortgagees, but, unless required otherwise under Landlord's Financing, shall be payable to Tenant and disbursed as set forth in Section 8.2. All property and liability insurance policies shall name Landlord as an additional named insured and shall include contractual liability endorsements. Tenant shall furnish Landlord, Landlord's Financing Lender and each Permitted Mortgagee with evidence of all insurance policies required under this Article 7 and shall furnish and maintain with each of such parties, at all times, a certificate of the insurance carrier certifying that such insurance shall not be canceled without at least fifteen (15) days advance written notice to each of such parties. SECTION 7.4 TENANT'S INDEMNITY. Subject to Section 7.6, Tenant shall indemnify and hold harmless Landlord, its shareholders, partners, trustees, members, directors, officers, employees and its successors and assigns (the "INDEMNIFIED LANDLORD PARTIES"), from all claims, suits, actions, and proceedings whatsoever which may be brought or instituted on account of or growing out of any Default and any and all injuries or damages, including death, to persons or property on the Premises and all losses, liabilities, judgments, settlements, costs, penalties, damages, and expenses relating thereto, including but not limited to attorneys' fees and other costs of defending against, investigating, and settling the Claims, to the extent, but only to the extent, such Claims are not attributable to events or conditions that occurred or existed, in whole or in part, prior to the date when Tenant first occupied the Premises ("CLAIMS"), Tenant shall assume on behalf of the 12 18 Indemnified Landlord Parties and conduct with due diligence and in good faith the defense of all such Claims against any of the Indemnified Landlord Parties. Tenant may contest the validity of any such Claims, in the name of Landlord or Tenant, as Tenant may deem appropriate, provided that the expenses thereof shall be paid by Tenant. The foregoing covenants and agreements of Tenant shall survive the expiration or termination of this Lease. SECTION 7.5 LANDLORD'S INDEMNITY. Subject to Section 7.6, Landlord shall indemnify and hold harmless Tenant, its shareholders, partners, trustees, members, directors, officers, employees and its successors and assigns (the "INDEMNIFIED TENANT PARTIES"), from all claims which may be brought or instituted on account of or growing out of any default by Landlord of its obligations under this Lease and all injuries or damages, including death, to persons or property on the Premises and all losses, liabilities, judgments, settlements, costs, penalties, damages, and expenses relating thereto, including but not limited to attorneys' fees and other costs of defending against, investigating, and settling the claims, to the extent, but only to the extent, any such claims are attributable to or arise out of: (i) events or conditions that existed or occurred, in whole or in part, prior to the date when Tenant first occupied the Premises; (ii) Landlord's representations or warranties or asbestos in any form which is present on the Premises prior to the date of this Lease. Landlord shall assume on behalf of the Indemnified Tenant Parties and conduct with due diligence and in good faith the defense of all Claims against any of the Indemnified Tenant Parties. Landlord may contest the validity of any Claims, in the name of Landlord or Tenant, as Landlord may deem appropriate, provided that the expenses thereof shall be paid by Landlord. The foregoing covenants and agreements of Landlord shall survive the Term and expiration or termination of this Lease. SECTION 7.6 SUBROGATION. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each hereby waives any and all rights of recovery, claims, actions, or causes of action against the other, its agents, officers, and employees for any loss or damage that may occur to any improvements located on the Premises, or any part thereof, or any personal property of such party therein, by reason of fire, the elements, or any other cause which is insured under standard "all risk of direct loss" insurance policies available in the state in which the Premises are located, regardless of cause or origin, including negligence of either party hereto, its agents, officers, or employees. No insurer of one party shall hold any right of subrogation against the other party as to any such loss or damage. ARTICLE 8 CASUALTY; CONDEMNATION SECTION 8.1 TENANT'S OBLIGATION TO RESTORE. Subject to the other terms of this Section 8.1, in the event of damage to, or destruction of, any Improvements by fire or other casualty, Tenant shall promptly repair, replace, restore, and reconstruct the same, all in compliance with the provisions of Section 8.2. If insurance proceeds are insufficient to pay for required replacement, repairs, restoration, etc., then Tenant shall be obligated to promptly repair, replace, restore, and reconstruct the Improvements, all in compliance with the provisions of Section 8.2, notwithstanding the unavailability of insurance proceeds for such purpose. In the event that a Permitted Mortgagee (as hereinafter defined) or Landlord's Financing Lender (as hereinafter defined), as the case may be, requires that payment of insurance proceeds be made to it and not be made available for required replacement, repairs, restoration, etc., then to the extent that such funds are withheld, the Tenant shall not be responsible for performing required replacement, repairs, restoration, or reconstruction 13 19 of the Improvements. In the event of a casualty loss wherein the insurance proceeds are not be used for replacement, repairs, restoration, etc., or the Improvements, as a result of Landlord's Financing Lender or by consent of the parties, the insurance proceeds shall be applied as follows: (1) first, to pay the cost of razing the Improvements and leveling, cleaning and otherwise putting the Premises in good order; (2) second, to Landlord's Financing Lender; (3) third, to the payment to Tenant for any of its improvements; and (4) fourth, to Landlord, to the extent of any remaining proceeds. Distribution of insurance proceeds is being made in conformity with Section 5.4 of this Lease. Notwithstanding the foregoing, in the event of destruction or damage involving more than seventy-five percent (75%) of the interior floor area of the Improvements, Tenant shall have no obligation to rebuild unless the Landlord and Tenant may agree to rebuild the Improvements. In the event the parties have not agreed to rebuild the Premises then it is recognized between Landlord and Tenant that it is their intent to relocate the operations to another location. In the event of such relocation, this Lease shall terminate effective as to the affected Premises as of the date of such damage or destruction and the insurance proceeds received by the Landlord and Tenant [as to Tenant, for Tenant's Improvements, the right to same carrying forward as to the new location] shall be utilized for the construction of new Improvements at an alternative location. In the event that the costs of construction of the Improvements for which the Landlord is responsible exceeds the insurable value of the operation which was subject to the casualty, the Landlord shall pay the additional costs for Improvements, and the annual Base Rent due pursuant to Section 3.1 shall be increased by an amount equal to ten (10%) percent of the Landlord's additional cost of construction of the new facility. This Lease, except for the adjustment of Base Rent as described above, shall govern as to the rights and obligations of the Landlord and Tenant at the substituted location, however, the Term of the Lease shall be in abeyance during the period of construction of the alternative Improvements. Tenant's obligation for payment of Base Rent and other monetary sums under this Lease as applicable to the new Premises shall commence as of the later to occur of (i) the date the improvements to be constructed on the new Premises are certified as complete by the applicable architect for such improvements in accordance with the plans and specifications agreed to in writing by Landlord and Tenant and (ii) the date a Certificate of Occupancy is obtained for the operation of such new improvements. Landlord and Tenant shall, in good faith, fully cooperate with one another in the selection of the alternative site and relative to preparation of plans for Improvements and construction thereof. Nothing hereinabove withstanding to the contrary, if the Tenant failed to maintain insurance coverage required herein and as a result, proceeds are paid by the insurance company which are less than the full insurable value of the Improvements, Tenant shall be solely responsible for any such deficiency. 14 20 SECTION 8.2 RESTORATION AND DEPOSIT OF FUNDS. (a) Prior to Tenant commencing any repair, restoration or rebuilding pursuant to Section 8.1 involving an estimated cost of more than One Hundred Thousand Dollars ($100,000), Tenant shall submit to Landlord for its approval, which will not be unreasonably withheld or delayed: (i) plans and specifications therefor, prepared by a licensed architect reasonably satisfactory to Landlord; (ii) copies of appropriate governmental permits; (iii) an estimate of the cost of the proposed work, certified to by said architect (iv) a fixed price construction contract in an amount not in excess of such architect's estimated cost from a reputable and experienced general contractor; and (v) satisfactory evidence of sufficient contractor's comprehensive general liability insurance covering Landlord, builder's risk insurance, and worker's compensation insurance. Upon completion of any such work by or on behalf of Tenant, Tenant shall provide Landlord with written evidence, in form and substance reasonably satisfactory to Landlord, showing that (i) Tenant has paid all contractors for all costs incurred in connection with such repair, restoration or rebuilding, and (ii) that the Premises is not encumbered by any mechanic's or materialmen's liens relating to such repair, restoration or rebuilding. Regarding Tenant's obligations with respect to mechanic's or materialmen's liens, reference is made herein to all of the terms and provisions of Section 5.3 in connection with such repair, restoration or rebuilding. (b) Provided that a Default does not then exist, then all sums arising by reason of such loss under insurance policies maintained by Tenant, shall be deposited with the Depositary (as hereinafter defined) to be available to Tenant for the repair, restoration and rebuilding of the Premises. Tenant shall diligently pursue the repair, restoration and rebuilding of the improvements in a good and workmanlike manner using only materials which are of a quality comparable to the quality of the materials used in the Improvements prior to their destruction or damage. The insurance proceeds will be disbursed to Tenant by the Depositary after delivery of evidence reasonably satisfactory to the Depositary that (A) such repairs, restoration, or rebuilding have been completed and effected in compliance with the plans and specifications for the restoration or rebuilding, (B) no mechanic's and materialman's liens against the Premises have been filed, or that all such liens have been paid or bonded around, and (C) all payments for work performed and materials purchased as of the date of such disbursement for which mechanic's and materialman's liens might arise have been paid or will be paid from such disbursement or that all such potential liens have been paid or bonded around. At the option of Tenant, such proceeds shall be advanced in reasonable installments. Each such installment (except the final installment) shall be advanced in an amount equal to the cost of the construction work completed since the last prior advance (or since commencement of work as to the first advance) less statutorily required retainage in respect of mechanic's and materialman's liens or retainage which may be required by Landlord's Financing Lender in an amount not to exceed ten percent (10%) of such cost. The amount of each installment requested shall be certified as being due and owing by Tenant's architect in charge, and each request shall include all bills for labor and materials for which reimbursement is requested and reasonably satisfactory evidence that no lien has been placed against the Premises for any labor or material furnished for such work. The final disbursement, which shall be an amount equal to the balance of the insurance proceeds, shall be made upon receipt of (1) an architect's certificate of substantial completion as to the work from Tenant's architect, (2) reasonably satisfactory evidence that all bills incurred in connection with the work have been paid and (3) issuance of a certificate of occupancy by the applicable governmental agency, if required. The term "DEPOSITARY", as used herein, shall mean either: (i) Landlord's Financing Lender, or its designee provided that Landlord's Financing Lender is an institutional lender, its designee is not an Affiliate of Landlord, and such entity holds such funds in accordance with the terms of this lease, or related in any other manner to Landlord), or (ii) such other party that 15 21 is acceptable to Landlord and Tenant, if there is no such Landlord's Financing Lender or if such Landlord's Financing Lender has refused to act as Depositary. (c) If no Default then exists, any excess of money received from insurance policies remaining with the Depositary after the repair or rebuilding of the Improvements shall, to the extent required by any Permitted Mortgagee, be applied to payment of Tenant's Permitted Mortgage, otherwise any such proceeds shall be paid to Tenant. (d) If Tenant shall not commence the repair or rebuilding of the Improvements within a period of sixty (60) days after damage or destruction by fire or other casualty and prosecute the same thereafter with such dispatch as may be necessary to complete the same within a reasonable period after said damage or destruction occurs; then, in addition to all other remedies Landlord may have either under this Lease, at law or in equity, the money received by and remaining in the hands of the Depositary shall be paid to and retained by Landlord as security for the continued performance and observance by Tenant of Tenant's covenants and agreements hereunder. SECTION 8.3 NOTICE OF DAMAGE. Tenant shall immediately notify Landlord and each Permitted Mortgagee of any destruction or damage to the Premises. SECTION 8.4 TOTAL TAKING. Should the entire Premises be taken (which term, as used in this Article 8, shall include any conveyance in avoidance or settlement of eminent domain, condemnation, or other similar proceedings) by any Governmental Authority, corporation, or other entity under the right of eminent domain, condemnation, or similar right, then Tenant's right of possession under this Lease shall terminate as of the date of taking possession by the condemning authority, and the award therefor will be distributed as follows: (1) first, to the payment of all reasonable fees and expenses incurred in collecting the award; (2) second, to Landlord's Financing Lender; and (3) third, to Landlord and Tenant, to the extent of their interests in the Premises, as the court having such jurisdiction of such taking shall determine taking into account certain factors including, without limitation, the term of the leasehold estate of the Tenant and the ownership interest of Landlord. After the determination and distribution of the condemnation award as herein provided, the Lease shall terminate. SECTION 8.5 PARTIAL TAKING. Should a portion of the Premises be taken by any Governmental Authority, corporation, or other entity under the right of eminent domain, condemnation, or similar right, this Lease shall nevertheless continue in effect as to the remainder of the Premises unless, in Tenant's reasonable judgment, so much of the Premises shall be so taken as to make it economically unsound to use the remainder for the uses and purposes contemplated hereby, whereupon this Lease shall terminate as of the date of taking of possession by the condemning authority in the same manner as if the whole of the Premises had thus been taken, and the award therefor shall be distributed as provided in Section 8.4. In the event of a partial taking where this Lease is not terminated, all awards payable in respect thereof shall be payable to Landlord and Tenant, to the extent of their interests in the Premises, as the applicable condemning authority shall determine taking into account certain factors including, without limitation, the term of the leasehold estate of the Tenant and the ownership interest of Landlord. Following such partial taking, Landlord shall make all necessary repairs or alterations to the remaining Premises, required to make the remaining portions of the Premises an architectural whole. The Base Rent payable hereunder during the unexpired portion of the Lease shall be reduced to the extent fair and reasonable under 16 22 the circumstances, effective on the date physical possession is taken by the condemning authority. It is contemplated that Broward County, Florida, make seek to purchase or take a parcel of land along the Douglas Road (west) line of the property for a bus stop. Landlord represents and warrants to Tenant that Broward County's acquisition of such parcel will be di minimis and shall have no adverse effect on the business of Tenant. Accordingly, so long as such taking does not have an adverse effect on the business of Tenant, the rent payments or other obligations due Landlord from Tenant shall not be reduced. Any proceeds from the sale or taking of such parcel shall belong solely to the Landlord. SECTION 8.6 TEMPORARY TAKING. If the whole or any portion of the Premises shall be taken for temporary use or occupancy, the Term shall not be reduced or affected. The Base Rent payable hereunder during the unexpired portion of the Lease shall be reduced to the extent fair and reasonable under the circumstances and Tenant shall be entitled to receive the entire amount of any award therefor, less the amount of the reduction in the Base Rent. SECTION 8.7 NOTICE OF TAKING, COOPERATION. Tenant shall immediately notify Landlord and each Permitted Mortgagee of the commencement of any eminent domain, condemnation, or other similar proceedings with regard to Premises. Landlord and Tenant covenant and agree to fully cooperate in any condemnation, eminent domain, or similar proceeding in order to maximize the total award receivable in respect thereof. ARTICLE 9 TENANT'S FINANCING SECTION 9.1 TENANT'S RIGHT TO ENCUMBER. Tenant shall have the right, from time to time and at any time, without Landlord's consent or joinder, to encumber its interest in this Lease and the leasehold estate hereby created with one or more deeds of trust, mortgages, or other lien instruments to secure any borrowings or obligations of Tenant. Any such mortgages, deeds of trust, and/or other lien instruments, and the indebtedness secured thereby, provided that Landlord has been given notice thereof, are herein referred to as "PERMITTED MORTGAGES," and the holder or other beneficiary thereof are herein referred to as "PERMITTED MORTGAGEES." SECTION 9.2 TENANT'S MORTGAGE. If Tenant encumbers its interest in this Lease and the leasehold estate hereby created with liens as above provided, then Tenant shall notify Landlord thereof, providing with such notice the name and mailing address of the Permitted Mortgagee in question, Landlord shall upon request, acknowledge receipt of such notice, and for so long as the Permitted Mortgage in question remains in effect the following shall apply: (a) Landlord shall give to the Permitted Mortgagee a duplicate copy of any and all notices which Landlord gives to Tenant pursuant to the terms hereof, including notices of default, and no such notice shall be effective until such duplicate copy is transmitted to such Permitted Mortgagee, in the manner provided in Section 12.1. (b) There shall be no cancellation, surrender, or modification of this Lease by joint action of Landlord and Tenant without the prior written consent of the Permitted Mortgagee. (c) If a Default should occur hereunder, then Landlord specifically agrees that: 17 23 (1) Landlord shall not enforce or seek to enforce any of its rights, recourses, or remedies, until a notice specifying the event giving rise to such Default has been transmitted to the Permitted Mortgagee, in the manner provided in Section 12.1, and if the Permitted Mortgagee proceeds to cure the Default within a period of thirty (30) days after receipt of such notice or, as to non-monetary events of Default which by their very nature cannot be cured within such time period, the Permitted Mortgagee commences curing such Default within such time period and thereafter diligently pursues such cure to completion within sixty (60) days thereafter, then any payments made and all things done by the Permitted Mortgagee to effect such cure shall be as fully effective to prevent the exercise of any rights, recourses, or remedies by Landlord as if done by Tenant; (2) if the Default is a non-monetary default, the Permitted Mortgagee shall have a period of time in which to cure such Default equal to the greater of (i) the time period for such curing that is applicable to Tenant under the terms of this Lease, or (ii) sixty (60) days after the date that the Permitted Mortgagee has been notified of such Default, provided that the Permitted Mortgagee cures all defaults relating to the payment of Base Rent and neither Landlord nor the Premises is or would be liable or subject to any lien, tax, penalty, expense, liability, or damages because of such Default. If Landlord or the Premises is or will be liable or subject to any such lien, tax, penalty, expense, liability or damages because of the Default, then for so long as the Permitted Mortgagee is diligently and with continuity attempting to secure possession of the Premises (whether by foreclosure or other procedures), and provided such delay does not result in a foreclosure by Landlord's Financing Lender or loss of Landlord's interest in the Premises, Landlord shall allow the Permitted Mortgagee such time as may be reasonably necessary under the circumstances to obtain possession of the Premises in order to cure such Default, and during such time Landlord shall not enforce or seek to enforce any of its rights, remedies or recourses hereunder; and (d) No Permitted Mortgagee shall be or become liable to Landlord as an assignee of this Lease until such time as such Permitted Mortgagee, by foreclosure or other procedures, shall either acquire the rights and interests of Tenant under this Lease or shall actually take possession of the Premises, and upon such Permitted Mortgagee's assigning such rights and interests to another party or upon relinquishment of such possession, as the case may be, such Permitted Mortgagee shall have no further such liability. ARTICLE 10 WARRANTY OF TITLE AND PEACEFUL POSSESSION AND LANDLORD'S FINANCING SECTION 10.1 WARRANTY AS TO ENCUMBRANCES. Landlord represents, warrants and covenants that: (i) the representations and warranties set forth in Section 10.3 are true and correct; (ii) it owns title to the Land and the Premises free and clear of all liens, claims and encumbrances except the liens described in EXHIBIT B hereto securing the financing described therein ("LANDLORD'S FINANCING") and the other encumbrances specifically described in such EXHIBIT B; (iii) except as otherwise set forth in Section 10.2, Landlord's Financing shall not be modified in any manner without the prior written consent of Tenant; and (iv) the lender providing such Landlord's Financing ("LANDLORD'S FINANCING LENDER") has executed, caused to be acknowledged (notarized in accordance with applicable law) and delivered to Landlord and Tenant a mutual recognition and attornment agreement, in form and substance reasonably satisfactory to Tenant, suitable for recording in the appropriate records to notify third parties of the existence of such agreement and 18 24 that the Land and the Premises are subject thereto. Such agreement shall provide, among other provisions, that the Tenant's interest under this Lease shall be subordinate to the Landlord's Financing and that the Landlord's Financing Lender shall (i) give to Tenant a duplicate copy of any and all notices which Landlord's Financing Lender gives to Landlord, including notices of default, and no such notice shall be effective until such duplicate copy is actually received by Tenant in the manner provided in Section 12.1; (ii) give Tenant the right and opportunity to cure any defaults under the Landlord's Financing; and (iii) recognize and consent to Tenant's rights under this Lease in the event of a foreclosure or deed in lieu thereof so long as Tenant continues to perform its obligations under this Lease. As used herein, the term (A) "LANDLORD'S FINANCING LENDER" shall also include any lender that refinances Landlord's Financing or makes a new loan to Landlord, subject to Section 10.2, and (B) "LANDLORD'S FINANCING" shall include all financing secured by liens covering all or any portion of the Premises which are permitted under the terms of this Lease including, without limitation, all new loans. Moreover, Landlord covenants that Tenant shall and may peaceably and quietly have, hold, occupy, use, and enjoy the Premises during the Term, and may exercise all of its rights hereunder, subject only to the provisions of this Lease and applicable governmental laws, rules, and regulations; and Landlord agrees to warrant and forever defend Tenant's right to such occupancy, use, and enjoyment and the title to the Premises against the claims of any and all persons whomsoever lawfully claim the same, or any part thereof, subject only to provisions of this Lease and all applicable governmental laws, rules, and regulations. Landlord's Financing Lender shall not be or become liable to Tenant as an assignee of Landlord's interest in this Lease until such time as such Landlord's Financing Lender, by foreclosure or other procedures, shall either acquire the rights and interests of Landlord under this Lease, and upon Landlord's Financing Lender's assigning such rights and interests to another party, Landlord's Financing Lender shall have no further such liability. To the extent that Tenant cures any defaults of Landlord under Landlord's Financing, Tenant shall receive a credit against the Base Rent due pursuant to Section 3.1 hereinabove in an amount equal to the amount advanced by Tenant to cure such defaults, together with interest at the Tenant's parent company's customary borrowing rate as may be in effect from time to time. Such credit shall be charged against the monthly Base Rent installments, commencing as of the first monthly rental payment due after the first of such advances, until such time as the entire amount of such credit is exhausted. Thereafter, Base Rent shall commence in amounts required in Section 3.1 hereinabove, including payment of any partial installment which may be due as a result of a credit to the final monthly credit which is less than the full monthly Base Rent due. SECTION 10.2 LANDLORD'S MORTGAGE. During the Term, none of Landlord's Financing may be modified or refinanced or any new loan made except in accordance with the following: (a) The total mortgage indebtedness and encumbrances of any type against the Premises after the proposed refinancing or modification or new loan of Landlord's Financing does not exceed eighty percent (80%) of the fair market value of the Premises or the loan balance in existence as of the effective date of this Lease, whichever is greater; and 19 25 (b) The effect of any such modification, refinancing or new loan does not result in an increase in principal and interest payable by Landlord during any Lease Year which exceeds Base Rent required to be paid by Tenant during any Lease Year. SECTION 10.3 REPRESENTATIONS OF LANDLORD. Landlord represents and warrants to Tenant as of the date of this Lease that: (a) The Premises are not subject to any prior lease, easement, adverse claim, or claims of parties in possession, whether or not shown by the public records, except as set forth on EXHIBIT B. (b) There is no pending or threatened condemnation action or agreement in lieu thereof which will or may affect the Premises or any part thereof in any respect whatsoever, except as noted in Section 8.5 hereinabove. (c) There is no action, suit or proceeding, including environmental, pending or threatened against or affecting the Premises or any part thereof. (d) The execution, delivery and performance of this Lease by Landlord has been duly authorized and this Lease is valid and enforceable against Landlord in accordance with its terms. (e) Landlord has no knowledge of any fact, action or proceeding, including environmental, whether actual, pending or threatened, which could result in the modification or termination of the present zoning classification of the Premises, or the termination of full free and adequate access to and from the Premises from all adjoining public highways and roads. (f) Landlord has not agreed to lease or convey or granted any rights with respect to or any part of the Premises or any interest therein to any other person or entity except as shown on EXHIBIT B. (g) The Premises are not subject to any restrictions (recorded or unrecorded), building and zoning laws or ordinances, or other laws, ordinances, rules, regulations and requirements of any Governmental Authority having jurisdiction which do or could prohibit the use of the Premises for the uses set forth in this Lease. (h) Landlord has not received any notice from any Governmental Authority having jurisdiction over the Premises requiring or specifying any work to be done to the Premises. (i) Landlord has no knowledge of any existing, threatened or contemplated action, circumstances or conditions (including but not limited to subsurface conditions) which would materially interfere with the development or use of the Premises for an automobile dealership. (j) As of the date hereof the Premises are, and on the Commencement Date the Premises will be in compliance in all material respects with all restrictive covenants and other restrictions applicable to the Premises and all applicable statutes, ordinances, rules and regulations (federal, state, county and municipal), including without limitation all zoning, environmental, building, health, subdivision regulations. Except as to matters relating to the presence of asbestos contained 20 26 in the Premises, if any, the representation and warranty set forth in this Subsection (j) shall not be applicable to the matters covered under Subsection (m) herein below. (k) The Premises have legal and physical public access to and from abutting roadways dedicated to and accepted by the State, City, or County where the Premises are located. (l) To the extent zoning regulations are applicable to the Premises, the Premises are zoned for use as an automobile dealership facility, for sale, trade, display, service and repair, painting, and other activities normally associated with a full service automobile dealership. (m) To the best of Landlord's knowledge, except as may otherwise be disclosed to Tenant in any written environmental audit report delivered to Tenant prior to the date of this Lease, no Hazardous Materials, pollutants or toxic substances have been placed, dumped, deposited or buried upon, in or under the Premises, there have been no leaks of petroleum, toxic or Hazardous Materials from any of the underground storage tank facilities and there is no contaminated soil, as defined by federal, state and/or local laws or regulations, in, upon or under the Premises by reason of any such wastes, pollutants, toxins, substances, or facilities. (n) The Premises have an assured water supply sufficient to permit the operations now being conducted thereon, and as contemplated in this Lease with respect to the Improvements to be constructed on the Land, to be conducted in accordance with all governmental requirements. (o) All dimensions in the description to the Premises are net of existing and proposed rights-of-way, easements and dedications except as set forth on EXHIBIT B. (p) The Premises are not located in a flood plain or a flood hazard area for which flood insurance would be required or for which flood insurance is available. (q) Landlord warrants and guarantees that on the Commencement Date the Premises and all appurtenances thereto, will comply with the building codes, fire, sanitary and safety regulations, ordinances and laws of the United States of America, city, county and state in which the Premises are located. Landlord further warrants and guarantees that at the commencement of this Lease, the Premises may be used for the purposes set out in this Lease without violating any such codes, regulations, ordinances, laws or any restrictive covenants running with the land. (r) Landlord warrants and guarantees that on the Commencement Date, the wiring, floors, plumbing, underground plumbing, heating, air conditioning equipment, roofs, outer walls, stairways, doors, windows, plate glass and sprinkler equipment of the Premises are each and every one in good repair and are adequate to furnish the proper service for which each was installed and the heating plant will heat and air conditioning will cool the buildings constituting part of the Premises in accordance with the generally accepted design temperatures for the city and state in which the Premises is located. (s) Landlord will have acquired, as of the Commencement Date all required occupancy permits and other licenses or permits required for the use and occupancy of the Premises. 21 27 ARTICLE 11 DEFAULT AND REMEDIES SECTION 11.1 DEFAULT. Each of the following shall be deemed a "DEFAULT" by Tenant hereunder and a material breach of this Lease: (a) Whenever Tenant shall fail to pay any sum payable by Tenant to Landlord or any third party under this Lease on the date upon which the same is due to be paid, and such default shall continue for ten (10) days after Tenant shall have been given a written notice specifying such default; (b) Whenever Tenant shall fail to keep, perform, or observe any of the covenants, agreements, terms, or provisions contained in this Lease that are to be kept or performed by Tenant other than with respect to payment of Rent or other liquidated sums of money, and Tenant shall fail to immediately commence and take such steps as are necessary to remedy the same within thirty (30) days after Tenant shall have been given a written notice specifying the same, or having so commenced, shall thereafter fail to proceed diligently and with continuity to remedy the same; (c) Whenever an involuntary petition shall be filed against Tenant under any bankruptcy or insolvency law or under the reorganization provisions of any law of like import or whenever a receiver of Tenant, or of all or substantially all of the property of Tenant, shall be appointed without acquiescence, and such petition or appointment is not discharged or stayed within sixty (60) days after the happening of such event; or (d) Whenever Tenant shall make an assignment of its property for the benefit of creditors or shall file a voluntary petition under any bankruptcy or insolvency law, or seek relief under any other law for the benefit of debtors. SECTION 11.2 REMEDIES. If a Default occurs, then subject to the rights of any Permitted Mortgagee as provided in Section 9, Landlord may at any time thereafter prior to the curing thereof and without waiving any other rights hereunder or available to Landlord at law or in equity (Landlord's rights being cumulative), do any one or more of the following: (a) Landlord may terminate this Lease by giving Tenant written notice thereof, in which event this Lease and the leasehold estate hereby created and all interest of Tenant and all parties claiming by, through, or under Tenant shall automatically terminate upon the effective date of such notice with the same force and effect and to the same extent as if the effective date of such notice were the day originally fixed in Article 2 hereof for the expiration of the Term; and Landlord, its agents or representatives, shall have the right, without further demand or notice, to reenter and take possession of the Premises and remove all persons and property therefrom with or without process of law, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or existing breaches hereof. In the event of such termination, Tenant shall be liable to Landlord for damages in an amount equal to (A) the discounted present value of the amount by which the Rent reserved hereunder for the remainder of the existing Term (Initial or Renewal) exceeds the then net fair market rental value of the Premises for such period of time, plus (B) all expenses incurred by Landlord enforcing its rights hereunder. (b) Landlord may terminate Tenant's right to possession of the Premises and enjoyment of the rents, issues, and profits therefrom without terminating this Lease or the leasehold estate 22 28 created hereby, reenter and take possession of the Premises and remove all persons and property therefrom with or without process of law, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or existing breaches hereof, and lease, manage, and operate the Premises and collect the rents, issues, and profits therefrom all for the account of Tenant, and credit to the satisfaction of Tenant's obligations hereunder the net rental thus received (after deducting therefrom all reasonable costs and expenses of repossessing, leasing, managing, and operating the Premises). If the net rental so received by Landlord exceeds the amounts necessary to satisfy all of Tenant's obligations under this Lease, Landlord shall retain such excess. In no event shall Landlord be liable for failure to so lease, manage, or operate the Premises or collect the rentals due under any subleases and any such failure shall not reduce Tenant's liability hereunder. If Landlord elects to proceed under this Section 11.2(2), it may at any time thereafter elect to terminate this Lease as provided in Section 11.2(1). ARTICLE 12 MISCELLANEOUS SECTION 12.1 NOTICES. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be in writing and shall be deemed to have been validly given or served by (a) delivery of the same in person to the intended addressee, (b) by depositing the same with Federal Express or another reputable private courier service for next business day delivery to the intended addressee at its address set forth on the first page of this Agreement or at such other address as may be designated by such party as herein provided, (c) by facsimile copy transmission [confirmation sheet indicating transmission to be retained] or (d) by depositing the same in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the intended addressee at its address set forth below or at such other address as may be designated by such party as herein provided. All notices, demands and requests shall be effective upon such personal delivery upon actual receipt, or one (1) business day after being deposited with the private courier service, or two (2) business days after being deposited in the United States mail as required above. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other party hereto at least fifteen (15) days' prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America. For purposes of notice the addresses of the parties hereto shall, until changed, be as follows: Landlord: World Partner Enterprises, Ltd. 3101 N. State Road 7 Hollywood, FL 33021 Facsimile: (954) 964-4760 Tenant: Koons Ford, Inc. Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, Texas 77024 Attention: John Turner Facsimile: (713) 627-6468 23 29 The parties hereto shall have the right from time to time to change their respective addresses for purposes of notice hereunder to any other location within the United States by giving a notice to such effect in accordance with the provisions of this Section 12.1. SECTION 12.2 PERFORMANCE OF OTHER PARTY'S OBLIGATIONS. If either party hereto fails to perform or observe any of its covenants, agreements, or obligations hereunder for a period of thirty (30) days after notice of such failure is given by the other party, then the other party shall have the right, but not the obligation, at its sole election but not as its exclusive remedy), to perform or observe the covenants, agreements, or obligations which are asserted to have not been performed or observed at the expense of the failing party and to recover all costs or expenses incurred in connection therewith, together with interest thereon from the date expended until repaid at an annual rate ("DEFAULT RATE") equal to the lesser of (a) three (3) percent above the prime rate of interest established from time to time by NationsBank (or a comparable rate of interest if such rate is not in effect) or (b) the maximum rate of interest permitted by applicable law. Any performance or observance by a party pursuant to this Section 12.2 shall not constitute a waiver of the other party's failure to perform or observe. SECTION 12.3 MODIFICATION AND NON-WAIVER. No variations, modifications, or changes herein or hereof shall be binding upon any party hereto unless set forth in a writing executed by it or by a duly authorized officer or agent. No waiver by either party of any breach or default of any term, condition, or provision hereof, including without limitation the acceptance by Landlord of any Rent at any time or in any manner other than as herein provided, shall be deemed a waiver of any other or subsequent breaches or defaults of any kind, character, or description under any circumstance. No waiver of any breach or default of any term, condition, or provision hereof shall be implied from any action of any party, and any such waiver, to be effective, shall be set out in a written instrument signed by the waiving party. SECTION 12.4 GOVERNING LAW. This Lease shall be construed and enforced in accordance with the laws of the state in which the Premises are located. SECTION 12.5 NUMBER AND GENDER; CAPTIONS; REFERENCES. Pronouns, wherever used herein, and of whatever gender, shall include natural persons and corporations and associations of every kind and character, and the singular shall include the plural wherever and as often as may be appropriate. Article and Section headings in this Lease are for convenience of reference and shall not affect the construction or interpretation of this Lease. Whenever the terms "hereof," "hereby," "herein," or words of similar import are used in this Lease, they shall be construed as referring to this Lease in its entirety rather than to a particular Section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "Article" or "Section" shall be construed as referring to the indicated Article or Section of this Lease. SECTION 12.6 CPI. "CPI" shall mean the Consumer Price Index for All Urban Consumers, All Items (Base Year 1982-84 = 100) published by the United States Department of Labor, Bureau of Labor Statistics. If the 1982-84 Base Year shall no longer be used as an index of 24 30 100, the revised index which would produce results equivalent, as nearly as possible to those which would be obtained hereunder if the CPI were not so revised. SECTION 12.7 ESTOPPEL CERTIFICATE. Landlord and Tenant shall execute and deliver to each other, promptly upon any request therefor by the other party, a certificate addressed as indicated by the requesting party and stating: (a) whether or not this Lease is in full force and effect; (b) whether or not this Lease has been modified or amended in any respect, and submitting copies of such modifications or amendments; (c) whether or not there are any existing defaults hereunder known to the party executing the certificate, and specifying the nature thereof; (d) whether or not any particular Article, Section, or provision of this Lease has been complied with; and (e) such other matters as may be reasonably requested. SECTION 12.8 SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, and the basis of the bargain between the parties hereto is not destroyed or rendered ineffective thereby, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. SECTION 12.9 ATTORNEY FEES. If litigation is ever instituted by either party hereto to enforce, or to seek damages for the breach of, any provision hereof, the prevailing party therein shall be promptly reimbursed by the other party for all attorneys' fees reasonably incurred by the prevailing party in connection with such litigation, including all trial and appellate levels. SECTION 12.10 SURRENDER OF PREMISES; HOLDING OVER. Upon termination or the expiration of this Lease, Tenant shall peaceably quit, deliver up, and surrender the Premises. If Tenant does not surrender possession of the Premises at the end of the Term, such action shall not extend the Term, Tenant shall be a tenant at sufferance, and during such time of occupancy Tenant shall pay to Landlord, as damages, an amount equal to twice the amount of Rent that was being paid immediately prior to the end of the Term. Landlord shall not be deemed to have accepted a surrender of the Premises by Tenant, or to have extended the Term, other than by execution of a written agreement specifically so stating. SECTION 12.11 RELATION OF PARTIES. It is the intention of Landlord and Tenant to hereby create the relationship of landlord and tenant, and no other relationship whatsoever is hereby created. Nothing in this Lease shall be construed to make Landlord and Tenant partners or joint venturer or to render either party hereto liable for any obligation of the other. SECTION 12.12 FORCE MAJEURE. As used herein "FORCE MAJEURE" means the occurrence of any event whereby Landlord or Tenant shall be delayed or prevented from the performance of any act required hereunder by reason of acts of God, strikes, lockouts, labor troubles, failure or refusal of governmental authorities or agencies to timely issue permits or approvals or conduct reviews or inspections, civil disorder, 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). If Tenant or Landlord shall be delayed, hindered, or prevented from performance of any of its obligations by reason of Force Majeure, the time for performance of such 25 31 obligation shall be extended for the period of such delay. In no event shall this provision pertain to any monetary obligations set forth in this Lease including payment of Rent from Tenant to Landlord. SECTION 12.13 NON-MERGER. Notwithstanding the fact that fee title to the land and to the leasehold estate hereby created may, at any time, be held by the same party, there shall be no merger of the leasehold estate hereby created unless the owner thereof executes and files for record in the appropriate real property records a document expressly providing for the merger of such estates. SECTION 12.14 ENTIRETIES. This Lease constitutes the entire agreement of the parties hereto with respect to its subject matter, and all prior agreements with respect thereto are merged herein. Any agreements entered into between Landlord and Tenant of even date herewith are not, however, merged herein. SECTION 12.15 RECORDATION. Landlord and Tenant will, at the request of the other, promptly execute an instrument in recordable form constituting a short form of this Lease, which shall be filed for record in the appropriate real property records, or at the request of either party this Lease shall be so filed for record. SECTION 12.16 SUCCESSORS AND ASSIGNS. This Lease shall constitute a real right and covenant running with the Premises, and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Whenever a reference is made herein to either party, such reference shall include the party's successors and assigns. SECTION 12.17 LANDLORD'S JOINDER. Landlord agrees to join with Tenant in the execution of such applications for permits and licenses from any Governmental Authority as may be reasonably necessary or appropriate to effectuate the intents and purposes of this Lease, provided that Landlord shall not incur or become liable for any obligation as a result thereof. SECTION 12.18 NO THIRD PARTIES BENEFITTED. Except as herein specifically and expressly otherwise provided with regard to notices and opportunities to cure defaults and certain enumerated rights granted to Permitted Mortgagees, the terms and provisions of this Lease are for the sole benefit of Landlord and Tenant, and no third party whatsoever, is intended to benefit herefrom. SECTION 12.19 SURVIVAL. Any terms and provisions of this Lease pertaining to rights, duties, or liabilities extending beyond the expiration or termination of this Lease shall survive the end of the Term. SECTION 12.20 PERPETUITIES. To the extent that the rule against perpetuities is applicable thereto, but not otherwise, the rights granted to Tenant in Article 13 hereof shall expire upon the earlier to occur of (a) the date set forth for expiration of such rights in said Article 13 or (b) the date which is 21 years after the date of death of the last to die of the following parties: the last grandchild to survive of the presently living grandchildren of George Bush, former President of the United States of America. 26 32 SECTION 12.21 TRANSFER OF LANDLORD'S INTEREST. Subject to the terms of the Landlord's Financing, Landlord may freely transfer and/or mortgage its interest in the Premises and under this Lease from time to time and at any time, provided that any such transfer or mortgage is expressly made subject to the terms, provisions, and conditions of this Lease, including specifically but without limitation Tenant's rights under Article 13, and the transferee or mortgagee agrees to be bound by the provisions hereof (in the case of a mortgagee, such agreement being contingent upon the mortgagee actually succeeding to the Landlord's interest in the Premises and hereunder by virtue of a foreclosure or conveyance in lieu thereof). SECTION 12.22 TENANT'S RIGHT TO ASSIGN. Tenant may assign its rights hereunder or sublease all or a portion of the Premises with Landlord's prior written approval, which approval will not be unreasonably withheld. provided that Tenant shall remain liable for all liabilities and obligations arising under this Lease. An assignment by Tenant to an affiliate under common control as that of the herein Tenant shall be deemed by Landlord to be approved. Tenant acknowledges that Landlord's approval may require the consent and/or joinder of Landlord's Financing Lender. SECTION 12.23 PAST DUE AMOUNTS. All amounts required to be paid by Tenant or Landlord under the terms and provisions of this Lease shall bear interest at the Default Rate from the date due until paid. SECTION 12.24 INDEPENDENT COUNSEL. Landlord and Tenant declare that each has had independent legal advice by counsel of their own selection; that each fully understands the facts and has been fully informed of all legal rights or liabilities; that after such advice or knowledge, each believes the Lease to be fair, just, reasonable and that each signs the Lease freely and voluntarily. SECTION 12.25 COOPERATION WITH LANDLORD'S LENDER. Tenant agrees to cooperate with any Lender utilized by Landlord relative to financing associated with this Lease and Improvements located upon the Premises, should such Lender request reasonable modifications to this Lease provided such modifications do not adversely diminish or otherwise modify the obligations of Landlord under this Lease or affect the rights of the Tenant granted under this Lease or create additional liability or obligations for Tenant beyond Tenant's current liability and obligations under this Lease. ARTICLE 13 OPTION TO PURCHASE PREMISES SECTION 13.1 RIGHT OF FIRST REFUSAL. (a) If Landlord shall receive a bona fide offer to purchase the Premises during the Term, then any contract which may be entered into between Landlord and a third party purchaser shall provide that the sale shall be subject to Tenant's right of refusal set forth in this Section 13.1. If Landlord shall receive such offer or execute such contract, Landlord shall send to Tenant a true and complete copy of the executed contract and the complete terms of the offer with Landlord's certification that it will accept the offer, and Tenant shall have the option, to be exercised within thirty (30) days after receipt thereof, to make a contract with Landlord on the same terms and 27 33 conditions set forth in such third party contract or offer. If Tenant, after receipt of the third party contract or the terms of the offer acceptable to Landlord, shall fail to exercise its option within the thirty (30) day period, Landlord shall have the right to conclude the proposed sale on the same terms as in the offer or contract originally forwarded to Tenant, provided the sale shall close within the timeframe set forth in the third party contract plus thirty (30) days. If the sale shall not close within said time frame plus thirty (30) days, Landlord shall repeat the procedure specified in this Section 13.1 before it can conclude any sale of the Premises. (b) Notwithstanding Tenant's failure to exercise its option, any sale of the Premises shall be subject to this Lease and Tenant's option to purchase the Premises and Tenant's right of first refusal shall remain in force and be binding on any party to the same extent as if said subsequent owner were Landlord herein, and said subsequent owner shall be required to do all of the things required of Landlord in this Lease prior to any such sale of the Premises. (c) If any third party contract or offer for the Premises shall include property other than the Premises, Tenant's right of first refusal shall, at its election, be either applicable to the entire property covered by such contract or offer, or applicable to the Premises only at a purchase price which shall be that part of the price offered by the third party, which the value of the Premises shall bear to the value of all the property included in such third party contract or offer. (d) Tenant's right to purchase shall not be extinguished, canceled or waived by Tenant failing to exercise its option as to any offer, contract or conveyance which is between Landlord and a related party, a nominee and his principal, or a sole shareholder and his corporation, or a corporation and its subsidiary or affiliate. SECTION 13.2 OPTION. (a) For and in consideration of the execution of this Lease by Tenant and the sum of Ten Dollars ($10.00), Tenant shall have the option to purchase the Premises at any time during the Term (including any extensions thereof), without premium or penalty, for the Purchase Price determined pursuant to this Section 13.2 (the "PURCHASE PRICE"), provided Landlord is given sixty (60) days written notice of Tenant's election to purchase and provided further that Tenant is not then in default under the terms of this Lease. (1) The purchase price of the Premises shall be determined by an appraisal conducted using an M.A.I. appraiser (or an appraiser having the same class of certification of an M.A.I. appraiser by the successor certification organization in the case that the designation of M.A.I. appraiser is changed or succeeded). The appraisal shall not take into consideration the Base Rent, terms or conditions of this Lease. The appraised value shall be reduced by the cost of any leasehold improvements made to the Premises by Tenant. (2) The Tenant, at its sole expense, shall obtain, and submit to Landlord, an appraisal of the fair market value of the Premises (the "FIRST APPRAISAL") from an M.A.I. appraiser (the "FIRST APPRAISER"), and if Landlord shall accept such appraisal, then such First Appraisal shall be the Purchase Price. 28 34 (3) If Landlord does not accept such First Appraisal, Landlord, at Landlord's sole expense shall obtain, and submit to Tenant, a second appraisal of the fair market value of the Premises (the "SECOND APPRAISAL") from an M.A.I. appraiser (the "SECOND APPRAISER"). If the numerical difference between the value of the First Appraisal and the value of the Second Appraisal is less than ten percent (10%) of the appraisal with the lower value, then the two appraisal values shall be averaged and that averaged value shall be the Purchase Price. (4) If the numerical difference between the value of the First Appraisal and the value of the Second Appraisal is equal to or greater than ten percent (10%) of the appraisal with the lower value, then the First Appraiser and the Second Appraiser shall choose a third M.A.I. appraiser (the "THIRD APPRAISER") who shall appraise the fair market value of the Premises (the "THIRD APPRAISAL"), and the three appraisal values shall be averaged and that averaged value shall be the Purchase Price. If the Third Appraisal is requested, the Landlord and Tenant shall each pay one-half (1/2) of the cost of such Third Appraisal. (b) In the event that the option herein granted shall be exercised as aforesaid, Landlord agrees to sell and Tenant agrees to purchase the Premises for the Purchase Price aforesaid and upon the following terms and conditions: (1) The Premises is to be conveyed at the time full payment of the Purchase Price is made by Tenant to Landlord (hereinafter called "CLOSING DATE"), but in no event later than three (3) months from the date of receipt of Tenant's notice of election, by general warranty deed conveying to Tenant or Tenant's nominee, title to the same, subject only to (i) the matters set forth in EXHIBIT B and other matters previously approved in writing by Tenant, (ii) any matters created by Tenant, and (iii) taxes and other Impositions assessed against the Premises or any part thereof but not yet due and payable, which charges, assessments, taxes and other Impositions shall be paid by Tenant; but free and clear of any mortgages, liens or encumbrances upon Landlord's interest. (2) For such deed and conveyance Tenant is to pay the Purchase Price in cash or by certified or bank check upon the delivery of such deed. (3) Full possession of the Premises is to be delivered to Tenant at the time of delivery of the deed. (4) The cost and expense of preparing the deed and any other documents relating to said conveyance and recording the same including title insurance premiums, Landlord's reasonable attorney's fees and real estate transfer taxes (including documentary stamps and sur-tax, if applicable), if any, shall be paid by Tenant. (5) The Rent provided for in this Lease shall be apportioned as of the Closing Date. (6) The recording of a deed after the expiration of the Term of this Lease, conveying the Premises to a third party and reciting that the option in this Article has expired and 29 35 has not been exercised shall be, as to all persons other than Tenant, conclusive evidence of such expiration and nonexercise. (c) Notwithstanding anything to the contrary contained herein Landlord may convey the Premises subject to the option herein granted; provided, however, that the Landlord has complied with the provisions of this Section 13.1 and the party to whom the Landlord conveys the Premises assumes in writing all of Landlord's obligations under this Lease. No such conveyance shall relieve the Landlord for liability for breach of representations as set forth in Article 10 of this Lease. (d) It is further understood and agreed that in the event Tenant gives written notice to Landlord sixty (60) days before the Expiration Date or the end of any Renewal Term, of Tenant's intention to purchase the Premises, the Term of this Lease then shall be extended until the payment to Landlord of the Purchase Price but in no event later than three (3) months therefrom. The Purchase Price shall be paid no later than the expiration of such three (3) month extension. In the event Tenant does not consummate the purchase pursuant to the terms and conditions of this Section 13.2, then the Tenant's options as set forth in this Section13.2 shall terminate. (e) Landlord will, at the request of Tenant, promptly execute an instrument in recordable form, reflecting Tenant's option to purchase the Premises, and may be part of the recorded instrument referred to in Section 12.15, pursuant to this Article 13, which shall be filed for record in the appropriate real property records. (f) In the event that such option shall not be exercised as aforesaid, Tenant shall, within ten (10) days upon demand of Landlord, deliver to Landlord an instrument in form suitable for recording and executed and acknowledged by Tenant whereby the option and all rights hereunder shall be released and discharged. SECTION 13.3 SPECIFIC PERFORMANCE. It is expressly agreed that the remedy at law for breach of any of the obligations set forth in this Article 13 is inadequate in view of the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of Landlord or Tenant to comply fully with each of such obligations. Accordingly, each of the aforesaid obligations shall be, and is hereby expressly made, enforceable by specific performance. ARTICLE 14 ARBITRATION SECTION 14.1 ARBITRATION PROVISIONS. EXCEPT AS TO TENANT'S EXERCISE OF REASONABLE JUDGMENT PURSUANT TO SECTION 8.5 OF THIS LEASE, ANY CONTROVERSY OR CLAIM BETWEEN THE PARTES HERETO RELATING TO THIS LEASE, INCLUDING, WITHOUT LIMITATION, ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN THE COUNTY AND STATE WHERE THE PREMISES ARE LOCATED. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT 30 36 HAVING JURISDICTION. EXCEPT AS TO TENANT'S EXERCISE OF REASONABLE JUDGMENT PURSUANT TO SECTION 8.5 OF THIS LEASE, ANY PARTY TO THIS LEASE MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS LEASE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. ALL STATUTES OF LIMITATIONS THAT WOULD OTHERWISE BE APPLICABLE SHALL) APPLY TO ANY DISPUTES ASSERTED IN ANY ARBITRATION PROCEEDING HEREOF. THE ARBITRATORS SHALL HAVE THE RIGHT, TO AWARD COUNSEL FEES TO ANY PARTY, TO GRANT TEMPORARY OR PERMANENT INJUNCTIVE RELIEF, AND TO REQUIRE SPECIFIC PERFORMANCE. THE PARTIES SPECIFICALLY AGREE THAT THE ARBITRATORS MAY NOT AWARD AND THE PARTIES WAIVE ANY RIGHT TO ANY EXEMPLARY OR PUNITIVE DAMAGES. THE DECISION OR AWARD IN THE ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING UPON EACH OF THE PARTIES AND JUDGMENT ON SUCH AWARD OR DECISION MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. THE PARTIES BY EXECUTION OF THE LEASE AND INITIALING THIS PROVISION REPRESENT THAT THEY WERE GIVEN FULL AND COMPLETE OPPORTUNITY TO REVIEW SAME WITH COUNSEL OF THEIR CHOOSING AND THEY HAVE READ AND SIGNED SAME AS THEIR FREE AND VOLUNTARY ACT AND DEED. ARTICLE 15 SUBORDINATION AND ATTORNMENT SECTION 15.1 SUBORDINATION. This Lease and all rights of Tenant hereunder are and shall be subject and subordinate in all respects to all mortgages encumbering Landlord's interest in the Premises as permitted in the Lease (the "SUPERIOR MORTGAGE"). The provisions of this Section 15.1 shall be self-operative and no further instrument of subordination shall be required. If any Requesting Party shall seek confirmation of such subordination, Tenant shall promptly execute and deliver, at its own cost and expense, an instrument, in recordable form, to evidence such subordination; if Tenant fails to execute, acknowledge or deliver any such instrument within ten (10) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver any such instruments for and on behalf of Tenant. However, nothing herein withstanding to the contrary, the foregoing provisions shall not be effective until the Landlord shall have delivered to Tenant a Non-Disturbance Agreement, in the form required under Section 10.1, executed by each Landlord's Financing Lender and each mortgagee and holder of a Superior Mortgage. SECTION 15.2 ATTORNMENT. If, at any time prior to the termination of this Lease, the holder of a Superior Mortgage, or its successors or assigns, (herein collectively called the "SUPERIOR MORTGAGEE") who acquire the interest of Landlord under this Lease through foreclosure action or 31 37 a transfer-in-lieu thereof, whereby the Superior Mortgagee succeeds to the rights of Landlord under this Lease through possession or foreclosure or delivery of a new lease or deed or otherwise, Tenant agrees, at the election and upon request of any such party (hereinafter called the "SUCCESSOR LANDLORD") to attorn fully and completely from time to time, and to recognize any such Successor Landlord as Tenant's landlord under this Lease upon the executory terms of this Lease. Provided Tenant is not in default under the terms of this Lease, such Successor Landlord shall agree in writing to accept Tenant's attornment. The foregoing provisions of this Section 15.2 shall inure to the benefit of any such Successor Landlord and any successor or assign of Tenant. Tenant, upon demand of any such Successor Landlord, agrees to execute any instruments to evidence and confirm the foregoing provisions of this Section 15.2, reasonably satisfactory to any such Successor Landlord, acknowledging such attornment and setting forth the terms and conditions of its tenancy. SECTION 15.3 RADON GAS DISCLOSURE. Radon Gas: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in the buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. EXECUTED as of the date and year first above written. "LANDLORD" WORLD PARTNER ENTERPRISES, LTD., A FLORIDA LIMITED PARTNERSHIP, BY: /s/ JAMES S. CARROLL ------------------------------------------------ NAME: JAMES S. CARROLL, PRESIDENT OF J.C. CORP. OF SOUTH FLORIDA, AS GENERAL PARTNER OF CARROLL FAMILY ENTERPRISES, LTD., A FLORIDA LIMITED PARTNERSHIP, THE GENERAL PARTNER "TENANT" KOONS FORD, INC., A FLORIDA CORPORATION BY: /s/ JAMES S. CARROLL ------------------------------------------------ NAME: JAMES S. CARROLL TITLE: PRESIDENT 32 38 LEASE AGREEMENT EXHIBIT A DESCRIPTION OF LAND HOLLYWOOD AND DOUGLAS PLAT, according to the Plat thereof as recorded in Plat Book 159, Page 3 of the Public Records of Broward County, Florida. 33 39 LEASE AGREEMENT EXHIBIT B EXCEPTIONS TO TITLE TO LAND 40 LEASE AGREEMENT EXHIBIT C METHOD FOR DETERMINATION OF INITIAL BASE RENT IN SECTION 3.1 The initial Monthly Base Rent due pursuant to Section 3.1 shall be equal to One Hundred Twentieth (120th) of the final cost (the "COST") of the acquisition of the Land, Improvements, carrying costs (which have been approved by Tenant) including but limited to mortgage interest, impact fees, professional fees and site plan expenses. A final determination as to the above amount shall be made by the Landlord prior to the Commencement Date. As of the date of the execution of this Lease, the Landlord approximates that the Cost is approximately $20,000,000.00, which consists of the following: 1. Carry cost down payment $2,700,000.00 2. Cost of Land and mitigation $7,100,000.00 3. Cost of Improvements $12,000,000.00 The above amounts are estimates only and are subject to adjustment, and Landlord shall provide Tenant prior to the Commencement Date, written evidence of each of the Components of the Cost from each of the parties to whom such sums were paid together with such other data verifying the Cost as may be reasonably required by Tenant. The Cost shall be certified in writing by the Landlord and Landlord's architect or certified public accountant, as being true and correct in a written instrument, in form and substance reasonably satisfactory to Tenant, delivered to Tenant on or before the Commencement Date. The Cost is subject to adjustment based upon required changes in the costs of the Improvements not originally contemplated. Any upward adjustment shall be subject to the Tenant's verification that the increased costs are reasonably necessary for the completion of the Improvements. ADVANCES PURSUANT TO SECTION 5.1 41 LEASE AGREEMENT EXHIBIT D DESCRIPTION OF LANDLORD'S WORK 42 LEASE AGREEMENT EXHIBIT E DESCRIPTION OF TENANT'S WORK EX-10.43 14 OPERATIONS/LEASE AGREEMENT - DATED 3/16/98 1 EXHIBIT 10.43 ================================================================================ OPERATIONS / LEASE AGREEMENT between KC PARTNERSHIP, A FLORIDA GENERAL PARTNERSHIP (Landlord) and PERIMETER FORD, INC., A DELAWARE CORPORATION (Tenant) Perimeter ================================================================================ LEASE AGREEMENT 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 LEASE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Parties Relationship and Property Interests . . . . 1 Section 1.2 Premises Leased . . . . . . . . . . . . . . . . . . 1 Section 1.3 Premises Defined . . . . . . . . . . . . . . . . . 1 Section 1.4 Habendum . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 TERM OF LEASE . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2.1 Initial Term and Commencement . . . . . . . . . . . 1 Section 2.2 Lease Year . . . . . . . . . . . . . . . . . . . . 2 Section 2.3 Lease Month . . . . . . . . . . . . . . . . . . . . 2 Section 2.4 Renewal Term . . . . . . . . . . . . . . . . . . . 2 ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 3.1 Base Rent . . . . . . . . . . . . . . . . . . . . . 2 Section 3.2 Additional Rent and Rent . . . . . . . . . . . . . 3 Section 3.3 Payment of Rent . . . . . . . . . . . . . . . . . . 3 Section 3.4 Late Charge . . . . . . . . . . . . . . . . . . . . 3 Section 3.5 Adjustment to Rent for Ford Improvements . . . . . 3 ARTICLE 4 TAXES; UTILITIES . . . . . . . . . . . . . . . . . . . . . . 3 Section 4.1 Impositions Defined . . . . . . . . . . . . . . . . 3 Section 4.2 Tenant's Obligations . . . . . . . . . . . . . . . 3 Section 4.3 Tax Contest . . . . . . . . . . . . . . . . . . . . 4 Section 4.4 Evidence Concerning Impositions . . . . . . . . . . 4 Section 4.5 Utilities . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 5 IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 5.1 Alterations . . . . . . . . . . . . . . . . . . . . 4 Section 5.2 Mechanic's and Materialmen's Liens . . . . . . . . 4 Section 5.3 Ownership of Improvements . . . . . . . . . . . . . 5 Section 5.4 Asbestos . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 6 USE, ENVIRONMENTAL, MAINTENANCE, AND REPAIRS . . . . . . . . 5 Section 6.1 Use . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 6.2 Environmental . . . . . . . . . . . . . . . . . . . 6 Section 6.3 Maintenance and Repairs . . . . . . . . . . . . . . 9 Section 6.4 Americans with Disabilities Act . . . . . . . . . . 10 ARTICLE 7 INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . . 10 Section 7.1 Building Insurance . . . . . . . . . . . . . . . . 10 Section 7.2 Liability Insurance . . . . . . . . . . . . . . . . 11 Section 7.3 Policies . . . . . . . . . . . . . . . . . . . . . 11
ii 3 Section 7.4 Tenant's Indemnity . . . . . . . . . . . . . . . . 11 Section 7.5 Landlord's Indemnity . . . . . . . . . . . . . . . 11 Section 7.6 Subrogation . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 8 CASUALTY; CONDEMNATION; SURVIVAL OF LEASE . . . . . . . . . 12 Section 8.1 Tenant's Obligation to Restore . . . . . . . . . . 12 Section 8.2 Restoration and Deposit of Funds . . . . . . . . . 13 Section 8.3 Notice of Damage . . . . . . . . . . . . . . . . . 15 Section 8.4 Total Taking . . . . . . . . . . . . . . . . . . . 15 Section 8.5 Partial Taking . . . . . . . . . . . . . . . . . . 15 Section 8.6 Temporary Taking . . . . . . . . . . . . . . . . . 15 Section 8.7 Notice of Taking, Cooperation . . . . . . . . . . . 15 Section 8.8 Survival of Operations / Lease Agreement Upon Termination of Ford Leases . . . . . . . . . . . . 16 ARTICLE 9 TENANT'S FINANCING . . . . . . . . . . . . . . . . . . . . . 16 Section 9.1 Tenant's Right to Encumber . . . . . . . . . . . . 16 Section 9.2 Tenant's Mortgage . . . . . . . . . . . . . . . . . 16 ARTICLE 10 WARRANTY OF TITLE AND PEACEFUL POSSESSION . . . . . . . . . 17 Section 10.1 Warranty As to Encumbrances . . . . . . . . . . . . 17 Section 10.2 Landlord's Mortgage . . . . . . . . . . . . . . . . 18 Section 10.3 Representations of Landlord . . . . . . . . . . . . 18 ARTICLE 11 DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . 20 Section 11.1 Default . . . . . . . . . . . . . . . . . . . . . . 20 Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 22 Section 12.1 Notices. . . . . . . . . . . . . . . . . . . . . . 22 Section 12.2 Performance of Other Party's Obligations . . . . . 22 Section 12.3 Modification and Non-Waiver . . . . . . . . . . . . 23 Section 12.4 Governing Law . . . . . . . . . . . . . . . . . . . 23 Section 12.5 Number and Gender; Captions; References . . . . . . 23 Section 12.6 CPI . . . . . . . . . . . . . . . . . . . . . . . 23 Section 12.7 Estoppel Certificate . . . . . . . . . . . . . . . 23 Section 12.8 Severability . . . . . . . . . . . . . . . . . . . 24 Section 12.9 Attorney Fees . . . . . . . . . . . . . . . . . . . 24 Section 12.10 Surrender of Premises; Holding Over . . . . . . . 24 Section 12.11 Relation of Parties . . . . . . . . . . . . . . . 24 Section 12.12 Force Majeure . . . . . . . . . . . . . . . . . . 24 Section 12.13 Non-Merger . . . . . . . . . . . . . . . . . . . . 24 Section 12.14 Entireties . . . . . . . . . . . . . . . . . . . . 24 Section 12.15 Recordation . . . . . . . . . . . . . . . . . . . 25 Section 12.16 Successors and Assigns . . . . . . . . . . . . . . 25 Section 12.17 Landlord's Joinder . . . . . . . . . . . . . . . . 25 Section 12.18 No Third Parties Benefitted . . . . . . . . . . . 25
iii 4 Section 12.19 Survival . . . . . . . . . . . . . . . . . . . . . 25 Section 12.20 Perpetuities . . . . . . . . . . . . . . . . . . . 25 Section 12.21 Transfer of Landlord's Interest . . . . . . . . . 25 Section 12.22 Tenant's Right To Assign . . . . . . . . . . . . . 25 Section 12.23 Past Due Amounts . . . . . . . . . . . . . . . . . 26 Section 12.24 Independent Counsel . . . . . . . . . . . . . . . 26 Section 12.25 Cooperation with Landlord's Lender. . . . . . . . 26 ARTICLE 13 OPTION TO PURCHASE PREMISES . . . . . . . . . . . . . . . . 26 Section 13.1 Right of First Refusal . . . . . . . . . . . . . . 26 Section 13.2 Option . . . . . . . . . . . . . . . . . . . . . . 27 Section 13.3 Specific Performance . . . . . . . . . . . . . . . 29 ARTICLE 14 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 14.1 Arbitration Provisions . . . . . . . . . . . . . . 29 ARTICLE 15 SUBORDINATION AND ATTORNMENT . . . . . . . . . . . . . . . . 30 Section 15.1 Subordination . . . . . . . . . . . . . . . . . . . 30 Section 15.2 Attornment . . . . . . . . . . . . . . . . . . . . 30
iv 5 EXHIBITS EXHIBIT A Description of Land EXHIBIT B Exceptions to Title to Land v 6 OPERATIONS / LEASE AGREEMENT This Operations / Lease Agreement ("LEASE") is entered into as of the 16th day of March, 1998, between KC PARTNERSHIP, A FLORIDA GENERAL PARTNERSHIP as ("LANDLORD"), and PERIMETER FORD, INC., a Delaware corporation ("TENANT"). ARTICLE 1 LEASE OF PROPERTY SECTION 1.1 PARTIES RELATIONSHIP AND PROPERTY INTERESTS. Landlord is the owner of the real property subject to this Lease and as hereinafter defined in Section 1.2. By instrument entitled "LEASE AGREEMENT" Owner leased the Premises to Ford Leasing Development Company (the "MAIN LEASE"). A "SHORT FORM LEASE" regarding the Main Lease was recorded at Deed Book 10561, Page 435, Public Records of Fulton County, Georgia (the "MAIN LEASE NOTICE"). Ford Leasing Development Company ("FORD LEASING") has entered into a Sublease Agreement (the "FORD SUBLEASE") wherein Ford Leasing has subleased the Premises to Tenant. The Main Lease and Ford Sublease do not set forth numerous provisions which more particularly define the rights and obligations of the herein Landlord and Tenant. Landlord and Tenant, by execution of this Lease hereby memorialize such rights and obligations. Except as otherwise indicated herein and/or enumerated in a revised agreement being executed and pertaining to the Main Lease and Ford Sublease among the parties hereto, Comerica Bank, Perimeter Ford and Ford Leasing, the terms and conditions hereof shall prevail over the Sublease. For purposes of this Lease, the terms "LANDLORD" and "TENANT" shall define the parties hereto as, and the term sublease and/or lease shall symbolize the agreement and the relationship of the parties, and except for the intervening provisions of any agreements entered into with Ford Leasing, the parties hereto are acting as landlord and tenant. SECTION 1.2 PREMISES LEASED. Landlord leases to Tenant, and Tenant leases from Landlord the real property and premises described on EXHIBIT A (the "LAND"), including but not limited to all of the rights, interests, estates, and appurtenances thereto, all improvements thereon, and all other rights, titles, interests, and estates, if any, in adjacent streets and roads. SECTION 1.3 PREMISES DEFINED. All of the Land, properties, rights, estates, appurtenances, and interests leased to Tenant pursuant to Section 1.2, together with all improvements now or hereafter constructed thereon, are hereinafter collectively referred to as the "PREMISES". SECTION 1.4 HABENDUM. To have and to hold the Premises, together with all and singular the rights, privileges, and appurtenances thereunto attaching or in anywise belonging, exclusively unto Tenant, its successors and assigns, upon the terms and conditions set forth herein and subject to the matters set forth on EXHIBIT B. ARTICLE 2 TERM OF LEASE SECTION 2.1 INITIAL TERM AND COMMENCEMENT. The initial term ("INITIAL TERM") of this Lease shall commence on the date hereof ("COMMENCEMENT DATE") and unless sooner terminated pursuant to the terms of this Lease, the initial term of this Lease shall expire on the "EXPIRATION DATE" (herein so called), which shall be (i) the last day of the one hundred twentieth (120th) Lease Month from and after the first day of the calendar month following the Commencement Date. 7 SECTION 2.2 LEASE YEAR. A "LEASE YEAR" shall mean a twelve (12) Lease Month period commencing with the first day of the calendar month following the Commencement Date or any anniversary date thereof. SECTION 2.3 LEASE MONTH. A "LEASE MONTH" shall mean a period of time during the term of this Lease commencing the first day of the calendar month and ending on the last day of the calendar month. The first Lease Month shall begin on the first day of the calendar month following the Commencement Date. SECTION 2.4 RENEWAL TERM. (a) If on the Expiration Date and the date Tenant notifies Landlord of its intention to renew the term of this Lease (as provided below), (i) Tenant has not been given notice of default under this Lease, based upon a Default as hereinafter defined, and (ii) this Lease is in full force and effect, then Tenant, shall have and may exercise an option to renew this Lease for four (4) additional terms (each, a "RENEWAL TERM") of five (5) years each, upon the same Rent (hereinafter defined), as adjusted pursuant to the terms of Section 3.1, and other terms and conditions contained in this Lease. Whenever used in this Lease, "TERM", unless modified or specifically noted otherwise in the applicable context, shall mean the Initial Term together with each Renewal Term to the extent Tenant has exercised any option with respect to any Renewal Term. (b) If Tenant desires to renew this Lease, Tenant must notify Landlord in writing of its intention to renew on or before the date which is at least six (6) months but no more than twelve (12) months prior to the Expiration Date or the expiration date of any Renewal Term, as the case may be. ARTICLE 3 RENT SECTION 3.1 BASE RENT. Subject to the terms and provisions contained in this Section 3.1, Tenant shall pay Landlord monthly "BASE RENT" (herein so called) of Fifty Seven Thousand Two Hundred Fifty and no/100 Dollars ($57,250.00), in advance on or before the first day of each Lease Month during the Term, subject to adjustment as hereafter provided. If the Term commences on a day other than the first day of a calendar month, or ends on a day other than the last day of a calendar month, then the Base Rent for such month shall be prorated on the basis of one thirtieth (1/30th) of the monthly Base Rent for each day of such month. If the CPI on any Adjustment Date shall be greater than the CPI for the Commencement Date, monthly Base Rent commencing on the Adjustment Date shall be adjusted to be the original monthly Base Rent specified in this Section 3.1 plus an amount equal to one-half (1/2) of the product obtained by multiplying: (i) the original monthly Base Rent specified in this Section 3.1 by (ii) the percentage increase in the CPI from the Commencement Date through the January 1st prior to the Adjustment Date. "ADJUSTMENT DATE" shall be the first day of the first Lease Month of each Renewal Term. The term "CPI" shall have the meaning specified therefor in Section 12.6. Tenant shall also pay at the same times and places as the rental installments such Georgia State Sales Tax, other such applicable taxes due on rentals and all other sums due hereunder either city, state, county or federal as may be in effect from time to time. 2 8 SECTION 3.2 ADDITIONAL RENT AND RENT. All amounts required to be paid by Tenant under the terms of this Lease, other than Base Rent, are herein from time to time collectively referred to as "ADDITIONAL RENT." Base Rent and Additional Rent are herein collectively referred to as "RENT." SECTION 3.3 PAYMENT OF RENT. Base Rent shall be payable to Landlord at the original or changed address of Landlord as set forth in Section 12.1 or to such other persons or at such other addresses in the United States of America as Landlord may designate from time to time in writing to Tenant; however, if Tenant receives notice of a default under the Landlord's Financing (defined below), then Tenant shall have the right, but not the obligation, to pay to Landlord's Financing Lender (defined below) any sums due and owing on such Landlord's Financing and all such payments by Tenant shall reduce the amount of Rent owing to Landlord. Additional Rent shall be paid as herein set forth. SECTION 3.4 LATE CHARGE. Any rent or other sum which is not paid within fifteen (15) days after the date due shall bear interest at the Default Rate from the date when the same is payable under the terms of this Lease until the same shall be paid. SECTION 3.5 ADJUSTMENT TO RENT FOR FORD IMPROVEMENTS. Landlord and Tenant recognize that Ford Leasing or its related entities ("FORD") may from time to time require that structural improvements to the Premises be made as a condition to the continuation of a Ford Dealership upon the Premises. In the event that Ford requires that such structural improvements be made to the Premises, Landlord shall, at its expense, construct such improvements. The Base Rent due pursuant to Section 3.1 hereinabove shall be increased by an amount equal to the costs of the improvements required by Ford, amortized over a fifteen (15) year period. The new Base Rent shall commence effective the next monthly period following the completion of the required improvements. ARTICLE 4 TAXES; UTILITIES SECTION 4.1 IMPOSITIONS DEFINED. "IMPOSITIONS" means all real estate and ad valorem taxes, and associated levies, including penalties levied for failure of Tenant to pay any of same in a timely manner, which shall or may during the Term be assessed, levied or imposed by any Governmental Authority (defined below) upon (a) the Premises or any part thereof, (b) the buildings or improvements now or hereafter comprising a part thereof, the appurtenances thereto or the sidewalks, streets, or vaults adjacent thereto. Impositions shall not include any income tax, capital levy, estate, succession, inheritance or transfer taxes, or similar tax of Landlord; any franchise tax imposed upon any owner of the fee of the Premises; or any income, profits, or revenue tax, assessment, or charge imposed upon the rent or other benefit received by Landlord under this Lease by any municipality, county, state, the United States of America, or any other governmental body, subdivision, agency, or authority (all of such foregoing governmental bodies are collectively referred to herein as "GOVERNMENTAL AUTHORITIES"). SECTION 4.2 TENANT'S OBLIGATIONS. During the Term, Tenant will pay all Impositions before they become delinquent. Impositions that are payable by Tenant for the tax year in which this Lease commences as well as during the year in which the Term ends shall be apportioned so that Tenant shall pay its share of the Impositions payable by Tenant for the portion of such Taxes allocable to the portion of such year occurring during the Term. Where any Imposition that Tenant is obligated to pay may be paid pursuant to law in installments, Tenant may pay such Imposition in installments as and when such 3 9 installments become due. Tenant shall, if so requested, deliver to Landlord evidence of payment of all Impositions Tenant is obligated to pay hereunder, concurrently with the making of such payment. SECTION 4.3 TAX CONTEST. Tenant may, at its expense, contest the validity or amount of any Imposition for which it is responsible, in which event the payment thereof may be deferred, as permitted by law, during the pendency of such contest, if diligently prosecuted. Landlord shall cooperate with Tenant in connection with any such contest but Landlord shall not be required to spend any sums or incur any liability in cooperating with Tenant. All taxes must be paid prior to the date they become delinquent. In the event that the property subject to this Agreement is encumbered by financing, the Tenant shall pay all taxes within the timeframe established by such lender. SECTION 4.4 EVIDENCE CONCERNING IMPOSITIONS. The certificate, advice, bill, or statement issued or given by the appropriate officials authorized by law to issue the same or to receive payment of any Imposition of the existence, nonpayment, or amount of such Imposition shall be prima facie evidence for all purposes of the existence, nonpayment, or amount of such Imposition. SECTION 4.5 UTILITIES. Tenant shall pay all charges for gas, electricity, light, heat, air conditioning, power, telephone, and other communication services, and all other utilities and similar services rendered or supplied to the Premises, and all water, refuse, sewer service charges, or other similar charges levied or charged against, or in connection with, the Premises. ARTICLE 5 IMPROVEMENTS SECTION 5.1 ALTERATIONS. At any time and from time to time during the Term, Tenant may perform such alteration, renovation, repair, refurbishment, and other work (herein such matters being collectively called the "ALTERATIONS") with regard to any Improvements as Tenant may elect. All buildings, structures, and other improvements located at any time on the Land are herein called the "IMPROVEMENTS." Any and all alterations, renovation, repair, refurbishment, or other work with regard thereto shall be performed, in accordance with the following "CONSTRUCTION STANDARDS" (herein so referenced): (i) All such construction or work shall be performed in a good and workmanlike manner in accordance with good industry practice for the type of work in question; (ii) All such construction or work shall be done in compliance with all applicable building codes, ordinances, and other laws or regulations of Governmental Authorities having jurisdiction; (iii) Tenant shall have obtained and shall maintain in force and effect the insurance coverage required in Article 7 with respect to the type of construction or work in question; (iv) After commencement, such construction or work shall be prosecuted with due diligence to its completion; and (v) With the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed and shall be deemed given if a request is not approved or denied within thirty (30) days after notice, no Alteration shall be made which (x) involves any material repairs or modifications to the structural portions of the Premises, or (y) would impair the market value, structural integrity or usefulness of the Premises for the purposes for which the same are presently being used. SECTION 5.2 MECHANIC'S AND MATERIALMEN'S LIENS. Tenant shall have no right, authority, or power to bind Landlord or any interest of Landlord in the Premises for any claim for labor or for material or for any other charge or expense incurred in construction of any Improvements or performing any alteration, renovation, repair, refurbishment, or other work with regard thereto, nor to render Landlord's 4 10 interest in the Premises liable for any lien or right of lien for any labor, materials, or other charge or expense incurred in connection therewith, and Tenant shall in no way be considered as the agent of Landlord in the construction, erection, or operation of any such Improvements. If any liens or claims for labor or materials supplied or claimed to have been supplied to the Premises shall be filed against the interest of the Landlord, Tenant shall promptly pay or bond such liens to Landlord's reasonable satisfaction or otherwise obtain the release or discharge thereof. SECTION 5.3 OWNERSHIP OF IMPROVEMENTS. During the Term all currently existing Improvements shall be solely the property of Landlord. All other Improvements created by Alterations which may be added by Tenant (which do not constitute replacements of existing Improvements) shall be the property of Tenant, but at the end of the Term, all then-existing Improvements shall be the property of Landlord. However, upon expiration or earlier termination of this Lease, Tenant shall have the right to remove all trade fixtures, movable equipment, furniture, furnishings and other personal property located in the Premises and other items not permanently attached to the Premises provided that Tenant repairs any damages caused by the removal of such items. Nothing hereinabove withstanding to the contrary, any lifts or hydraulics installed upon the Premises by Tenant, whether as an original installation or replacement, shall remain on the Premises and shall become the property of the Landlord upon the expiration or termination of this Lease. SECTION 5.4 ASBESTOS. Landlord shall remain fully liable and responsible for any asbestos and other Hazardous Substances as hereinafter defined present on any portion of the Premises prior to the date of this Lease even if such asbestos is in an unfriable or undisturbed state on the date of this Lease and Tenant thereafter disturbs such materials in any manner including, without limitation, in connection with any Alterations performed by Tenant on the Premises. If Tenant intentionally disturbs or causes to be disturbed by any contractor or other party any asbestos presently located on the Premises of which Tenant has actual knowledge, then any such disturbance of such asbestos shall only be done in accordance with all laws, regulations, ordinances, or requirements of any Governmental Authority having jurisdiction in the Premises including, without limitation, those which govern the disposition of Hazardous Substances. Any expenses associated with correction of such disturbance caused by the Tenant or its contractors shall be borne by the Tenant. ARTICLE 6 USE, ENVIRONMENTAL, MAINTENANCE, AND REPAIRS SECTION 6.1 USE. Subject to the terms and provisions hereof, Tenant may use and enjoy the Premises for the sale, lease, trade, repair or service of motor or other vehicles and other uses normally associated therewith including, without limitation, the sale of parts and services. Without limiting the generality of the foregoing, the provisions relating to use of the Premises shall be broadly construed to encompass all uses normally associated with premises occupied by automobile, boat and recreational vehicle dealerships. Tenant shall not use or occupy, permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises in a manner which would constitute a public or private nuisance, or which would violate any laws, regulations, ordinances, or requirements of any Governmental Authority having jurisdiction in the Premises including, without limitation, those which relate to Hazardous Substances. 5 11 SECTION 6.2 ENVIRONMENTAL. (a) For purposes of this Lease, the term "HAZARDOUS SUBSTANCE" means (i) any substance, product, waste or other material of any nature whatsoever which is or becomes listed, regulated, or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. ("CERCLA"); the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. ("RCRA"); the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Water Act, 33 U.S.C. Section 1251 et seq.; the Federal Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Federal Clean Water Act, 33 U.S.C. Section 1151 et seq.; the National Environmental Policy Act, 42 U.S.C. Section 1857 et seq.; the Regulations of the Environmental Protection Agency, 33 C.F.R. and 40 C.F.R.; applicable state, county and city codes and statues or any other federal, state or local statute, law, ordinance, resolution, 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, (ii) any substance, product, waste or other material of any nature whatsoever which may give rise to liability under any of the above statutes or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decisions of a state or federal court, (iii) petroleum or crude oil other than petroleum and petroleum products which are contained within regularly operated motor vehicles, and (iv) asbestos. (b) Tenant represents, warrants, acknowledges and agrees that: (i) Subject to the terms and provisions of this Lease, Tenant will not undertake, permit, authorize or suffer, the manufacture, handling, generation, transportation, storage, treatment, discharge, release, burial or disposal on, under or about the Premises of any Hazardous Substance, or the transportation to or from the Premises of any Hazardous Substance; (ii) Tenant will not cause, permit, authorize or suffer any Hazardous Substance to be placed, held, located or disposed of, on, under or about any other real property all or any portion of which is legally or beneficially owned (or any interest or estate therein which is owned) by the Tenant in any jurisdiction now or hereafter having in effect a so-called "Superlien" law or ordinance or any part thereof the effect of which law or ordinance would be to create a lien on the Premises to secure any obligation in connection with the real property in such other jurisdiction. (c) From and after the Commencement Date, Tenant shall keep and maintain the Premises in compliance with, and shall not cause or permit the Premises to be in violation of, any federal, state or local laws, ordinances or regulations relating to health and safety, industrial hygiene or to the environmental conditions on, under or about the Premises including, but not limited to, air, soil and ground water conditions. Tenant hereby covenants and agrees that neither it nor any agent, servant, employee, or tenant shall generate, manufacture, handle, store, treat, discharge, release, bury or dispose of on, under or about the Premises, any Hazardous Substance. Without limiting the generality of the foregoing provisions of this Subsection, Tenant agrees at all times to comply fully and in a timely manner with, and to cause all of its employees, agents, contractors, subcontractors, tenants and any other persons occupying or present on the Premises to so comply with, all federal, state and local laws, regulations, guidelines, codes, statutes and ordinances applicable to the generation, manufacture, handling, storage, treatment, discharge, release, burial or disposal of any Hazardous Substance located or present on, under or about the Premises by, through or under Tenant after the Commencement Date, or the transportation to or from the Premises of any Hazardous Substance. Any sublease executed after the date hereof concerning the Premises shall contain a provision prohibiting 6 12 the lessee, and any agent, servant, employee or tenant of the lessee, from generating, manufacturing, storing, treating, discharging, releasing, burying or disposing on, under or about the Premises, or transporting to or from the Premises, any Hazardous Substance. (d) If the release, threat of release, placement on, under or about the Premises, or the use, generation, manufacture, storage, treatment, discharge, release, burial or disposal on, under or about the Premises, or transportation to or from the Premises, of any Hazardous Substance: (i) gives rise to liability, costs or damages (including, but not limited to, a response action, remedial action, or removal action) under RCRA, CERCLA, the State Toxic Substances Laws, or any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decision of a state or federal court, (ii) causes or threatens to cause a significant public health effect, or (iii) pollutes or threatens to pollute the environment, the Tenant shall promptly take any and all response, remedial and removal action necessary to clean up the Premises and any other effected property and mitigate exposure to liability arising from the Hazardous Substance, if required by law or by any governmental authority. (e) Tenant shall indemnify, defend with counsel reasonably satisfactory to Landlord, protect and hold harmless Landlord, its directors, officers, employees, agents, assigns and any successor or successors to Landlord's interest under this Lease from and against all claims, actual damages (including but not limited to special and consequential damages), punitive damages, injuries, costs, response costs, losses, demands, debts, liens, liabilities, causes of action, suits, legal or administrative proceedings, interest, fines, charges, penalties and expenses (including but not limited to attorneys' and expert witness fees and costs incurred in connection with defending against any of the foregoing or in enforcing this indemnity) of any kind whatsoever paid, incurred or suffered by, or asserted against, any indemnified party at any time prior to any retaking of the Premises by Landlord directly or indirectly arising from or attributable to (i) any breach by Tenant of any of its agreements, warranties or representations set forth in this Section 6.2, or (ii) any repair, cleanup or detoxification, or preparation and implementation of any removal, remedial, response, closure or other plan concerning any Hazardous Substance which arises on, under or about the Premises after the Commencement Date and is attributable to Tenant and not to Landlord or any other party not under the control, employed by, contracted with or affiliated with Tenant, regardless of whether undertaken due to governmental action. Without limiting the generality of the foregoing indemnity, such indemnity is intended to operate as an agreement pursuant to Section 107 (e) of CERCLA, 42 U.S.C. Section 9607(e), to insure, protect, hold harmless and indemnify Landlord for any liability pursuant to such statute, to the extent Tenant is liable pursuant to this Section 6.2. (f) Tenant shall promptly give Landlord (i) a copy of any notice, correspondence or information it receives from any federal, state or other governmental authority regarding Hazardous Substances on, under or about the Premises or Hazardous Substances which affect or may affect the Premises, or regarding any actions instituted, completed or threatened by any such governmental authority concerning Hazardous Substances which affect or may affect the Premises, (ii) written notice of any knowledge or information Tenant obtains regarding Hazardous Substances on, under or about the Premises or incurred by Tenant (other than commercially reasonable quantities of customarily used cleaning compounds and the like and the matters covered in subsections (h) and (i) of this Section 6.2), a third party or any government agency to study, assess, contain or remove any Hazardous Substances on, under, about or near the Premises for which expense or loss Tenant may be liable or for which a lien may be imposed on the Premises, (iii) written notice of any knowledge or information Tenant obtains regarding the release or discovery of Hazardous Substances on, under or about the Premises or on other sites owned, occupied or operated by Tenant or by any person for whose conduct Tenant is or may be responsible, or whose liability may result in a lien on or otherwise affect the Premises, (iv) written notice of all claims made or threatened by any third party against Tenant or the Premises relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Substance, and (v) written notice of Tenant's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Premises that could subject the Premises to any restrictions on the ownership, occupancy, transferability or use of the Premises under any of the statutes cited in Subsection (a) of this Section 6.2 or any regulation adopted pursuant thereto. 7 13 Notwithstanding anything to the contrary contained herein, Tenant shall not be under any obligation to provide notice of any contamination so long as any of the principal(s) of Landlord (currently being James S. Carroll, William C. Carroll, Janet L. Giles and Ralph S. Kerr) are responsible for the operation of the dealership at the Premises. (g) Notwithstanding anything to the contrary contained herein, the indemnity contained in this Section 6.2 shall continue indefinitely from the date of Tenant's execution of this Lease and shall survive the termination of all agreements between Tenant and Landlord. The indemnity contained in this Section 6.2 in no way limits the scope or enforceability of any other indemnity contained herein. (h) Commercially reasonable quantities of customarily used cleaning compounds and the like, which are stored, used and disposed of in compliance with applicable environmental laws, shall be excluded from any obligation of Tenant hereunder this Section 6.2. Commercially reasonable quantities of products customarily used in Tenant's business and the like, which are stored, used and disposed of in compliance with applicable environmental laws, are hereby permitted by Landlord. (i) Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no liability or obligation under this Section 6.2 or elsewhere in this Lease for any matter existing on, under or about the Premises prior to the Commencement Date, including, without limitation, the removal or remediation of any Hazardous Substances and Landlord shall maintain full liability for such pre-Commencement Date contamination. Landlord shall indemnify, defend with counsel reasonably satisfactory to Tenant, protect and hold harmless Tenant, its directors, officers, employees, agents, assigns and any successor or successors to Tenant's interest under this Lease from and against all claims, actual damages (including but not limited to special and consequential damages), punitive damages, injuries, costs, response costs, losses, demands, debts, liens, liabilities, causes of action, suits, legal or administrative proceedings, interest, fines, charges, penalties and expenses (including but not limited to attorneys' and expert witness fees and costs incurred in connection with defending against any of the foregoing or in enforcing this indemnity) of any kind whatsoever paid, incurred or suffered by, or asserted against, any indemnified party directly or indirectly arising from or attributable to (1) any breach by Landlord any of its agreements, warranties or representations set forth in this Section 6.2(i), or (2) any repair, cleanup or detoxification, or preparation and implementation of any removal, remedial, response, closure or other plan concerning any Hazardous Substance on, under or about the Premises prior to the Commencement Date attributable to Landlord or any other party under the control, employed by, contracted with or otherwise associated with Landlord in any manner, regardless of whether undertaken due to governmental action. Without limiting the generality of the foregoing indemnity, such indemnity is intended to operate as an agreement pursuant to Section 107 (e) of CERCLA, 42 U.S.C. Section 9607(e), to insure, protect, hold harmless and indemnify Tenant for any liability pursuant to such statute, to the extent Landlord is liable pursuant to this Section 6.2(i). SECTION 6.3 MAINTENANCE AND REPAIRS. During the Term of this Lease, in addition to the Rent herein provided, Tenant agrees to pay all costs and charges for repair and maintenance of the Premises, except as otherwise provided herein. Tenant agrees to surrender the Premises at the expiration or earlier termination of this Lease in as good condition as at the commencement of the term of this Lease except, Tenant shall not be responsible for the repair or condition of those portions of the Premises which Landlord agrees to maintain nor damage by dry rot, termites, sinking of floors, or ordinary wear and tear. Landlord agrees to maintain in good repair, at Landlord's cost, the roof, outer walls (which will include the bulkheads under plate glass windows), downspouts, underground plumbing, underground and in the wall wiring, support of floors, and, without limitation, structural portions of the Premises. Tenant shall 8 14 keep in good repair the electrical equipment, air conditioning equipment and heating equipment, and when required, Tenant shall replace such components with items of at least scope and quality of those being replaced. In the event Tenant has replaced any of such equipment prior to the end of its normal useful life and the Term of this Lease terminates or expires in accordance with the provisions contained in this Lease, then Landlord shall pay to Tenant on such termination date or expiration date, as the case may be, an amount equal to the cost of such equipment paid for by Tenant times a fraction, the numerator of which is the number of months in the normal useful life of such equipment minus the number of months from the date of installation of such equipment to the date of termination or expiration, as the case may be, of the Term, and the denominator of which is the number of months in the normal useful life of such equipment. No such payment shall be required to made by Landlord if the Term is terminated due to the occurrence and continuation of a Default by Tenant. Tenant agrees to replace any plate, window or door glass broken in the Premises with glass of like kind and quality, except Tenant shall not be required to replace glass broken due to settlement or defective construction of the building or due to the failure of Landlord to maintain and repair those portions of the Premises which Landlord agrees herein to maintain and repair or due to negligent repair of the Premises by Landlord. Landlord agrees to replace glass broken in the Premises when breakage is due to any of the causes set forth in the next preceding sentence which shall relieve Tenant from replacing said glass as set forth herein. Landlord and Tenant shall, comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act. Any repairs required to be made by the Landlord and Tenant shall be made in a prompt and workmanlike manner. All goods and materials used shall be in quality equal to or better than that being replaced. The Tenant shall supply the Landlord with copies of all warranties offered as to any replacements and shall supply Landlord with copies of any invoices for repairs or replacements, the cost of which exceeds $5,000.00. Tenant's failure to supply such warranties and invoices shall not be deemed a default under the terms of this Lease. Subject to the other terms of this Lease, Tenant acknowledges that it has inspected and that the Premises, including all fixtures, equipment and furnishings contained therein, are in satisfactory or excellent condition and accepts the Premises in its "AS IS" condition, without requiring Landlord to make any repairs or replacements thereof. Tenant hereby waives any objection to and releases Landlord from any liability arising from the condition of the Premises from and after the Commencement Date, except for matters as herein set forth. Any Improvements being constructed upon the Land together with all equipment and hardware, may be warrantied by third party vendors who have performed labor or rendered materials thereto. The Tenant shall be entitled to the benefit of all such warranties and the Landlord shall fully cooperate in securing the services of such third party vendors for warranty work during the Term of this Lease. SECTION 6.4 AMERICANS WITH DISABILITIES ACT. Landlord shall be responsible for compliance with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act, attributable to the Premises as of the Commencement Date of this Lease. In the event the Tenant makes any modifications to the Premises, all such modifications shall comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act, including modifications which 9 15 are required by such governmental agencies, as a result of such modifications, to remaining unmodified portions of the Premises. ARTICLE 7 INSURANCE AND INDEMNITY SECTION 7.1 BUILDING INSURANCE. Tenant will, at its cost and expense, keep and maintain in force the following policies of insurance: (1) Insurance on the Improvements against loss or damage by fire and against loss or damage by any other risk now and from time to time insured against by "extended coverage" provisions of policies generally in force on improvements of like type in the city in which the Premises are located, and in builder's risk completed value form during construction of improvements by Tenant, in amounts sufficient to provide coverage for the full insurable value of the Improvements; the policy for such insurance shall have a replacement cost endorsement or similar provision. "FULL INSURABLE VALUE," shall mean actual replacement value (exclusive of cost of excavation, foundations, and footings below the surface of the ground or below the lowest basement level), and such full insurable value shall be determined by Tenant's insurer, and confirmed from time to time at the request of Landlord by one of the insurers. The Tenant shall maintain all storm and flood insurances which are customarily maintained for properties similar to the Premises in the County in which the Premises are located, or which is required by Landlord's Lender (if any), and only if such coverage is available, to fully insure the Improvements including all such coverages which might later come into existence as a result of changes in the insurance coverages available or required in the future. (2) Worker's Compensation Insurance as to Tenant's employees involved in the construction, operation, or maintenance of the Premises in compliance with applicable law. (3) Such other insurance against other insurable hazards which at the time are commonly insured against in the case of improvements similarly situated, due regard being given to the height and type of the Improvements, their construction, location, use, and occupancy. SECTION 7.2 LIABILITY INSURANCE. Tenant shall secure and maintain in force comprehensive general liability insurance, including contractual liability specifically applying to the provisions of this Lease and completed operations liability, with limits of not less than Ten Million Dollars ($10,000,000) with respect to bodily injury or death to any number of persons in any one accident or occurrence and with respect to property damage in any one accident or occurrence, such limits to be increased in the event of request by Landlord by an amount which may be reasonable at the time. SECTION 7.3 POLICIES. All insurance maintained in accordance with the provisions of this Article 7 shall be issued by companies reasonably satisfactory to Landlord, and shall be carried in the name of Landlord, Tenant and Ford Leasing, as their respective interests may appear, and shall contain a mortgagee clause acceptable to the Landlord's Financing Lender and the Permitted Mortgagees. All property policies shall (i) be subject to prior written approval of Landlord, which shall not be unreasonably withheld or delayed, (ii) be subject to prior written approval of Ford Leasing, which shall not be unreasonably withheld or delayed, and (iii) expressly provide that any loss thereunder may be adjusted with Tenant, Landlord's Financing Lender, Ford Leasing and Permitted Mortgagees, but, unless 10 16 required otherwise under Landlord's Financing, shall be payable to Tenant and disbursed as set forth in Section 8.2. All property and liability insurance policies shall name Landlord as an additional named insured and shall include contractual liability endorsements. Tenant shall furnish Landlord, Ford Leasing, Landlord's Financing Lender and each Permitted Mortgagee with evidence of all insurance policies required under this Article 7 and shall furnish and maintain with each of such parties, at all times, a certificate of the insurance carrier certifying that such insurance shall not be canceled without at least fifteen (15) days advance written notice to each of such parties. SECTION 7.4 TENANT'S INDEMNITY. Subject to Section 7.6, Tenant shall indemnify and hold harmless Landlord, its shareholders, partners, trustees, members, directors, officers, employees and its successors and assigns (the "INDEMNIFIED LANDLORD PARTIES"), from all claims, suits, actions, and proceedings whatsoever which may be brought or instituted on account of or growing out of any Default and any and all injuries or damages, including death, to persons or property on the Premises and all losses, liabilities, judgments, settlements, costs, penalties, damages, and expenses relating thereto, including but not limited to attorneys' fees and other costs of defending against, investigating, and settling the Claims, to the extent, but only to the extent, such Claims are not attributable to (i) events or conditions that occurred or existed, in whole or in part, prior to the date when Tenant first occupied the Premises or (ii) failure of any components of the Improvements that Landlord is required to maintain ("CLAIMS"), Tenant shall assume on behalf of the Indemnified Landlord Parties and conduct with due diligence and in good faith the defense of all such Claims against any of the Indemnified Landlord Parties. Tenant may contest the validity of any such Claims, in the name of Landlord or Tenant, as Tenant may deem appropriate, provided that the expenses thereof shall be paid by Tenant. The foregoing covenants and agreements of Tenant shall survive the expiration or termination of this Lease. SECTION 7.5 LANDLORD'S INDEMNITY. Subject to Section 7.6, Landlord shall indemnify and hold harmless Tenant, its shareholders, partners, trustees, members, directors, officers, employees and its successors and assigns (the "INDEMNIFIED TENANT PARTIES"), from all claims which may be brought or instituted on account of or growing out of any default by Landlord of its obligations under this Lease and all injuries or damages, including death, to persons or property on the Premises and all losses, liabilities, judgments, settlements, costs, penalties, damages, and expenses relating thereto, including but not limited to attorneys' fees and other costs of defending against, investigating, and settling the claims, to the extent, but only to the extent, any such claims are attributable to or arise out of: (i) events or conditions that existed or occurred, in whole or in part, prior to the date when Tenant first occupied the Premises; and (ii) failure of any components of the Improvements which Landlord is required to maintain and (iii) Landlord's representations or warranties or asbestos in any form which is present on the Premises prior to the date of this Lease. Landlord shall assume on behalf of the Indemnified Tenant Parties and conduct with due diligence and in good faith the defense of all Claims against any of the Indemnified Tenant Parties. Landlord may contest the validity of any Claims, in the name of Landlord or Tenant, as Landlord may deem appropriate, provided that the expenses thereof shall be paid by Landlord. The foregoing covenants and agreements of Landlord shall survive the Term and expiration or termination of this Lease. SECTION 7.6 SUBROGATION. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each hereby waives any and all rights of recovery, claims, actions, or causes of action against the other, its agents, officers, and employees for any loss or damage that may occur to any improvements located on the Premises, or any part thereof, or any personal property of such party therein, by reason of fire, the elements, or any other cause which is insured under standard "all risk of direct loss" insurance 11 17 policies available in the state in which the Premises are located, regardless of cause or origin, including negligence of either party hereto, its agents, officers, or employees. No insurer of one party shall hold any right of subrogation against the other party as to any such loss or damage. ARTICLE 8 CASUALTY; CONDEMNATION; SURVIVAL OF LEASE SECTION 8.1 TENANT'S OBLIGATION TO RESTORE. Subject to the other terms of this Section 8.1, in the event of damage to, or destruction of, any Improvements by fire or other casualty, Tenant shall promptly repair, replace, restore, and reconstruct the same, all in compliance with the provisions of Section 8.2. If insurance proceeds are insufficient to pay for required replacement, repairs, restoration, etc., then Tenant shall be obligated to promptly repair, replace, restore, and reconstruct the Improvements, all in compliance with the provisions of Section 8.2, notwithstanding the unavailability of insurance proceeds for such purpose. In the event that a Permitted Mortgagee (as hereinafter defined) or Landlord's Financing Lender (as hereinafter defined), as the case may be, requires that payment of insurance proceeds be made to it and not be made available for required replacement, repairs, restoration, etc., then to the extent that such funds are withheld, the Tenant shall not be responsible for performing required replacement, repairs, restoration, or reconstruction of the Improvements. In the event of a casualty loss wherein the insurance proceeds are not be used for replacement, repairs, restoration, etc., or the Improvements, as a result of Landlord's Financing Lender or by consent of the parties, the insurance proceeds shall be applied as follows: (1) first, to pay the cost of razing the Improvements and leveling, cleaning and otherwise putting the Premises in good order; (2) second, to Landlord's Financing Lender; (3) third, to the payment to Tenant for any of its improvements; and (4) fourth, to Landlord, to the extent of any remaining proceeds. Distribution of insurance proceeds is being made in conformity with Section 5.3 of this Lease. Notwithstanding the foregoing, in the event of destruction or damage involving more than seventy-five percent (75%) of the interior floor area of the Improvements, Tenant shall have no obligation to rebuild unless the Landlord and Tenant may agree to rebuild the Improvements. In the event the parties have not agreed to rebuild the Premises then it is recognized between Landlord and Tenant that it is their intent to relocate the operations to another location. In the event of such relocation, this Lease shall terminate effective as to the affected Premises as of the date of such damage or destruction and the insurance proceeds received by the Landlord and Tenant [as to Tenant, for Tenant's Improvements, the right to same carrying forward as to the new location] shall be utilized for the construction of new Improvements at an alternative location. In the event that the costs of construction of the Improvements for which the Landlord is responsible exceeds the insurable value of the operation which was subject to the casualty, the Landlord shall pay the additional costs for Improvements, and the annual Base Rent due pursuant to Section 3.1 shall be increased by an amount equal to ten (10%) percent of the Landlord's additional cost of construction of the new facility. This Lease, except for the adjustment of Base Rent 12 18 as described above, shall govern as to the rights and obligations of the Landlord and Tenant at the substituted location, however, the Term of the Lease shall be in abeyance during the period of construction of the alternative Improvements. Tenant's obligation for payment of Base Rent and other monetary sums under this Lease as applicable to the new Premises shall commence as of the later to occur of (i) the date the improvements to be constructed on the new Premises are certified as complete by the applicable architect for such improvements in accordance with the plans and specifications agreed to in writing by Landlord and Tenant and (ii) the date a Certificate of Occupancy is obtained for the operation of such new improvements. Landlord and Tenant shall, in good faith, fully cooperate with one another in the selection of the alternative site and relative to preparation of plans for Improvements and construction thereof. Nothing hereinabove withstanding to the contrary, if the Tenant failed to maintain insurance coverage required herein and as a result, proceeds are paid by the insurance company which are less than the full insurable value of the Improvements, Tenant shall be solely responsible for any such deficiency. SECTION 8.2 RESTORATION AND DEPOSIT OF FUNDS. (a) Prior to Tenant commencing any repair, restoration or rebuilding pursuant to Section 8.1 involving an estimated cost of more than One Hundred Thousand Dollars ($100,000), Tenant shall submit to Landlord for its approval, which will not be unreasonably withheld or delayed: (i) plans and specifications therefor, prepared by a licensed architect reasonably satisfactory to Landlord; (ii) copies of appropriate governmental permits; (iii) an estimate of the cost of the proposed work, certified to by said architect (iv) a fixed price construction contract in an amount not in excess of such architect's estimated cost from a reputable and experienced general contractor; and (v) satisfactory evidence of sufficient contractor's comprehensive general liability insurance covering Landlord, builder's risk insurance, and worker's compensation insurance. Upon completion of any such work by or on behalf of Tenant, Tenant shall provide Landlord with written evidence, in form and substance reasonably satisfactory to Landlord, showing that (i) Tenant has paid all contractors for all costs incurred in connection with such repair, restoration or rebuilding, and (ii) that the Premises is not encumbered by any mechanic's or materialmen's liens relating to such repair, restoration or rebuilding. Regarding Tenant's obligations with respect to mechanic's or materialmen's liens, reference is made herein to all of the terms and provisions of Section 5.2 in connection with such repair, restoration or rebuilding. (b) Provided that a Default does not then exist, then all sums arising by reason of such loss under insurance policies maintained by Tenant, shall be deposited with the Depositary (as hereinafter defined) to be available to Tenant for the repair, restoration and rebuilding of the Premises. Tenant shall diligently pursue the repair, restoration and rebuilding of the improvements in a good and workmanlike manner using only materials which are of a quality comparable to the quality of the materials used in the Improvements prior to their destruction or damage. The insurance proceeds will be disbursed to Tenant by the Depositary after delivery of evidence reasonably satisfactory to the Depositary that (A) such repairs, restoration, or rebuilding have been completed and effected in compliance with the plans and specifications for the restoration or rebuilding, (B) no mechanic's and materialman's liens against the Premises have been filed, or that all such liens have been paid or bonded around, and (C) all payments for work performed and materials purchased as of the date of such disbursement for which mechanic's and materialman's liens might arise have been paid or will be paid from such disbursement or that all such potential liens have been paid or bonded around. At the option of Tenant, such proceeds shall be advanced in reasonable installments. Each such installment (except the final installment) shall be 13 19 advanced in an amount equal to the cost of the construction work completed since the last prior advance (or since commencement of work as to the first advance) less statutorily required retainage in respect of mechanic's and materialman's liens or retainage which may be required by Landlord's Financing Lender in an amount not to exceed ten percent (10%) of such cost. The amount of each installment requested shall be certified as being due and owing by Tenant's architect in charge, and each request shall include all bills for labor and materials for which reimbursement is requested and reasonably satisfactory evidence that no lien has been placed against the Premises for any labor or material furnished for such work. The final disbursement, which shall be an amount equal to the balance of the insurance proceeds, shall be made upon receipt of (1) an architect's certificate of substantial completion as to the work from Tenant's architect, (2) reasonably satisfactory evidence that all bills incurred in connection with the work have been paid and (3) issuance of a certificate of occupancy by the applicable governmental agency, if required. The term "DEPOSITARY", as used herein, shall mean either: (i) Landlord's Financing Lender, or its designee provided that Landlord's Financing Lender is an institutional lender, its designee is not an Affiliate of Landlord, and such entity holds such funds in accordance with the terms of this lease, or related in any other manner to Landlord), or (ii) such other party that is acceptable to Landlord and Tenant, if there is no such Landlord's Financing Lender or if such Landlord's Financing Lender has refused to act as Depositary. (c) If no Default then exists, any excess of money received from insurance policies remaining with the Depositary after the repair or rebuilding of the Improvements shall, to the extent required by any Permitted Mortgagee, be applied to payment of Tenant's Permitted Mortgage, otherwise any such proceeds shall be paid to Tenant. (d) If Tenant shall not commence the repair or rebuilding of the Improvements within a period of sixty (60) days after damage or destruction by fire or other casualty and prosecute the same thereafter with such dispatch as may be necessary to complete the same within a reasonable period after said damage or destruction occurs; then, in addition to all other remedies Landlord may have either under this Lease, at law or in equity, the money received by and remaining in the hands of the Depositary shall be paid to and retained by Landlord as security for the continued performance and observance by Tenant of Tenant's covenants and agreements hereunder. SECTION 8.3 NOTICE OF DAMAGE. Tenant shall immediately notify Landlord and each Permitted Mortgagee of any destruction or damage to the Premises. SECTION 8.4 TOTAL TAKING. Should the entire Premises be taken (which term, as used in this Article 8, shall include any conveyance in avoidance or settlement of eminent domain, condemnation, or other similar proceedings) by any Governmental Authority, corporation, or other entity under the right of eminent domain, condemnation, or similar right, then Tenant's right of possession under this Lease shall terminate as of the date of taking possession by the condemning authority, and the award therefor will be distributed as follows: (1) first, to the payment of all reasonable fees and expenses incurred in collecting the award; (2) second, to Landlord's Financing Lender; and (3) third, to Landlord and Tenant, to the extent of their interests in the Premises, as the court having such jurisdiction of such taking shall determine taking into account certain factors including, without limitation, the term of the leasehold estate of the Tenant and the ownership interest of Landlord. After the determination and distribution of the condemnation award as herein provided, the Lease shall terminate. 14 20 SECTION 8.5 PARTIAL TAKING. Should a portion of the Premises be taken by any Governmental Authority, corporation, or other entity under the right of eminent domain, condemnation, or similar right, this Lease shall nevertheless continue in effect as to the remainder of the Premises unless, in Tenant's reasonable judgment, so much of the Premises shall be so taken as to make it economically unsound to use the remainder for the uses and purposes contemplated hereby, whereupon this Lease shall terminate as of the date of taking of possession by the condemning authority in the same manner as if the whole of the Premises had thus been taken, and the award therefor shall be distributed as provided in Section 8.4. In the event of a partial taking where this Lease is not terminated, all awards payable in respect thereof shall be payable to Landlord and Tenant, to the extent of their interests in the Premises, as the applicable condemning authority shall determine taking into account certain factors including, without limitation, the term of the leasehold estate of the Tenant and the ownership interest of Landlord. Following such partial taking, Landlord shall make all necessary repairs or alterations to the remaining Premises, required to make the remaining portions of the Premises an architectural whole. The Base Rent payable hereunder during the unexpired portion of the Lease shall be reduced to the extent fair and reasonable under the circumstances, effective on the date physical possession is taken by the condemning authority. SECTION 8.6 TEMPORARY TAKING. If the whole or any portion of the Premises shall be taken for temporary use or occupancy, the Term shall not be reduced or affected. The Base Rent payable hereunder during the unexpired portion of the Lease shall be reduced to the extent fair and reasonable under the circumstances and Tenant shall be entitled to receive the entire amount of any award therefor, less the amount of the reduction in the Base Rent. SECTION 8.7 NOTICE OF TAKING, COOPERATION. Tenant shall immediately notify Landlord and each Permitted Mortgagee of the commencement of any eminent domain, condemnation, or other similar proceedings with regard to Premises. Landlord and Tenant covenant and agree to fully cooperate in any condemnation, eminent domain, or similar proceeding in order to maximize the total award receivable in respect thereof. SECTION 8.8 SURVIVAL OF OPERATIONS / LEASE AGREEMENT UPON TERMINATION OF FORD LEASES. Landlord and Tenant agree that should the Main Lease and Ford Sublease be terminated by Ford Leasing as a result of Ford Leasing's exercise of termination pursuant to the applicable provisions contained therein, the rights and obligations of the Landlord and Tenant shall be governed by the terms of this Lease. Should the Main Lease and Ford Sublease be terminated by Ford Leasing, then and in such event, this Lease shall become the sole controlling agreement between Landlord and Tenant as it relates to the Premises. ARTICLE 9 TENANT'S FINANCING SECTION 9.1 TENANT'S RIGHT TO ENCUMBER. Tenant shall have the right, from time to time and at any time, without Landlord's consent or joinder, to encumber its interest in this Lease and the leasehold estate hereby created with one or more deeds to secure debt, mortgages, or other lien instruments to secure any borrowings or obligations of Tenant. Any such mortgages, deeds to secure debt, and/or other lien instruments, and the indebtedness secured thereby, provided that Landlord has been given notice thereof, are herein referred to as "PERMITTED MORTGAGES," and the holder or other beneficiary thereof are herein referred to as "PERMITTED MORTGAGEES." 15 21 SECTION 9.2 TENANT'S MORTGAGE. If Tenant encumbers its interest in this Lease and the leasehold estate hereby created with liens as above provided, then Tenant shall notify Landlord thereof, providing with such notice the name and mailing address of the Permitted Mortgagee in question, Landlord shall upon request, acknowledge receipt of such notice, and for so long as the Permitted Mortgage in question remains in effect the following shall apply: (a) Landlord shall give to the Permitted Mortgagee a duplicate copy of any and all notices which Landlord gives to Tenant pursuant to the terms hereof, including notices of default, and no such notice shall be effective until such duplicate copy is transmitted to such Permitted Mortgagee, in the manner provided in Section 12.1. (b) There shall be no cancellation, surrender, or modification of this Lease by joint action of Landlord and Tenant without the prior written consent of the Permitted Mortgagee. (c) If a Default should occur hereunder, then Landlord specifically agrees that: (1) Landlord shall not enforce or seek to enforce any of its rights, recourses, or remedies, until a notice specifying the event giving rise to such Default has been transmitted to the Permitted Mortgagee, in the manner provided in Section 12.1, and if the Permitted Mortgagee proceeds to cure the Default within a period of thirty (30) days after receipt of such notice or, as to non-monetary events of Default which by their very nature cannot be cured within such time period, the Permitted Mortgagee commences curing such Default within such time period and thereafter diligently pursues such cure to completion within sixty (60) days thereafter, then any payments made and all things done by the Permitted Mortgagee to effect such cure shall be as fully effective to prevent the exercise of any rights, recourses, or remedies by Landlord as if done by Tenant; (2) if the Default is a non-monetary default, the Permitted Mortgagee shall have a period of time in which to cure such Default equal to the greater of (i) the time period for such curing that is applicable to Tenant under the terms of this Lease, or (ii) sixty (60) days after the date that the Permitted Mortgagee has been notified of such Default, provided that the Permitted Mortgagee cures all defaults relating to the payment of Base Rent and neither Landlord nor the Premises is or would be liable or subject to any lien, tax, penalty, expense, liability, or damages because of such Default. If Landlord or the Premises is or will be liable or subject to any such lien, tax, penalty, expense, liability or damages because of the Default, then for so long as the Permitted Mortgagee is diligently and with continuity attempting to secure possession of the Premises (whether by foreclosure or other procedures), and provided such delay does not result in a foreclosure by Landlord's Financing Lender or loss of Landlord's interest in the Premises, Landlord shall allow the Permitted Mortgagee such time as may be reasonably necessary under the circumstances to obtain possession of the Premises in order to cure such Default, and during such time Landlord shall not enforce or seek to enforce any of its rights, remedies or recourses hereunder; and (d) No Permitted Mortgagee shall be or become liable to Landlord as an assignee of this Lease until such time as such Permitted Mortgagee, by foreclosure or other procedures, shall either acquire the rights and interests of Tenant under this Lease or shall actually take possession of the Premises, and upon such Permitted Mortgagee's assigning such rights and interests to another party or 16 22 upon relinquishment of such possession, as the case may be, such Permitted Mortgagee shall have no further such liability. ARTICLE 10 WARRANTY OF TITLE AND PEACEFUL POSSESSION AND LANDLORD'S FINANCING SECTION 10.1 WARRANTY AS TO ENCUMBRANCES. Landlord represents, warrants and covenants that: (i) the representations and warranties set forth in Section 10.3 are true and correct; (ii) it owns title to the Land and the Premises free and clear of all liens, claims and encumbrances except the liens described in EXHIBIT B hereto securing the financing described therein ("LANDLORD'S FINANCING") and the other encumbrances specifically described in such EXHIBIT B; (iii) except as otherwise set forth in Section 10.2, Landlord's Financing shall not be modified in any manner without the prior written consent of Tenant; and (iv) the lender providing such Landlord's Financing ("LANDLORD'S FINANCING LENDER") has executed, caused to be acknowledged (notarized in accordance with applicable law) and delivered to Landlord and Tenant a mutual recognition and attornment agreement, in form and substance reasonably satisfactory to Tenant, suitable for recording in the appropriate records to notify third parties of the existence of such agreement and that the Land and the Premises are subject thereto. Such agreement shall provide, among other provisions, that the Tenant's interest under this Lease shall be subordinate to the Landlord's Financing and that the Landlord's Financing Lender shall (i) give to Tenant a duplicate copy of any and all notices which Landlord's Financing Lender gives to Landlord, including notices of default, and no such notice shall be effective until such duplicate copy is actually received by Tenant in the manner provided in Section 12.1; (ii) give Tenant the right and opportunity to cure any defaults under the Landlord's Financing; and (iii) recognize and consent to Tenant's rights under this Lease in the event of a foreclosure or deed in lieu thereof so long as Tenant continues to perform its obligations under this Lease. As used herein, the term (A) "LANDLORD'S FINANCING LENDER" shall also include any lender that refinances Landlord's Financing or makes a new loan to Landlord, subject to Section 10.2, and (B) "LANDLORD'S FINANCING" shall include all financing secured by liens covering all or any portion of the Premises which are permitted under the terms of this Lease including, without limitation, all new loans. Moreover, Landlord covenants that Tenant shall and may peaceably and quietly have, hold, occupy, use, and enjoy the Premises during the Term, and may exercise all of its rights hereunder, subject only to the provisions of this Lease and applicable governmental laws, rules, and regulations; and Landlord agrees to warrant and forever defend Tenant's right to such occupancy, use, and enjoyment and the title to the Premises against the claims of any and all persons whomsoever lawfully claim the same, or any part thereof, subject only to provisions of this Lease and all applicable governmental laws, rules, and regulations. Landlord's Financing Lender shall not be or become liable to Tenant as an assignee of Landlord's interest in this Lease until such time as such Landlord's Financing Lender, by foreclosure or other procedures, shall either acquire the rights and interests of Landlord under this Lease, and upon Landlord's Financing Lender's assigning such rights and interests to another party, Landlord's Financing Lender shall have no further such liability. To the extent that Tenant cures any defaults of Landlord under Landlord's Financing, Tenant shall receive a credit against the Base Rent due pursuant to Section 3.1 hereinabove in an amount equal 17 23 to the amount advanced by Tenant to cure such defaults, together with interest at the Tenant's parent company's customary borrowing rate as may be in effect from time to time. Such credit shall be charged against the monthly Base Rent installments, commencing as of the first monthly rental payment due after the first of such advances, until such time as the entire amount of such credit is exhausted. Thereafter, Base Rent shall commence in amounts required in Section 3.1 hereinabove, including payment of any partial installment which may be due as a result of a credit to the final monthly credit which is less than the full monthly Base Rent due. SECTION 10.2 LANDLORD'S MORTGAGE. During the Term, none of Landlord's Financing may be modified or refinanced or any new loan made except in accordance with the following: (a) The total mortgage indebtedness and encumbrances of any type against the Premises after the proposed refinancing or modification or new loan of Landlord's Financing does not exceed eighty percent (80%) of the fair market value of the Premises including any improvements being made with financing obtained for such construction or the loan balance in existence as of the effective date of this Lease, whichever is greater; and (b) The effect of any such modification, refinancing or new loan does not result in an increase in principal and interest payable by Landlord during any Lease Year which exceeds Base Rent required to be paid by Tenant during any Lease Year. SECTION 10.3 REPRESENTATIONS OF LANDLORD. Landlord represents and warrants to Tenant as of the effective date of this Lease that: (a) The Premises are not subject to any prior lease, easement, adverse claim, or claims of parties in possession, whether or not shown by the public records, except as set forth on EXHIBIT B. (b) There is no pending or threatened condemnation action or agreement in lieu thereof which will or may affect the Premises or any part thereof in any respect whatsoever. (c) There is no action, suit or proceeding, including environmental, pending or threatened against or affecting the Premises or any part thereof. (d) The execution, delivery and performance of this Lease by Landlord has been duly authorized and this Lease is valid and enforceable against Landlord in accordance with its terms. (e) Landlord has no knowledge of any fact, action or proceeding, including environmental, whether actual, pending or threatened, which could result in the modification or termination of the present zoning classification of the Premises, or the termination of full free and adequate access to and from the Premises from all adjoining public highways and roads. (f) Landlord has not agreed to lease or convey or granted any rights with respect to or any part of the Premises or any interest therein to any other person or entity except as shown on EXHIBIT B. (g) The Premises are not subject to any restrictions (recorded or unrecorded), building and zoning laws or ordinances, or other laws, ordinances, rules, regulations and requirements of any 18 24 Governmental Authority having jurisdiction which do or could prohibit the use of the Premises for the uses set forth in this Lease. (h) Landlord has not received any notice from any Governmental Authority having jurisdiction over the Premises requiring or specifying any work to be done to the Premises. (i) Landlord has no knowledge of any existing, threatened or contemplated action, circumstances or conditions (including but not limited to subsurface conditions) which would materially interfere with the development or use of the Premises for an automobile dealership. (j) As of the date hereof the Premises are, and on the Commencement Date the Premises will be in compliance in all material respects with all restrictive covenants and other restrictions applicable to the Premises and all applicable statutes, ordinances, rules and regulations (federal, state, county and municipal), including without limitation all zoning, environmental, building, health, subdivision regulations. Except as to matters relating to the presence of asbestos contained in the Premises, if any, the representation and warranty set forth in this Subsection (j) shall not be applicable to the matters covered under Subsection (m) herein below. (k) The Premises have legal and physical public access to and from abutting roadways dedicated to and accepted by the State, City, or County where the Premises are located. (l) To the extent zoning regulations are applicable to the Premises, the Premises are zoned for use as an automobile dealership facility, for sale, trade, display, service and repair, painting, and other activities normally associated with a full service automobile dealership. (m) To the best of Landlord's knowledge, except as may otherwise be disclosed to Tenant in any written environmental audit report delivered to Tenant prior to the date of this Lease, no Hazardous Materials, pollutants or toxic substances have been placed, dumped, deposited or buried upon, in or under the Premises, there have been no leaks of petroleum, toxic or Hazardous Materials from any of the underground storage tank facilities and there is no contaminated soil, as defined by federal, state and/or local laws or regulations, in, upon or under the Premises by reason of any such wastes, pollutants, toxins, substances, or facilities. Tenant acknowledges that certain materials which may be considered Hazardous Materials are used in the normal course of the business operated on the Premises prior to the Commencement Date. Landlord represents that to the best of Landlord's knowledge, such use complies with all applicable governmental regulations and that it has no knowledge of any contamination on the Premises. (n) The Premises have an assured water supply sufficient to permit the operations now being conducted thereon, and as contemplated in this Lease with respect to the Improvements to be constructed on the Land, to be conducted in accordance with all governmental requirements. (o) All dimensions in the description to the Premises are net of existing and proposed rights-of-way, easements and dedications except as set forth on EXHIBIT B. (p) The Premises are not located in a flood plain or a flood hazard area for which flood insurance would be required or for which flood insurance is available. 19 25 (q) Landlord warrants and guarantees that on the Commencement Date the wiring, floors, plumbing, underground plumbing, heating, air conditioning equipment, roofs, outer walls, stairways, doors, windows, plate glass and sprinkler equipment of the Premises are each and every one in good repair and are adequate to furnish the proper service for which each was installed and the heating plant will heat and air conditioning will cool the buildings constituting part of the Premises in accordance with the generally accepted design temperatures for the city and state in which the Premises is located. Landlord further warrants and guaranties that on the Commencement Date, the Premises and all appurtenances thereto, will comply with the building codes, fire, sanitary and safety regulations, ordinances and laws of the United States of America, city, county and state in which the Premises are located. Landlord further warrants and guarantees that at the commencement of this Lease, the Premises may be used for the purposes set out in this Lease without violating any such codes, regulations, ordinances, laws or any restrictive covenants running with the land. (r) Landlord has all required occupancy permits and other licenses or permits required for the use and occupancy of the Premises. ARTICLE 11 DEFAULT AND REMEDIES SECTION 11.1 DEFAULT. Each of the following shall be deemed a "DEFAULT" by Tenant hereunder and a material breach of this Lease: (a) Whenever Tenant shall fail to pay any sum payable by Tenant to Landlord or any third party under this Lease on the date upon which the same is due to be paid, and such default shall continue for ten (10) days after Tenant shall have been given a written notice specifying such default; (b) Whenever Tenant shall fail to keep, perform, or observe any of the covenants, agreements, terms, or provisions contained in this Lease that are to be kept or performed by Tenant other than with respect to payment of Rent or other liquidated sums of money, and Tenant shall fail to immediately commence and take such steps as are necessary to remedy the same within thirty (30) days after Tenant shall have been given a written notice specifying the same, or having so commenced, shall thereafter fail to proceed diligently and with continuity to remedy the same; (c) Whenever an involuntary petition shall be filed against Tenant under any bankruptcy or insolvency law or under the reorganization provisions of any law of like import or whenever a receiver of Tenant, or of all or substantially all of the property of Tenant, shall be appointed without acquiescence, and such petition or appointment is not discharged or stayed within sixty (60) days after the happening of such event; or (d) Whenever Tenant shall make an assignment of its property for the benefit of creditors or shall file a voluntary petition under any bankruptcy or insolvency law, or seek relief under any other law for the benefit of debtors. SECTION 11.2 REMEDIES. If a Default occurs, then subject to the rights of any Permitted Mortgagee as provided in Section 9, Landlord may at any time thereafter prior to the curing thereof and 20 26 without waiving any other rights hereunder or available to Landlord at law or in equity (Landlord's rights being cumulative), do any one or more of the following: (a) Landlord may terminate this Lease by giving Tenant written notice thereof, in which event this Lease and the leasehold estate hereby created and all interest of Tenant and all parties claiming by, through, or under Tenant shall automatically terminate upon the effective date of such notice with the same force and effect and to the same extent as if the effective date of such notice were the day originally fixed in Article 2 hereof for the expiration of the Term; and Landlord, its agents or representatives, shall have the right, without further demand or notice, to reenter and take possession of the Premises and remove all persons and property therefrom with or without process of law, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or existing breaches hereof. In the event of such termination, Tenant shall be liable to Landlord for damages in an amount equal to (A) the discounted present value of the amount by which the Rent reserved hereunder for the remainder of the existing Term (Initial or Renewal) exceeds the then net fair market rental value of the Premises for such period of time, plus (B) all expenses incurred by Landlord enforcing its rights hereunder. (b) Landlord may terminate Tenant's right to possession of the Premises and enjoyment of the rents, issues, and profits therefrom without terminating this Lease or the leasehold estate created hereby, reenter and take possession of the Premises and remove all persons and property therefrom with or without process of law, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or existing breaches hereof, and lease, manage, and operate the Premises and collect the rents, issues, and profits therefrom all for the account of Tenant, and credit to the satisfaction of Tenant's obligations hereunder the net rental thus received (after deducting therefrom all reasonable costs and expenses of repossessing, leasing, managing, and operating the Premises). If the net rental so received by Landlord exceeds the amounts necessary to satisfy all of Tenant's obligations under this Lease, Landlord shall retain such excess. In no event shall Landlord be liable for failure to so lease, manage, or operate the Premises or collect the rentals due under any subleases and any such failure shall not reduce Tenant's liability hereunder. If Landlord elects to proceed under this Section 11.2(2), it may at any time thereafter elect to terminate this Lease as provided in Section 11.2(1). ARTICLE 12 MISCELLANEOUS SECTION 12.1 NOTICES. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be in writing and shall be deemed to have been validly given or served by (a) delivery of the same in person to the intended addressee, (b) by depositing the same with Federal Express or another reputable private courier service for next business day delivery to the intended addressee at its address set forth on the first page of this Agreement or at such other address as may be designated by such party as herein provided, (c) by facsimile copy transmission [confirmation sheet indicating transmission to be retained] or (d) by depositing the same in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the intended addressee at its address set forth below or at such other address as may be designated by such party as herein provided. All notices, demands and requests shall 21 27 be effective upon such personal delivery upon actual receipt, or one (1) business day after being deposited with the private courier service, or two (2) business days after being deposited in the United States mail as required above. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other party hereto at least fifteen (15) days' prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America. For purposes of notice the addresses of the parties hereto shall, until changed, be as follows: Landlord: KC Partnership 3101 N. State Road 7 Hollywood, FL 33021 Facsimile: (954) 964-4760 Tenant: Perimeter Ford, Inc. Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, Texas 77024 Attention: John Turner Facsimile: (713) 627-6468 The parties hereto shall have the right from time to time to change their respective addresses for purposes of notice hereunder to any other location within the United States by giving a notice to such effect in accordance with the provisions of this Section 12.1. SECTION 12.2 PERFORMANCE OF OTHER PARTY'S OBLIGATIONS. If either party hereto fails to perform or observe any of its covenants, agreements, or obligations hereunder for a period of thirty (30) days after notice of such failure is given by the other party, then the other party shall have the right, but not the obligation, at its sole election but not as its exclusive remedy), to perform or observe the covenants, agreements, or obligations which are asserted to have not been performed or observed at the expense of the failing party and to recover all costs or expenses incurred in connection therewith, together with interest thereon from the date expended until repaid at an annual rate ("DEFAULT RATE") equal to the lesser of (a) three (3) percent above the prime rate of interest established from time to time by NationsBank (or a comparable rate of interest if such rate is not in effect) or (b) the maximum rate of interest permitted by applicable law. Any performance or observance by a party pursuant to this Section 12.2 shall not constitute a waiver of the other party's failure to perform or observe. SECTION 12.3 MODIFICATION AND NON-WAIVER. No variations, modifications, or changes herein or hereof shall be binding upon any party hereto unless set forth in a writing executed by it or by a duly authorized officer or agent. No waiver by either party of any breach or default of any term, condition, or provision hereof, including without limitation the acceptance by Landlord of any Rent at any time or in any manner other than as herein provided, shall be deemed a waiver of any other or subsequent breaches or defaults of any kind, character, or description under any circumstance. No waiver of any 22 28 breach or default of any term, condition, or provision hereof shall be implied from any action of any party, and any such waiver, to be effective, shall be set out in a written instrument signed by the waiving party. SECTION 12.4 GOVERNING LAW. This Lease shall be construed and enforced in accordance with the laws of the state in which the Premises are located. SECTION 12.5 NUMBER AND GENDER; CAPTIONS; REFERENCES. Pronouns, wherever used herein, and of whatever gender, shall include natural persons and corporations and associations of every kind and character, and the singular shall include the plural wherever and as often as may be appropriate. Article and Section headings in this Lease are for convenience of reference and shall not affect the construction or interpretation of this Lease. Whenever the terms "hereof," "hereby," "herein," or words of similar import are used in this Lease, they shall be construed as referring to this Lease in its entirety rather than to a particular Section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "Article" or "Section" shall be construed as referring to the indicated Article or Section of this Lease. SECTION 12.6 CPI. "CPI" shall mean the Consumer Price Index for All Urban Consumers, All Items (Base Year 1982-84 = 100) published by the United States Department of Labor, Bureau of Labor Statistics. If the 1982-84 Base Year shall no longer be used as an index of 100, the revised index which would produce results equivalent, as nearly as possible to those which would be obtained hereunder if the CPI were not so revised. SECTION 12.7 ESTOPPEL CERTIFICATE. Landlord and Tenant shall execute and deliver to each other, promptly upon any request therefor by the other party, a certificate addressed as indicated by the requesting party and stating: (a) whether or not this Lease is in full force and effect; (b) whether or not this Lease has been modified or amended in any respect, and submitting copies of such modifications or amendments; (c) whether or not there are any existing defaults hereunder known to the party executing the certificate, and specifying the nature thereof; (d) whether or not any particular Article, Section, or provision of this Lease has been complied with; and (e) such other matters as may be reasonably requested. SECTION 12.8 SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, and the basis of the bargain between the parties hereto is not destroyed or rendered ineffective thereby, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. SECTION 12.9 ATTORNEY FEES. If litigation is ever instituted by either party hereto to enforce, or to seek damages for the breach of, any provision hereof, the prevailing party therein shall be promptly reimbursed by the other party for all attorneys' fees reasonably incurred by the prevailing party in connection with such litigation, including all trial and appellate levels. SECTION 12.10 SURRENDER OF PREMISES; HOLDING OVER. Upon termination or the expiration of this Lease, Tenant shall peaceably quit, deliver up, and surrender the Premises. If Tenant does not surrender possession of the Premises at the end of the Term, such action shall not extend the Term, 23 29 Tenant shall be a tenant at sufferance, and during such time of occupancy Tenant shall pay to Landlord, as damages, an amount equal to twice the amount of Rent that was being paid immediately prior to the end of the Term. Landlord shall not be deemed to have accepted a surrender of the Premises by Tenant, or to have extended the Term, other than by execution of a written agreement specifically so stating. SECTION 12.11 RELATION OF PARTIES. It is the intention of Landlord and Tenant to hereby create the relationship of landlord and tenant, and no other relationship whatsoever is hereby created. Nothing in this Lease shall be construed to make Landlord and Tenant partners or joint venturers or to render either party hereto liable for any obligation of the other. SECTION 12.12 FORCE MAJEURE. As used herein "FORCE MAJEURE" means the occurrence of any event whereby Landlord or Tenant shall be delayed or prevented from the performance of any act required hereunder by reason of acts of God, strikes, lockouts, labor troubles, failure or refusal of governmental authorities or agencies to timely issue permits or approvals or conduct reviews or inspections, civil disorder, 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). If Tenant or Landlord shall be delayed, hindered, or prevented from performance of any of its obligations by reason of Force Majeure, the time for performance of such obligation shall be extended for the period of such delay. In no event shall this provision pertain to any monetary obligations set forth in this Lease including payment of Rent from Tenant to Landlord. SECTION 12.13 NON-MERGER. Notwithstanding the fact that fee title to the land and to the leasehold estate hereby created may, at any time, be held by the same party, there shall be no merger of the leasehold estate hereby created unless the owner thereof executes and files for record in the appropriate real property records a document expressly providing for the merger of such estates. SECTION 12.14 ENTIRETIES. This Lease constitutes the entire agreement of the parties hereto with respect to its subject matter, and all prior agreements with respect thereto are merged herein. Any agreements entered into between Landlord and Tenant of even date herewith are not, however, merged herein. SECTION 12.15 RECORDATION. Landlord and Tenant will, at the request of the other, promptly execute an instrument in recordable form constituting a short form of this Lease, which shall be filed for record in the appropriate real property records, or at the request of either party this Lease shall be so filed for record. SECTION 12.16 SUCCESSORS AND ASSIGNS. This Lease shall constitute a real right and covenant running with the Premises, and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Whenever a reference is made herein to either party, such reference shall include the party's successors and assigns. SECTION 12.17 LANDLORD'S JOINDER. Landlord agrees to join with Tenant in the execution of such applications for permits and licenses from any Governmental Authority as may be reasonably necessary or appropriate to effectuate the intents and purposes of this Lease, provided that Landlord shall not incur or become liable for any obligation as a result thereof. 24 30 SECTION 12.18 NO THIRD PARTIES BENEFITTED. Except as herein specifically and expressly otherwise provided with regard to notices and opportunities to cure defaults and certain enumerated rights granted to Permitted Mortgagees, the terms and provisions of this Lease are for the sole benefit of Landlord and Tenant, and no third party whatsoever, is intended to benefit herefrom. SECTION 12.19 SURVIVAL. Any terms and provisions of this Lease pertaining to rights, duties, or liabilities extending beyond the expiration or termination of this Lease shall survive the end of the Term. SECTION 12.20 PERPETUITIES. To the extent that the rule against perpetuities is applicable thereto, but not otherwise, the rights granted to Tenant in Article 13 hereof shall expire upon the earlier to occur of (a) the date set forth for expiration of such rights in said Article 13 or (b) the date which is 21 years after the date of death of the last to die of the following parties: the last grandchild to survive of the presently living grandchildren of George Bush, former President of the United States of America. SECTION 12.21 TRANSFER OF LANDLORD'S INTEREST. Subject to the terms of the Landlord's Financing, Landlord may freely transfer and/or mortgage its interest in the Premises and under this Lease from time to time and at any time, provided that any such transfer or mortgage is expressly made subject to the terms, provisions, and conditions of this Lease, including specifically but without limitation Tenant's rights under Article 13, and the transferee or mortgagee agrees to be bound by the provisions hereof (in the case of a mortgagee, such agreement being contingent upon the mortgagee actually succeeding to the Landlord's interest in the Premises and hereunder by virtue of a foreclosure or conveyance in lieu thereof). SECTION 12.22 TENANT'S RIGHT TO ASSIGN. Tenant may assign its rights hereunder or sublease all or a portion of the Premises with Landlord's prior written approval, which approval will not be unreasonably withheld. provided that Tenant shall remain liable for all liabilities and obligations arising under this Lease. An assignment by Tenant to an affiliate under common control as that of the herein Tenant shall be deemed by Landlord to be approved. Tenant acknowledges that Landlord's approval may require the consent and/or joinder of Landlord's Financing Lender. SECTION 12.23 PAST DUE AMOUNTS. All amounts required to be paid by Tenant or Landlord under the terms and provisions of this Lease shall bear interest at the Default Rate from the date due until paid. SECTION 12.24 INDEPENDENT COUNSEL. Landlord and Tenant declare that each has had independent legal advice by counsel of their own selection; that each fully understands the facts and has been fully informed of all legal rights or liabilities; that after such advice or knowledge, each believes the Lease to be fair, just, reasonable and that each signs the Lease freely and voluntarily. SECTION 12.25 COOPERATION WITH LANDLORD'S LENDER. Tenant agrees to cooperate with any Lender utilized by Landlord relative to financing associated with this Lease and Improvements located upon the Premises, should such Lender request reasonable modifications to this Lease provided such modifications do not adversely diminish or otherwise modify the obligations of Landlord under this 25 31 Lease or affect the rights of the Tenant granted under this Lease or create additional liability or obligations for Tenant beyond Tenant's current liability and obligations under this Lease. ARTICLE 13 OPTION TO PURCHASE PREMISES SECTION 13.1 RIGHT OF FIRST REFUSAL. (a) If Landlord shall receive a bona fide offer to purchase the Premises during the Term, then any contract which may be entered into between Landlord and a third party purchaser shall provide that the sale shall be subject to Tenant's right of refusal set forth in this Section 13.1. If Landlord shall receive such offer or execute such contract, Landlord shall send to Tenant a true and complete copy of the executed contract and the complete terms of the offer with Landlord's certification that it will accept the offer, and Tenant shall have the option, to be exercised within thirty (30) days after receipt thereof, to make a contract with Landlord on the same terms and conditions set forth in such third party contract or offer. If Tenant, after receipt of the third party contract or the terms of the offer acceptable to Landlord, shall fail to exercise its option within the thirty (30) day period, Landlord shall have the right to conclude the proposed sale on the same terms as in the offer or contract originally forwarded to Tenant, provided the sale shall close within the timeframe set forth in the third party contract plus thirty (30) days. If the sale shall not close within said time frame plus thirty (30) days, Landlord shall repeat the procedure specified in this Section 13.1 before it can conclude any sale of the Premises. (b) Notwithstanding Tenant's failure to exercise its option, any sale of the Premises shall be subject to this Lease and Tenant's option to purchase the Premises and Tenant's right of first refusal shall remain in force and be binding on any party to the same extent as if said subsequent owner were Landlord herein, and said subsequent owner shall be required to do all of the things required of Landlord in this Lease prior to any such sale of the Premises. (c) If any third party contract or offer for the Premises shall include property other than the Premises, Tenant's right of first refusal shall, at its election, be either applicable to the entire property covered by such contract or offer, or applicable to the Premises only at a purchase price which shall be that part of the price offered by the third party, which the value of the Premises shall bear to the value of all the property included in such third party contract or offer. (d) Tenant's right to purchase shall not be extinguished, canceled or waived by Tenant failing to exercise its option as to any offer, contract or conveyance which is between Landlord and a related party, a nominee and his principal, or a sole shareholder and his corporation, or a corporation and its subsidiary or affiliate. (e) To the extent that the provisions set forth in this Section 13.1 conflict with the terms of the Ford Lease, the Ford Lease shall prevail to the extent the Ford Lease is in effect. All rights of the Tenant to purchase the property are subordinate to the rights of Ford Leasing as set forth in the Ford Lease. 26 32 SECTION 13.2 OPTION. (a) For and in consideration of the execution of this Lease by Tenant and the sum of Ten Dollars ($10.00), Tenant shall have the option to purchase the Premises at any time during the Term (including any extensions thereof), without premium or penalty, for the Purchase Price determined pursuant to this Section 13.2 (the "PURCHASE PRICE"), provided Landlord is given sixty (60) days written notice of Tenant's election to purchase and provided further that Tenant is not then in default under the terms of this Lease. (1) The purchase price of the Premises shall be determined by an appraisal conducted using an M.A.I. appraiser (or an appraiser having the same class of certification of an M.A.I. appraiser by the successor certification organization in the case that the designation of M.A.I. appraiser is changed or succeeded). The appraisal shall not take into consideration the Base Rent, terms or conditions of this Lease. The appraised value shall be reduced by the cost of any leasehold improvements made to the Premises by Tenant. (2) The Tenant, at its sole expense, shall obtain, and submit to Landlord, an appraisal of the fair market value of the Premises (the "FIRST APPRAISAL") from an M.A.I. appraiser (the "FIRST APPRAISER"), and if Landlord shall accept such appraisal, then such First Appraisal shall be the Purchase Price. (3) If Landlord does not accept such First Appraisal, Landlord, at Landlord's sole expense shall obtain, and submit to Tenant, a second appraisal of the fair market value of the Premises (the "SECOND APPRAISAL") from an M.A.I. appraiser (the "SECOND APPRAISER"). If the numerical difference between the value of the First Appraisal and the value of the Second Appraisal is less than ten percent (10%) of the appraisal with the lower value, then the two appraisal values shall be averaged and that averaged value shall be the Purchase Price. (4) If the numerical difference between the value of the First Appraisal and the value of the Second Appraisal is equal to or greater than ten percent (10%) of the appraisal with the lower value, then the First Appraiser and the Second Appraiser shall choose a third M.A.I. appraiser (the "THIRD APPRAISER") who shall appraise the fair market value of the Premises (the "THIRD APPRAISAL"), and the three appraisal values shall be averaged and that averaged value shall be the Purchase Price. If the Third Appraisal is requested, the Landlord and Tenant shall each pay one-half (1/2) of the cost of such Third Appraisal. (b) In the event that the option herein granted shall be exercised as aforesaid, Landlord agrees to sell and Tenant agrees to purchase the Premises for the Purchase Price aforesaid and upon the following terms and conditions: (1) The Premises is to be conveyed at the time full payment of the Purchase Price is made by Tenant to Landlord (hereinafter called "CLOSING DATE"), but in no event later than three (3) months from the date of receipt of Tenant's notice of election, by general warranty deed conveying to Tenant or Tenant's nominee, title to the same, subject only to (i) the matters set forth in EXHIBIT B and other matters previously approved in writing by Tenant, (ii) any matters created by Tenant, and (iii) taxes and other Impositions assessed against the Premises or any part thereof but not yet due and 27 33 payable, which charges, assessments, taxes and other Impositions shall be paid by Tenant; but free and clear of any mortgages, liens or encumbrances upon Landlord's interest. (2) For such deed and conveyance Tenant is to pay the Purchase Price in cash or by certified or bank check upon the delivery of such deed. (3) Full possession of the Premises is to be delivered to Tenant at the time of delivery of the deed. (4) The cost and expense of preparing the deed and any other documents relating to said conveyance and recording the same including title insurance premiums, Landlord's reasonable attorney's fees and real estate transfer taxes (including documentary stamps and sur-tax, if applicable), if any, shall be paid by Tenant. (5) The Rent provided for in this Lease shall be apportioned as of the Closing Date. (6) The recording of a deed after the expiration of the Term of this Lease, conveying the Premises to a third party and reciting that the option in this Article has expired and has not been exercised shall be, as to all persons other than Tenant, conclusive evidence of such expiration and nonexercise. (c) Notwithstanding anything to the contrary contained herein Landlord may convey the Premises subject to the option herein granted; provided, however, that the Landlord has complied with the provisions of this Section 13.1 and the party to whom the Landlord conveys the Premises assumes in writing all of Landlord's obligations under this Lease. No such conveyance shall relieve the Landlord for liability for breach of representations as set forth in Article 10 of this Lease. (d) It is further understood and agreed that in the event Tenant gives written notice to Landlord sixty (60) days before the Expiration Date or the end of any Renewal Term, of Tenant's intention to purchase the Premises, the Term of this Lease then shall be extended until the payment to Landlord of the Purchase Price but in no event later than three (3) months therefrom. The Purchase Price shall be paid no later than the expiration of such three (3) month extension. In the event Tenant does not consummate the purchase pursuant to the terms and conditions of this Section 13.2, then the Tenant's options as set forth in this Section13.2 shall terminate. (e) Landlord will, at the request of Tenant, promptly execute an instrument in recordable form, reflecting Tenant's option to purchase the Premises, and may be part of the recorded instrument referred to in Section 12.15, pursuant to this Article 13, which shall be filed for record in the appropriate real property records. (f) In the event that such option shall not be exercised as aforesaid, Tenant shall, within ten (10) days upon demand of Landlord, deliver to Landlord an instrument in form suitable for recording and executed and acknowledged by Tenant whereby the option and all rights hereunder shall be released and discharged. 28 34 (g) To the extent that the provisions set forth in this Section 13.1 conflict with the terms of the Ford Lease, the Ford Lease shall prevail. All right of the Tenant to purchase the property are subordinate to the rights of Ford Leasing as set forth in the Ford Lease. SECTION 13.3 SPECIFIC PERFORMANCE. It is expressly agreed that the remedy at law for breach of any of the obligations set forth in this Article 13 is inadequate in view of the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of Landlord or Tenant to comply fully with each of such obligations. Accordingly, each of the aforesaid obligations shall be, and is hereby expressly made, enforceable by specific performance. ARTICLE 14 ARBITRATION SECTION 14.1 ARBITRATION PROVISIONS. EXCEPT AS TO TENANT'S EXERCISE OF REASONABLE JUDGMENT PURSUANT TO SECTION 8.5 OF THIS LEASE, ANY CONTROVERSY OR CLAIM BETWEEN THE PARTES HERETO RELATING TO THIS LEASE, INCLUDING, WITHOUT LIMITATION, ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN THE COUNTY AND STATE WHERE THE PREMISES ARE LOCATED. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. EXCEPT AS TO TENANT'S EXERCISE OF REASONABLE JUDGMENT PURSUANT TO SECTION 8.5 OF THIS LEASE, ANY PARTY TO THIS LEASE MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS LEASE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. ALL STATUTES OF LIMITATIONS THAT WOULD OTHERWISE BE APPLICABLE SHALL) APPLY TO ANY DISPUTES ASSERTED IN ANY ARBITRATION PROCEEDING HEREOF. THE ARBITRATORS SHALL HAVE THE RIGHT, TO AWARD COUNSEL FEES TO ANY PARTY, TO GRANT TEMPORARY OR PERMANENT INJUNCTIVE RELIEF, AND TO REQUIRE SPECIFIC PERFORMANCE. THE PARTIES SPECIFICALLY AGREE THAT THE ARBITRATORS MAY NOT AWARD AND THE PARTIES WAIVE ANY RIGHT TO ANY EXEMPLARY OR PUNITIVE DAMAGES. THE DECISION OR AWARD IN THE ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING UPON EACH OF THE PARTIES AND JUDGMENT ON SUCH AWARD OR DECISION MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. THE PARTIES BY EXECUTION OF THE LEASE AND INITIALING THIS PROVISION REPRESENT THAT THEY WERE GIVEN FULL AND COMPLETE OPPORTUNITY TO REVIEW SAME WITH COUNSEL OF THEIR CHOOSING AND THEY HAVE READ AND SIGNED SAME AS THEIR FREE AND VOLUNTARY ACT AND DEED. 29 35 ARTICLE 15 SUBORDINATION AND ATTORNMENT SECTION 15.1 SUBORDINATION. This Lease and all rights of Tenant hereunder are and shall be subject and subordinate in all respects to all mortgages encumbering Landlord's interest in the Premises as permitted in the Lease (the "SUPERIOR MORTGAGE"). The provisions of this Section 15.1 shall be self-operative and no further instrument of subordination shall be required. If any Requesting Party shall seek confirmation of such subordination, Tenant shall promptly execute and deliver, at its own cost and expense, an instrument, in recordable form, to evidence such subordination; if Tenant fails to execute, acknowledge or deliver any such instrument within ten (10) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver any such instruments for and on behalf of Tenant. However, nothing herein withstanding to the contrary, the foregoing provisions shall not be effective until the Landlord shall have delivered to Tenant a Non-Disturbance Agreement, in the form required under Section 10.1, executed by each Landlord's Financing Lender and each mortgagee and holder of a Superior Mortgage. SECTION 15.2 ATTORNMENT. If, at any time prior to the termination of this Lease, the holder of a Superior Mortgage, or its successors or assigns, (herein collectively called the "SUPERIOR MORTGAGEE") who acquire the interest of Landlord under this Lease through foreclosure action or a transfer-in-lieu thereof, whereby the Superior Mortgagee succeeds to the rights of Landlord under this Lease through possession or foreclosure or delivery of a new lease or deed or otherwise, Tenant agrees, at the election and upon request of any such party (hereinafter called the "SUCCESSOR LANDLORD") to attorn fully and completely from time to time, and to recognize any such Successor Landlord as Tenant's landlord under this Lease upon the executory terms of this Lease. Provided Tenant is not in default under the terms of this Lease, such Successor Landlord shall agree in writing to accept Tenant's attornment. The foregoing provisions of this Section 15.2 shall inure to the benefit of any such Successor Landlord and any successor or assign of Tenant. Tenant, upon demand of any such Successor Landlord, agrees to execute any instruments to evidence and confirm the foregoing provisions of this Section 15.2, reasonably satisfactory to any such Successor Landlord, acknowledging such attornment and setting forth the terms and conditions of its tenancy. END OF PAGE 30 36 EXECUTED as of the date and year first above written. "LANDLORD" KC PARTNERSHIP, A FLORIDA GENERAL PARTNERSHIP, BY: /s/ JAMES S. CARROLL ----------------------------------------- NAME: JAMES S. CARROLL, TRUSTEE OF THE J. CARROLL ENTERPRISES TRUST UNDER AMENDED AND RESTATED TRUST AGREEMENT DATED AUGUST 3, 1993, GENERAL PARTNER "TENANT" PERIMETER FORD, INC., a Delaware corporation BY: /s/ JAMES S. CARROLL ----------------------------------------- NAME: JAMES S. CARROLL TITLE: VICE-PRESIDENT 31 37 LEASE AGREEMENT EXHIBIT A DESCRIPTION OF LAND ALL THAT TRACT OR PARCEL OF LAND LYING AND BEING IN LAND LOT 35 OF THE 17TH DISTRICT OF FULTON COUNTY, GEORGIA AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT A 1/2" REBAR IRON PIN FOUND AT THE INTERSECTION OF THE WESTERLY RIGHT-OF-WAY OF GEORGIA HIGHWAY NO. 400 WITH THE NORTHERLY RIGHT-OF-WAY OF MOUNT VERNON HIGHWAY (80' R/W); THENCE RUNNING SOUTH 68 DEGREES 39 MINUTES WEST ALONG THE NORTHWESTERLY RIGHT-OF-WAY OF MOUNT VERNON HIGHWAY A DISTANCE OF 381.4 FEET TO A 1/2" REBAR IRON PIN FOUND AT THE INTERSECTION OF THE NORTHWESTERLY RIGHT-OF-WAY OF MOUNT VERNON HIGHWAY WITH THE NORTHEASTERLY RIGHT-OF-WAY OF BARFIELD ROAD EXTENSION (80' R/W); THENCE RUNNING NORTH 59 DEGREES 36 MINUTES WEST A DISTANCE OF 37.1 FEET TO A 1/2" REBAR IRON PIN FOUND ON THE NORTHEASTERLY RIGHT-OF-WAY OF BARFIELD ROAD EXTENSION; THENCE RUNNING NORTH 19 DEGREES 22 MINUTES 30 SECONDS WEST ALONG SAID RIGHT-OF-WAY AN ARC DISTANCE OF 231.36 FEET (CORD = 229.62') TO A POINT; THENCE RUNNING NORTH 31 DEGREES 13 MINUTES WEST ALONG SAID RIGHT-OF-WAY A DISTANCE OF 414.3 FEET TO A 1/2" REBAR IRON PIN FOUND; THENCE RUNNING NORTH 25 DEGREES 22 MINUTES WEST ALONG SAID RIGHT-OF-WAY A DISTANCE OF 54.0 FEET TO AN 1/2" REBAR IRON PIN FOUND; THENCE RUNNING NORTH 30 DEGREES 57 MINUTES 33 SECONDS WEST ALONG SAID RIGHT-OF-WAY A DISTANCE OF 270.2 FEET TO A 1/2" REBAR IRON PIN FOUND; THENCE RUNNING NORTH 89 DEGREES 30 MINUTES EAST A DISTANCE OF 409.3 FEET TO A 1/2" REBAR IRON PIN FOUND; THENCE RUNNING SOUTH 00 DEGREES 14 MINUTES WEST A DISTANCE OF 161.7 FEET TO A 1/2" REBAR IRON PIN FOUND; THENCE RUNNING NORTH 89 DEGREES 40 MINUTES EAST A DISTANCE OF 383.25 FEET TO A MARKER FOUND ON THE WESTERLY RIGHT-OF-WAY OF GEORGIA HIGHWAY NO. 400; THENCE RUNNING SOUTH 09 DEGREES 47 MINUTES EAST ALONG SAID RIGHT-OF-WAY A DISTANCE OF 257.0 FEET TO A CONCRETE MONUMENT FOUND; THENCE RUNNING SOUTH 01 DEGREES 41 MINUTES EAST ALONG SAID RIGHT-OF-WAY A DISTANCE OF 81.1 FEET TO A CONCRETE MONUMENT FOUND; THENCE RUNNING SOUTH 01 DEGREES 21 MINUTES EAST ALONG SAID RIGHT-OF-WAY A DISTANCE OF 239.54 FEET TO A CONCRETE MONUMENT FOUND AT THE INTERSECTION OF THE SAID WESTERLY RIGHT-OF-WAY OF GEORGIA HIGHWAY NO. 400 WITH THE NORTHWESTERLY RIGHT- OF-WAY OF MOUNT VERNON HIGHWAY AND THE TRUE POINT OF BEGINNING. 38 LEASE AGREEMENT EXHIBIT B EXCEPTIONS TO TITLE TO LAND 1. Right of Way Deed from Glenn McCullough, et al., to Fulton County, Georgia, dated August 8, 1958, recorded at Deed Book 3396, commencing at page 632, Records of the Clerk of the Superior Court, Fulton County, Georgia. 2. Right of Way Deed from R. Ben Smith, to Fulton County, Georgia, dated October 27, 1958, recorded at Deed Book 3396, commencing at page 637, aforesaid records. 3. Georgia Power Company Right of Way Easement from R. H. Nix, to Georgia Power Company, dated March 30, 1959, recorded at Deed Book 3470, commencing at page 515, aforesaid records. 4. Right of Way Deed from Corrie S. Carter, to State Highway Department of Georgia, undated, recorded at Deed Book 4645, commencing at page 558, aforesaid records. 5. Right of Way Deed from J. N. Shaffer and J. Aronoff, dated October 10, 1966, recorded at Deed Book 4650, commencing at page 301, aforesaid records. 6. Georgia Power Company Right of Way Deed from Mrs. Carrie Carter, to Georgia Power Company, dated May 23, 1967, recorded at Deed Book 4755, commencing at page 149, aforesaid records. 7. Permit for Anchors, Guy Poles and Wires from Margaret G. Ford, to Georgia Power Company, dated August 25, 1967, recorded at Deed Book 4802, commencing at page 169, aforesaid records. 8. Right of Way Deed from Melrose Carter, as Co-Administrator of the Estate of Tilden Thomas Carter, et al., to Fulton County, Georgia, dated July 5, 1977, recorded at Deed Book 6752, commencing at page 468, aforesaid records. 9. Right of Way Deed from T & B Scottdale Contractors, Inc., dated May 19, 1978, recorded at Deed Book 6981, commencing at page 166, aforesaid records. 10. Right of Way Deed from Margaret A. Ford, to Fulton County, Georgia, dated June 6, 1978, recorded at Deed Book 6992, commencing at page 58, aforesaid records. 11. Right of Way Deed from James H. Allen, to Fulton County, Georgia, dated September 21, 1979, recorded at Deed Book 7434, commencing at page 239, aforesaid records. 12. Declaration of Protective Covenants and Restrictions running with the land, dated January 26, 1980, recorded at Deed Book 7470, commencing at page 68, aforesaid records. 39 13. Covenant contained in that Warranty Deed dated January 26, 1980, recorded at Deed Book 7470, commencing at page 99, aforesaid records. 14. Easement from Ted W. Russell, et al., to Georgia Power Company, dated June 30, 1980, recorded at Deed Book 7606, commencing at page 370, aforesaid records. 15. Right of Way Deed from Church of Christ of Sandy Springs, Inc., to Fulton County, Georgia, dated June 14, 1978, recorded at Deed Book 7117, commencing at page 298, aforesaid records. 16. Freedom Financial Leasing Corporation Lease No. 122951001 executed by K. C. Partnership, dated January 18, 1996, recorded at Deed Book 20617, commencing at page 238, aforesaid records. 18. Freedom Financial Leasing Corporation Lease No. 126692001 and A306573 executed by K. C. Partnership, dated February 8, 1996, recorded at Deed Book 21372, commencing at page 72, aforesaid records. 19. Right of First Refusal and Options contained in that Deed from Ford Leasing Development Company, to K.C. Partnership, dated December, 1986, recorded at Deed Book 10561, commencing at page 432, aforesaid records. 20. Lease between Ford Leasing Development Company and KC Partnership, dated May 8, 1986. 21. Dealership Sublease between Ford Leasing Development Company and Perimeter Ford, Inc. EX-10.44 15 LEASE AGREEMENT - 3/16/98 1 EXHIBIT 10.44 ================================================================================ LEASE AGREEMENT between K.C. PARTNERSHIP, A FLORIDA GENERAL PARTNERSHIP (Landlord) and COURTESY FORD, INC. (Tenant) Courtesy ================================================================================ 2 LEASE AGREEMENT TABLE OF CONTENTS
Page ---- ARTICLE 1 LEASE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Premises Leased . . . . . . . . . . . . . . . . . . 1 Section 1.2 Premises Defined . . . . . . . . . . . . . . . . . 1 Section 1.3 Habendum . . . . . . . . . . . . . . . . . . . . . 1 Section 1.4 Termination of Prior Lease . . . . . . . . . . . . 1 ARTICLE 2 TERM OF LEASE . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2.1 Initial Term and Commencement . . . . . . . . . . . 1 Section 2.2 Lease Year . . . . . . . . . . . . . . . . . . . . 1 Section 2.3 Lease Month . . . . . . . . . . . . . . . . . . . . 1 Section 2.4 Renewal Term . . . . . . . . . . . . . . . . . . . 2 ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 3.1 Base Rent . . . . . . . . . . . . . . . . . . . . . 2 Section 3.2 Additional Rent and Rent . . . . . . . . . . . . . 2 Section 3.3 Payment of Rent . . . . . . . . . . . . . . . . . . 2 Section 3.4 Late Charge . . . . . . . . . . . . . . . . . . . . 3 Section 3.5 Adjustment to Rent for Ford Improvements . . . . . 3 ARTICLE 4 TAXES; UTILITIES . . . . . . . . . . . . . . . . . . . . . . 3 Section 4.1 Impositions Defined . . . . . . . . . . . . . . . . 3 Section 4.2 Tenant's Obligations . . . . . . . . . . . . . . . 3 Section 4.3 Tax Contest . . . . . . . . . . . . . . . . . . . . 3 Section 4.4 Evidence Concerning Impositions . . . . . . . . . . 4 Section 4.5 Utilities . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 5 IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 5.1 Alterations . . . . . . . . . . . . . . . . . . . . 4 Section 5.2 Mechanic's and Materialmen's Liens . . . . . . . . 4 Section 5.3 Ownership of Improvements . . . . . . . . . . . . . 5 Section 5.4 Asbestos . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 6 USE, ENVIRONMENTAL, MAINTENANCE, AND REPAIRS . . . . . . . . 5 Section 6.1 Use . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 6.2 Environmental. . . . . . . . . . . . . . . . . . . 5 Section 6.3 Maintenance and Repairs . . . . . . . . . . . . . . 9 Section 6.4 Americans with Disabilities Act . . . . . . . . . . 10 ARTICLE 7 INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . . 10 Section 7.1 Building Insurance . . . . . . . . . . . . . . . . 10 Section 7.2 Liability Insurance . . . . . . . . . . . . . . . . 10 Section 7.3 Policies . . . . . . . . . . . . . . . . . . . . . 11
3 Section 7.4 Tenant's Indemnity . . . . . . . . . . . . . . . . 11 Section 7.5 Landlord's Indemnity . . . . . . . . . . . . . . . 11 Section 7.6 Subrogation . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 8 CASUALTY; CONDEMNATION . . . . . . . . . . . . . . . . . . . 12 Section 8.1 Tenant's Obligation to Restore . . . . . . . . . . 12 Section 8.2 Restoration and Deposit of Funds . . . . . . . . . 13 Section 8.3 Notice of Damage . . . . . . . . . . . . . . . . . 15 Section 8.4 Total Taking . . . . . . . . . . . . . . . . . . . 15 Section 8.5 Partial Taking . . . . . . . . . . . . . . . . . . 15 Section 8.6 Temporary Taking . . . . . . . . . . . . . . . . . 15 Section 8.7 Notice of Taking, Cooperation . . . . . . . . . . . 15 ARTICLE 9 TENANT'S FINANCING . . . . . . . . . . . . . . . . . . . . . 16 Section 9.1 Tenant's Right to Encumber . . . . . . . . . . . . 16 Section 9.2 Tenant's Mortgage . . . . . . . . . . . . . . . . . 16 ARTICLE 10 WARRANTY OF TITLE AND PEACEFUL POSSESSION . . . . . . . . . 17 Section 10.1 Warranty As to Encumbrances . . . . . . . . . . . . 17 Section 10.2 Landlord's Mortgage . . . . . . . . . . . . . . . . 18 Section 10.3 Representations of Landlord . . . . . . . . . . . . 18 ARTICLE 11 DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . 20 Section 11.1 Default . . . . . . . . . . . . . . . . . . . . . . 20 Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 22 Section 12.1 Notices. . . . . . . . . . . . . . . . . . . . . . 22 Section 12.2 Performance of Other Party's Obligations . . . . . 22 Section 12.3 Modification and Non-Waiver . . . . . . . . . . . . 23 Section 12.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 23 Section 12.5 Number and Gender; Captions; References . . . . . . 23 Section 12.6 CPI . . . . . . . . . . . . . . . . . . . . . . . 23 Section 12.7 Estoppel Certificate . . . . . . . . . . . . . . . 23 Section 12.8 Severability . . . . . . . . . . . . . . . . . . . 23 Section 12.9 Attorney Fees . . . . . . . . . . . . . . . . . . . 24 Section 12.10 Surrender of Premises; Holding Over . . . . . . . 24 Section 12.11 Relation of Parties . . . . . . . . . . . . . . . 24 Section 12.12 Force Majeure . . . . . . . . . . . . . . . . . . 24 Section 12.13 Non-Merger . . . . . . . . . . . . . . . . . . . . 24 Section 12.14 Entireties . . . . . . . . . . . . . . . . . . . . 24 Section 12.15 Recordation . . . . . . . . . . . . . . . . . . . 24 Section 12.16 Successors and Assigns . . . . . . . . . . . . . . 25 Section 12.17 Landlord's Joinder . . . . . . . . . . . . . . . . 25 Section 12.18 No Third Parties Benefitted . . . . . . . . . . . 25 Section 12.19 Survival . . . . . . . . . . . . . . . . . . . . . 25
iii 4 Section 12.20 Perpetuities . . . . . . . . . . . . . . . . . . . 25 Section 12.21 Transfer of Landlord's Interest . . . . . . . . . 25 Section 12.22 Tenant's Right To Assign . . . . . . . . . . . . . 25 Section 12.23 Past Due Amounts . . . . . . . . . . . . . . . . . 26 Section 12.24 Independent Counsel . . . . . . . . . . . . . . . 26 Section 12.25 Cooperation with Landlord's Lender. . . . . . . . 26 ARTICLE 13 OPTION TO PURCHASE PREMISES . . . . . . . . . . . . . . . . 26 Section 13.1 Right of First Refusal . . . . . . . . . . . . . . 26 Section 13.2 Option . . . . . . . . . . . . . . . . . . . . . . 27 Section 13.3 Specific Performance . . . . . . . . . . . . . . . 29 ARTICLE 14 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 14.1 Arbitration Provisions . . . . . . . . . . . . . . 29 ARTICLE 15 SUBORDINATION AND ATTORNMENT . . . . . . . . . . . . . . . . 30 Section 15.1 Subordination. . . . . . . . . . . . . . . . . . . 30 Section 15.2 Attornment . . . . . . . . . . . . . . . . . . . . 30 Section 15.3 Radon Gas Disclosure . . . . . . . . . . . . . . . 30
iv 5 EXHIBITS EXHIBIT A Description of Land EXHIBIT B Exceptions to Title to Land v 6 LEASE AGREEMENT This Lease Agreement ("LEASE") is entered into as of the 16th day of March, 1998, between K.C. PARTNERSHIP, A FLORIDA GENERAL PARTNERSHIP as ("LANDLORD"), and COURTESY FORD, INC., a Florida corporation ("TENANT"). ARTICLE 1 LEASE OF PROPERTY SECTION 1.1 PREMISES LEASED. Landlord subleases to Tenant, and Tenant leases from Landlord the real property and premises described on EXHIBIT A (the "LAND"), including but not limited to all of the rights, interests, estates, and appurtenances thereto, all improvements thereon, and all other rights, titles, interests, and estates, if any, in adjacent streets and roads. SECTION 1.2 PREMISES DEFINED. All of the Land, properties, rights, estates, appurtenances, and interests leased to Tenant pursuant to Section 1.1, together with all improvements now or hereafter constructed thereon, are hereinafter collectively referred to as the "PREMISES". SECTION 1.3 HABENDUM. To have and to hold the Premises, together with all and singular the rights, privileges, and appurtenances thereunto attaching or in anywise belonging, exclusively unto Tenant, its successors and assigns, upon the terms and conditions set forth herein and subject to the matters set forth on EXHIBIT B. SECTION 1.4 TERMINATION OF PRIOR LEASE. The Premises was previously subject to a lease agreement by and between Landlord and Tenant's predecessor ("PRIOR LEASE"). Immediately upon the execution (and delivery to each other) by Landlord and Tenant of this Lease, the Prior Lease shall automatically terminate and be of no further force and effect. Landlord and Tenant's predecessor shall execute and deliver to Tenant a written instrument evidencing such termination. ARTICLE 2 TERM OF LEASE SECTION 2.1 INITIAL TERM AND COMMENCEMENT. The initial term ("INITIAL TERM") of this Lease shall commence on the date hereof ("COMMENCEMENT DATE") and unless sooner terminated pursuant to the terms of this Lease, the initial term of this Lease shall expire on the "EXPIRATION DATE" (herein so called), which shall be (i) the last day of the one hundred twentieth (120th) Lease Month from and after the first day of the calendar month following the Commencement Date. SECTION 2.2 LEASE YEAR. A "LEASE YEAR" shall mean a twelve (12) Lease Month period commencing with the first day of the calendar month following the Commencement Date or any anniversary date thereof. SECTION 2.3 LEASE MONTH. A "LEASE MONTH" shall mean a period of time during the term of this Lease commencing the first day of the calendar month and ending on the last day of the calendar month. The first Lease Month shall begin on the first day of the calendar month following the Commencement Date. 7 SECTION 2.4 RENEWAL TERM. (a) If on the Expiration Date and the date Tenant notifies Landlord of its intention to renew the term of this Lease (as provided below), (i) Tenant has not been given notice of default under this Lease based upon a Default, as hereinafter defined, and (ii) this Lease is in full force and effect, then Tenant, shall have and may exercise an option to renew this Lease for four (4) additional terms (each, a "RENEWAL TERM") of five (5) years each, upon the same Rent (hereinafter defined), as adjusted pursuant to the terms of Section 3.1, and other terms and conditions contained in this Lease. Whenever used in this Lease, "TERM", unless modified or specifically noted otherwise in the applicable context, shall mean the Initial Term together with each Renewal Term to the extent Tenant has exercised any option with respect to any Renewal Term. (b) If Tenant desires to renew this Lease, Tenant must notify Landlord in writing of its intention to renew on or before the date which is at least six (6) months but no more than twelve (12) months prior to the Expiration Date or the expiration date of any Renewal Term, as the case may be. ARTICLE 3 RENT SECTION 3.1 BASE RENT. Subject to the terms and provisions contained in this Section 3.1, Tenant shall pay Landlord monthly "BASE RENT" (herein so called) of Sixty Seven Thousand and no/100 Dollars ($67,000.00), in advance on or before the first day of each Lease Month during the Term, subject to adjustment as hereafter provided. If the Term commences on a day other than the first day of a calendar month, or ends on a day other than the last day of a calendar month, then the Base Rent for such month shall be prorated on the basis of one thirtieth (1/30th) of the monthly Base Rent for each day of such month. If the CPI on any Adjustment Date shall be greater than the CPI for the Commencement Date, monthly Base Rent commencing on the Adjustment Date shall be adjusted to be the original monthly Base Rent specified in this Section 3.1 plus an amount equal to one-half (1/2) of the product obtained by multiplying: (i) the original monthly Base Rent specified in this Section 3.1 by (ii) the percentage increase in the CPI from the Commencement Date through the January 1st prior to the Adjustment Date. "ADJUSTMENT DATE" shall be the first day of the first Lease Month of each Renewal Term. The term "CPI" shall have the meaning specified therefor in Section 12.6. Tenant shall also pay at the same times and places as the rental installments such Florida State Sales Tax, other such applicable taxes due on rentals and all other sums due hereunder either city, state, county or federal as may be in effect from time to time. SECTION 3.2 ADDITIONAL RENT AND RENT. All amounts required to be paid by Tenant under the terms of this Lease, other than Base Rent, are herein from time to time collectively referred to as "ADDITIONAL RENT." Base Rent and Additional Rent are herein collectively referred to as "RENT." SECTION 3.3 PAYMENT OF RENT. Base Rent shall be payable to Landlord at the original or changed address of Landlord as set forth in Section 12.1 or to such other persons or at such other addresses in the United States of America as Landlord may designate from time to time in writing to Tenant; however, if Tenant receives notice of a default under the Landlord's Financing (defined below), then Tenant shall have the right, but not the obligation, to pay to Landlord's Financing Lender (defined 2 8 below) any sums due and owing on such Landlord's Financing and all such payments by Tenant shall reduce the amount of Rent owing to Landlord. Additional Rent shall be paid as herein set forth. SECTION 3.4 LATE CHARGE. Any rent or other sum which is not paid within fifteen (15) days after the date due shall bear interest at the Default Rate from the date when the same is payable under the terms of this Lease until the same shall be paid. SECTION 3.5 ADJUSTMENT TO RENT FOR FORD IMPROVEMENTS. Landlord and Tenant recognize that Ford Leasing or its related entities ("FORD") may from time to time require that structural improvements to the Premises be made as a condition to the continuation of a Ford Dealership upon the Premises. In the event that Ford requires that such structural improvements be made to the Premises, Landlord shall, at its expense, construct such improvements. The Base Rent due pursuant to Section 3.1 hereinabove shall be increased by an amount equal to the costs of the improvements required by Ford, amortized over a fifteen (15) year period. The new Base Rent shall commence effective the next monthly period following the completion of the required improvements. ARTICLE 4 TAXES; UTILITIES SECTION 4.1 IMPOSITIONS DEFINED. "IMPOSITIONS" means all real estate and ad valorem taxes, and associated levies, including penalties levied for failure of Tenant to pay any of same in a timely manner, which shall or may during the Term be assessed, levied or imposed by any Governmental Authority (defined below) upon (a) the Premises or any part thereof, (b) the buildings or improvements now or hereafter comprising a part thereof, the appurtenances thereto or the sidewalks, streets, or vaults adjacent thereto. Impositions shall not include any income tax, capital levy, estate, succession, inheritance or transfer taxes, or similar tax of Landlord; any franchise tax imposed upon any owner of the fee of the Premises; or any income, profits, or revenue tax, assessment, or charge imposed upon the rent or other benefit received by Landlord under this Lease by any municipality, county, state, the United States of America, or any other governmental body, subdivision, agency, or authority (all of such foregoing governmental bodies are collectively referred to herein as "GOVERNMENTAL AUTHORITIES"). SECTION 4.2 TENANT'S OBLIGATIONS. During the Term, Tenant will pay all Impositions before they become delinquent. Impositions that are payable by Tenant for the tax year in which this Lease commences as well as during the year in which the Term ends shall be apportioned so that Tenant shall pay its share of the Impositions payable by Tenant for the portion of such Taxes allocable to the portion of such year occurring during the Term. Where any Imposition that Tenant is obligated to pay may be paid pursuant to law in installments, Tenant may pay such Imposition in installments as and when such installments become due. Tenant shall, if so requested, deliver to Landlord evidence of payment of all Impositions Tenant is obligated to pay hereunder, concurrently with the making of such payment. SECTION 4.3 TAX CONTEST. Tenant may, at its expense, contest the validity or amount of any Imposition for which it is responsible, in which event the payment thereof may be deferred, as permitted by law, during the pendency of such contest, if diligently prosecuted. Landlord shall cooperate with Tenant in connection with any such contest but Landlord shall not be required to spend any sums or incur any liability in cooperating with Tenant. All taxes must be paid prior to the date they become delinquent. 3 9 In the event that the property subject to this Agreement is encumbered by financing, the Tenant shall pay all taxes within the time frame established by such lender. SECTION 4.4 EVIDENCE CONCERNING IMPOSITIONS. The certificate, advice, bill, or statement issued or given by the appropriate officials authorized by law to issue the same or to receive payment of any Imposition of the existence, nonpayment, or amount of such Imposition shall be prima facie evidence for all purposes of the existence, nonpayment, or amount of such Imposition. SECTION 4.5 UTILITIES. Tenant shall pay all charges for gas, electricity, light, heat, air conditioning, power, telephone, and other communication services, and all other utilities and similar services rendered or supplied to the Premises, and all water, refuse, sewer service charges, or other similar charges levied or charged against, or in connection with, the Premises. ARTICLE 5 IMPROVEMENTS SECTION 5.1 ALTERATIONS. At any time and from time to time during the Term, Tenant may perform such alteration, renovation, repair, refurbishment, and other work (herein such matters being collectively called the "ALTERATIONS") with regard to any Improvements as Tenant may elect. All buildings, structures, and other improvements located at any time on the Land are herein called the "IMPROVEMENTS." Any and all alterations, renovation, repair, refurbishment, or other work with regard thereto shall be performed, in accordance with the following "CONSTRUCTION STANDARDS" (herein so referenced): (i) All such construction or work shall be performed in a good and workmanlike manner in accordance with good industry practice for the type of work in question; (ii) All such construction or work shall be done in compliance with all applicable building codes, ordinances, and other laws or regulations of Governmental Authorities having jurisdiction; (iii) Tenant shall have obtained and shall maintain in force and effect the insurance coverage required in Article 7 with respect to the type of construction or work in question; (iv) After commencement, such construction or work shall be prosecuted with due diligence to its completion; and (v) With the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed and shall be deemed given if a request is not approved or denied within thirty (30) days after notice, no Alteration shall be made which (x) involves any material repairs or modifications to the structural portions of the Premises, or (y) would impair the market value, structural integrity or usefulness of the Premises for the purposes for which the same are presently being used. SECTION 5.2 MECHANIC'S AND MATERIALMEN'S LIENS. Tenant shall have no right, authority, or power to bind Landlord or any interest of Landlord in the Premises for any claim for labor or for material or for any other charge or expense incurred in construction of any Improvements or performing any alteration, renovation, repair, refurbishment, or other work with regard thereto, nor to render Landlord's interest in the Premises liable for any lien or right of lien for any labor, materials, or other charge or expense incurred in connection therewith, and Tenant shall in no way be considered as the agent of Landlord in the construction, erection, or operation of any such Improvements. If any liens or claims for labor or materials supplied or claimed to have been supplied to the Premises shall be filed against the interest of the Landlord, Tenant shall promptly pay or bond such liens to Landlord's reasonable satisfaction or otherwise obtain the release or discharge thereof. 4 10 SECTION 5.3 OWNERSHIP OF IMPROVEMENTS. During the Term all currently existing Improvements shall be solely the property of Landlord. All other Improvements created by Alterations which may be added by Tenant (which do not constitute replacements of existing Improvements) shall be the property of Tenant, but at the end of the Term, all then-existing Improvements shall be the property of Landlord. However, upon expiration or earlier termination of this Lease, Tenant shall have the right to remove all trade fixtures, movable equipment, furniture, furnishings and other personal property located in the Premises and other items not permanently attached to the Premises provided that Tenant repairs any damages caused by the removal of such items. Nothing hereinabove withstanding to the contrary, any lifts or hydraulics installed upon the Premises by Tenant, whether as an original installation or replacement, shall remain on the Premises and shall become the property of the Landlord upon expiration or termination of this Lease. SECTION 5.4 ASBESTOS. Landlord shall remain fully liable and responsible for any asbestos and other Hazardous Substances as hereinafter defined present on any portion of the Premises prior to the date of this Lease even if such asbestos is in an unfriable or undisturbed state on the date of this Lease and Tenant thereafter disturbs such materials in any manner including, without limitation, in connection with any Alterations performed by Tenant on the Premises. If Tenant intentionally disturbs or causes to be disturbed by any contractor or other party any asbestos presently located on the Premises of which Tenant has actual knowledge, then any such disturbance of such asbestos shall only be done in accordance with all laws, regulations, ordinances, or requirements of any Governmental Authority having jurisdiction in the Premises including, without limitation, those which govern the disposition of Hazardous Substances. Any expenses associated with correction of such disturbance caused by the Tenant or its contractors shall be borne by the Tenant. ARTICLE 6 USE, ENVIRONMENTAL, MAINTENANCE, AND REPAIRS SECTION 6.1 USE. Subject to the terms and provisions hereof, Tenant may use and enjoy the Premises for the sale, lease, trade, repair or service of motor or other vehicles and other uses normally associated therewith including, without limitation, the sale of parts and services. Without limiting the generality of the foregoing, the provisions relating to use of the Premises shall be broadly construed to encompass all uses normally associated with premises occupied by automobile, boat and recreational vehicle dealerships. Tenant shall not use or occupy, permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises in a manner which would constitute a public or private nuisance, or which would violate any laws, regulations, ordinances, or requirements of any Governmental Authority having jurisdiction in the Premises including, without limitation, those which relate to Hazardous Substances. SECTION 6.2 ENVIRONMENTAL. (a) For purposes of this Lease, the term "HAZARDOUS SUBSTANCE" means (i) any substance, product, waste or other material of any nature whatsoever which is or becomes listed, regulated, or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. ("CERCLA"); the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. 5 11 ("RCRA"); the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Water Act, 33 U.S.C. Section 1251 et seq.; the Federal Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Federal Clean Water Act, 33 U.S.C. Section 1151 et seq.; the National Environmental Policy Act, 42 U.S.C. Section 1857 et seq.; the Regulations of the Environmental Protection Agency, 33 C.F.R. and 40 C.F.R.; Chapters 373, 376, 380 and 403 of the Florida Statutes and rules related thereto, including Chapters 17, 27 and 40 of the Florida Administrative Code; and all Dade County environmental protection ordinances, (the above-cited Florida state statutes are hereinafter collectively referred to as the "STATE TOXIC SUBSTANCES LAWS") or any other federal, state or local statute, law, ordinance, resolution, 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, (ii) any substance, product, waste or other material of any nature whatsoever which may give rise to liability under any of the above statutes or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decisions of a state or federal court, (iii) petroleum or crude oil other than petroleum and petroleum products which are contained within regularly operated motor vehicles, and (iv) asbestos. (b) Tenant represents, warrants, acknowledges and agrees that: (i) Subject to the terms and provisions of this Lease, Tenant will not undertake, permit, authorize or suffer, the manufacture, handling, generation, transportation, storage, treatment, discharge, release, burial or disposal on, under or about the Premises of any Hazardous Substance, or the transportation to or from the Premises of any Hazardous Substance; (ii) Tenant will not cause, permit, authorize or suffer any Hazardous Substance to be placed, held, located or disposed of, on, under or about any other real property all or any portion of which is legally or beneficially owned (or any interest or estate therein which is owned) by the Tenant in any jurisdiction now or hereafter having in effect a so-called "Superlien" law or ordinance or any part thereof the effect of which law or ordinance would be to create a lien on the Premises to secure any obligation in connection with the real property in such other jurisdiction. (c) From and after the Commencement Date, Tenant shall keep and maintain the Premises in compliance with, and shall not cause or permit the Premises to be in violation of, any federal, state or local laws, ordinances or regulations relating to health and safety, industrial hygiene or to the environmental conditions on, under or about the Premises including, but not limited to, air, soil and ground water conditions. Tenant hereby covenants and agrees that neither it nor any agent, servant, employee, or tenant shall generate, manufacture, handle, store, treat, discharge, release, bury or dispose of on, under or about the Premises, any Hazardous Substance. Without limiting the generality of the foregoing provisions of this Subsection, Tenant agrees at all times to comply fully and in a timely manner with, and to cause all of its employees, agents, contractors, subcontractors, tenants and any other persons occupying or present on the Premises to so comply with, all federal, state and local laws, regulations, guidelines, codes, statutes and ordinances applicable to the generation, manufacture, handling, storage, treatment, discharge, release, burial or disposal of any Hazardous Substance located or present on, under or about the Premises by, through or under Tenant after the Commencement Date, or the transportation to or from the Premises of any Hazardous Substance. Any sublease executed after the date hereof concerning the Premises shall contain a provision prohibiting the lessee, and any agent, servant, employee or tenant of the lessee, from generating, manufacturing, storing, treating, discharging, releasing, burying or disposing on, under or about the Premises, or transporting to or from the Premises, any Hazardous Substance. 6 12 (d) If the release, threat of release, placement on, under or about the Premises, or the use, generation, manufacture, storage, treatment, discharge, release, burial or disposal on, under or about the Premises, or transportation to or from the Premises, of any Hazardous Substance: (i) gives rise to liability, costs or damages (including, but not limited to, a response action, remedial action, or removal action) under RCRA, CERCLA, the State Toxic Substances Laws, or any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decision of a state or federal court, (ii) causes or threatens to cause a significant public health effect, or (iii) pollutes or threatens to pollute the environment, the Tenant shall promptly take any and all response, remedial and removal action necessary to clean up the Premises and any other effected property and mitigate exposure to liability arising from the Hazardous Substance, if required by law or by any governmental authority. (e) Tenant shall indemnify, defend with counsel reasonably satisfactory to Landlord, protect and hold harmless Landlord, its directors, officers, employees, agents, assigns and any successor or successors to Landlord's interest under this Lease from and against all claims, actual damages (including but not limited to special and consequential damages), punitive damages, injuries, costs, response costs, losses, demands, debts, liens, liabilities, causes of action, suits, legal or administrative proceedings, interest, fines, charges, penalties and expenses (including but not limited to attorneys' and expert witness fees and costs incurred in connection with defending against any of the foregoing or in enforcing this indemnity) of any kind whatsoever paid, incurred or suffered by, or asserted against, any indemnified party at any time prior to any retaking of the Premises by Landlord directly or indirectly arising from or attributable to (i) any breach by Tenant of any of its agreements, warranties or representations set forth in this Section 6.2, or (ii) any repair, cleanup or detoxification, or preparation and implementation of any removal, remedial, response, closure or other plan concerning any Hazardous Substance which arises on, under or about the Premises after the Commencement Date and is attributable to Tenant and not to Landlord or any other party not under the control, employed by, contracted with or affiliated with Tenant, regardless of whether undertaken due to governmental action. Without limiting the generality of the foregoing indemnity, such indemnity is intended to operate as an agreement pursuant to Section 107 (e) of CERCLA, 42 U.S.C. Section 9607(e), to insure, protect, hold harmless and indemnify Landlord for any liability pursuant to such statute, to the extent Tenant is liable pursuant to this Section 6.2. (f) Tenant shall promptly give Landlord (i) a copy of any notice, correspondence or information it receives from any federal, state or other governmental authority regarding Hazardous Substances on, under or about the Premises or Hazardous Substances which affect or may affect the Premises, or regarding any actions instituted, completed or threatened by any such governmental authority concerning Hazardous Substances which affect or may affect the Premises, (ii) written notice of any knowledge or information Tenant obtains regarding Hazardous Substances on, under or about the Premises or incurred by Tenant (other than commercially reasonable quantities of customarily used cleaning compounds and the like and the matters covered in subsections (h) and (i) of this Section 6.2), a third party or any government agency to study, assess, contain or remove any Hazardous Substances on, under, about or near the Premises for which expense or loss Tenant may be liable or for which a lien may be imposed on the Premises, (iii) written notice of any knowledge or information Tenant obtains regarding the release or discovery of Hazardous Substances on, under or about the Premises or on other sites owned, occupied or operated by Tenant or by any person for whose conduct Tenant is or may be responsible, or whose liability may result in a lien on or otherwise affect the Premises, (iv) written notice of all claims made or threatened by any third party against Tenant or the Premises relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Substance, and (v) written notice of Tenant's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Premises that could subject the Premises to any restrictions on the ownership, occupancy, transferability or use of the Premises under any of the statutes cited in Subsection (a) of this Section 6.2 or any regulation adopted pursuant thereto. Notwithstanding anything to the contrary contained herein, Tenant shall not be under any obligation to provide notice of any contamination so long as any of the principal(s) of Landlord (currently being James S. Carroll, William C. Carroll, Janet L. Giles and Ralph S. Kerr) are responsible for the operation of the dealership at the Premises. 7 13 (g) Notwithstanding anything to the contrary contained herein, the indemnity contained in this Section 6.2 shall continue indefinitely from the date of Tenant's execution of this Lease and shall survive the termination of all agreements between Tenant and Landlord. The indemnity contained in this Section 6.2 in no way limits the scope or enforceability of any other indemnity contained herein. (h) Commercially reasonable quantities of customarily used cleaning compounds and the like, which are stored, used and disposed of in compliance with applicable environmental laws, shall be excluded from any obligation of Tenant hereunder this Section 6.2. Commercially reasonable quantities of products customarily used in Tenant's business and the like, which are stored, used and disposed of in compliance with applicable environmental laws, are hereby permitted by Landlord. (i) Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no liability or obligation under this Section 6.2 or elsewhere in this Lease for any matter existing on, under or about the Premises prior to the Commencement Date, including, without limitation, the removal or remediation of any Hazardous Substances and Landlord shall maintain full liability for such pre-Commencement Date contamination. Landlord shall indemnify, defend with counsel reasonably satisfactory to Tenant, protect and hold harmless Tenant, its directors, officers, employees, agents, assigns and any successor or successors to Tenant's interest under this Lease from and against all claims, actual damages (including but not limited to special and consequential damages), punitive damages, injuries, costs, response costs, losses, demands, debts, liens, liabilities, causes of action, suits, legal or administrative proceedings, interest, fines, charges, penalties and expenses (including but not limited to attorneys' and expert witness fees and costs incurred in connection with defending against any of the foregoing or in enforcing this indemnity) of any kind whatsoever paid, incurred or suffered by, or asserted against, any indemnified party directly or indirectly arising from or attributable to (1) any breach by Landlord any of its agreements, warranties or representations set forth in this Section 6.2(i), or (2) any repair, cleanup or detoxification, or preparation and implementation of any removal, remedial, response, closure or other plan concerning any Hazardous Substance on, under or about the Premises prior to the Commencement Date attributable to Landlord or any other party under the control, employed by, contracted with or otherwise associated with Landlord in any manner, regardless of whether undertaken due to governmental action. Without limiting the generality of the foregoing indemnity, such indemnity is intended to operate as an agreement pursuant to Section 107 (e) of CERCLA, 42 U.S.C. Section 9607(e), to insure, protect, hold harmless and indemnify Tenant for any liability pursuant to such statute, to the extent Landlord is liable pursuant to this Section 6.2(i). SECTION 6.3 MAINTENANCE AND REPAIRS. During the Term of this Lease, in addition to the Rent herein provided, Tenant agrees to pay all costs and charges for repair and maintenance of the Premises, except as otherwise provided herein. Tenant agrees to surrender the Premises at the expiration or earlier termination of this Lease in as good condition as at the commencement of the term of this Lease except, Tenant shall not be responsible for the repair or condition of those portions of the Premises which Landlord agrees to maintain nor damage by dry rot, termites, sinking of floors, or ordinary wear and tear. Landlord agrees to maintain in good repair, at Landlord's cost, the roof, outer walls (which will include the bulkheads under plate glass windows), downspouts, underground plumbing, underground and in the wall wiring, support of floors, and, without limitation, structural portions of the Premises. Tenant shall keep in good repair the electrical equipment, air conditioning equipment and heating equipment, and when required, Tenant shall replace such components with items of at least scope and quality of those being replaced. In the event Tenant has replaced any of such equipment prior to the end of its normal useful life and the Term of this Lease terminates or expires in accordance with the provisions contained in 8 14 this Lease, then Landlord shall pay to Tenant on such termination date or expiration date, as the case may be, an amount equal to the cost of such equipment paid by Tenant times a fraction, the numerator of which is the number of months in the normal useful life of such equipment minus the number of months from the date of installation of such equipment to the date of termination or expiration, as the case may be, of the Term, and the denominator of which is the number of months in the normal useful life of such equipment. No such payment shall be required to made by Landlord if the Term is terminated due to the occurrence and continuation of a Default by Tenant. Tenant agrees to replace any plate, window or door glass broken in the Premises with glass of like kind and quality, except Tenant shall not be required to replace glass broken due to settlement or defective construction of the building or due to the failure of Landlord to maintain and repair those portions of the Premises which Landlord agrees herein to maintain and repair or due to negligent repair of said premises by Landlord. Landlord agrees to replace glass broken in the Premises when breakage is due to any of the causes set forth in the next preceding sentence which shall relieve Tenant from replacing said glass as set forth herein. Landlord and Tenant shall, comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act. Any repairs required to be made by the Landlord and Tenant shall be made in a prompt and workmanlike manner. All goods and materials used shall be in quality equal to or better than that being replaced. The Tenant shall supply the Landlord with copies of all warranties offered as to any replacements and shall supply Landlord with copies of any invoices for repairs or replacements, the cost of which exceeds $5,000.00. Tenant's failure to supply such warranties and invoices shall not be deemed a default under the terms of this Lease. Subject to the other terms of this Lease, Tenant acknowledges that it has inspected and that the Premises, including all fixtures, equipment and furnishings contained therein, are in satisfactory or excellent condition and accepts the Premises in its "AS IS" condition, without requiring Landlord to make any repairs or replacements thereof. Tenant hereby waives any objection to and releases Landlord from any liability arising from the condition of the Premises from and after the Commencement Date, except for matters as herein set forth. Any Improvements being constructed upon the Land together with all equipment and hardware, may be warrantied by third party vendors who have performed labor or rendered materials thereto. The Tenant shall be entitled to the benefit of all such warranties and the Landlord shall fully cooperate in securing the services of such third party vendors for warranty work during the Term of this Lease. SECTION 6.4 AMERICANS WITH DISABILITIES ACT. Landlord shall be responsible for compliance with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act, attributable to the Premises as of the Commencement Date of this Lease. In the event the Tenant makes any modifications to the Premises, all such modifications shall comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act, including modifications which are required by such governmental agencies, as a result of such modifications, to remaining unmodified portions of the Premises. 9 15 ARTICLE 7 INSURANCE AND INDEMNITY SECTION 7.1 BUILDING INSURANCE. Tenant will, at its cost and expense, keep and maintain in force the following policies of insurance: (1) Insurance on the Improvements against loss or damage by fire and against loss or damage by any other risk now and from time to time insured against by "extended coverage" provisions of policies generally in force on improvements of like type in the city in which the Premises are located, and in builder's risk completed value form during construction of improvements by Tenant, in amounts sufficient to provide coverage for the full insurable value of the Improvements; the policy for such insurance shall have a replacement cost endorsement or similar provision. "FULL INSURABLE VALUE," shall mean actual replacement value (exclusive of cost of excavation, foundations, and footings below the surface of the ground or below the lowest basement level), and such full insurable value shall be determined by Tenant's insurer, and confirmed from time to time at the request of Landlord by one of the insurers. The Tenant shall maintain all storm and flood insurances which are customarily maintained for properties similar to the Premises in the County in which the Premises are located, or which is required by Landlord's Lender (if any), and only if such coverage is available, to fully insure the Improvements including all such coverages which might later come into existence as a result of changes in the insurance coverages available or required in the future. (2) Worker's Compensation Insurance as to Tenant's employees involved in the construction, operation, or maintenance of the Premises in compliance with applicable law. (3) Such other insurance against other insurable hazards which at the time are commonly insured against in the case of improvements similarly situated, due regard being given to the height and type of the Improvements, their construction, location, use, and occupancy. SECTION 7.2 LIABILITY INSURANCE. Tenant shall secure and maintain in force comprehensive general liability insurance, including contractual liability specifically applying to the provisions of this Lease and completed operations liability, with limits of not less than Ten Million Dollars ($10,000,000) with respect to bodily injury or death to any number of persons in any one accident or occurrence and with respect to property damage in any one accident or occurrence, such limits to be increased in the event of request by Landlord by an amount which may be reasonable at the time. SECTION 7.3 POLICIES. All insurance maintained in accordance with the provisions of this Article 7 shall be issued by companies reasonably satisfactory to Landlord, and shall be carried in the name of both Landlord and Tenant, as their respective interests may appear, and shall contain a mortgagee clause acceptable to the Landlord's Financing Lender and the Permitted Mortgagees. All property policies shall (i) be subject to prior written approval of Landlord, which shall not be unreasonably withheld or delayed, and (ii) expressly provide that any loss thereunder may be adjusted with Tenant, Landlord's Financing Lender and Permitted Mortgagees, but, unless required otherwise under Landlord's Financing, shall be payable to Tenant and disbursed as set forth in Section 8.2. All property and liability insurance policies shall name Landlord as an additional named insured and shall include contractual liability endorsements. Tenant shall furnish Landlord, Landlord's Financing Lender and each Permitted Mortgagee with evidence of all insurance policies required under this Article 7 and shall furnish and maintain with each of such parties, at all times, a certificate of the insurance carrier certifying that such 10 16 insurance shall not be canceled without at least fifteen (15) days advance written notice to each of such parties. SECTION 7.4 TENANT'S INDEMNITY. Subject to Section 7.6, Tenant shall indemnify and hold harmless Landlord, its shareholders, partners, trustees, members, directors, officers, employees and its successors and assigns (the "INDEMNIFIED LANDLORD PARTIES"), from all claims, suits, actions, and proceedings whatsoever which may be brought or instituted on account of or growing out of any Default and any and all injuries or damages, including death, to persons or property on the Premises and all losses, liabilities, judgments, settlements, costs, penalties, damages, and expenses relating thereto, including but not limited to attorneys' fees and other costs of defending against, investigating, and settling the Claims, to the extent, but only to the extent, such Claims are not attributable to (i) events or conditions that occurred or existed, in whole or in part, prior to the date when Tenant first occupied the Premises or (ii) failure of any components of the Improvements that Landlord is required to maintain ("CLAIMS"), Tenant shall assume on behalf of the Indemnified Landlord Parties and conduct with due diligence and in good faith the defense of all such Claims against any of the Indemnified Landlord Parties. Tenant may contest the validity of any such Claims, in the name of Landlord or Tenant, as Tenant may deem appropriate, provided that the expenses thereof shall be paid by Tenant. The foregoing covenants and agreements of Tenant shall survive the expiration or termination of this Lease. SECTION 7.5 LANDLORD'S INDEMNITY. Subject to Section 7.6, Landlord shall indemnify and hold harmless Tenant, its shareholders, partners, trustees, members, directors, officers, employees and its successors and assigns (the "INDEMNIFIED TENANT PARTIES"), from all claims which may be brought or instituted on account of or growing out of any default by Landlord of its obligations under this Lease and all injuries or damages, including death, to persons or property on the Premises and all losses, liabilities, judgments, settlements, costs, penalties, damages, and expenses relating thereto, including but not limited to attorneys' fees and other costs of defending against, investigating, and settling the claims, to the extent, but only to the extent, any such claims are attributable to or arise out of: (i) events or conditions that existed or occurred, in whole or in part, prior to the date when Tenant first occupied the Premises; (ii) failure of any components of the Improvements which Landlord is required to maintain; and (iii) Landlord's representations or warranties or asbestos in any form which is present on the Premises prior to the date of this Lease. Landlord shall assume on behalf of the Indemnified Tenant Parties and conduct with due diligence and in good faith the defense of all Claims against any of the Indemnified Tenant Parties. Landlord may contest the validity of any Claims, in the name of Landlord or Tenant, as Landlord may deem appropriate, provided that the expenses thereof shall be paid by Landlord. The foregoing covenants and agreements of Landlord shall survive the Term and expiration or termination of this Lease. SECTION 7.6 SUBROGATION. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each hereby waives any and all rights of recovery, claims, actions, or causes of action against the other, its agents, officers, and employees for any loss or damage that may occur to any improvements located on the Premises, or any part thereof, or any personal property of such party therein, by reason of fire, the elements, or any other cause which is insured under standard "all risk of direct loss" insurance policies available in the state in which the Premises are located, regardless of cause or origin, including negligence of either party hereto, its agents, officers, or employees. No insurer of one party shall hold any right of subrogation against the other party as to any such loss or damage. 11 17 ARTICLE 8 CASUALTY; CONDEMNATION SECTION 8.1 TENANT'S OBLIGATION TO RESTORE. Subject to the other terms of this Section 8.1, in the event of damage to, or destruction of, any Improvements by fire or other casualty, Tenant shall promptly repair, replace, restore, and reconstruct the same, all in compliance with the provisions of Section 8.2. If insurance proceeds are insufficient to pay for required replacement, repairs, restoration, etc., then Tenant shall be obligated to promptly repair, replace, restore, and reconstruct the Improvements, all in compliance with the provisions of Section 8.2, notwithstanding the unavailability of insurance proceeds for such purpose. In the event that a Permitted Mortgagee (as hereinafter defined) or Landlord's Financing Lender (as hereinafter defined), as the case may be, requires that payment of insurance proceeds be made to it and not be made available for required replacement, repairs, restoration, etc., then to the extent that such funds are withheld, the Tenant shall not be responsible for performing required replacement, repairs, restoration, or reconstruction of the Improvements. In the event of a casualty loss wherein the insurance proceeds are not be used for replacement, repairs, restoration, etc., or the Improvements, as a result of Landlord's Financing Lender or by consent of the parties, the insurance proceeds shall be applied as follows: (1) first, to pay the cost of razing the Improvements and leveling, cleaning and otherwise putting the Premises in good order; (2) second, to Landlord's Financing Lender; (3) third, to the payment to Tenant for any of its improvements; and (4) fourth, to Landlord, to the extent of any remaining proceeds. Distribution of insurance proceeds is being made in conformity with Section 5.4 of this Lease. Notwithstanding the foregoing, in the event of destruction or damage involving more than seventy-five percent (75%) of the interior floor area of the Improvements, Tenant shall have no obligation to rebuild unless the Landlord and Tenant may agree to rebuild the Improvements. In the event the parties have not agreed to rebuild the Premises then it is recognized between Landlord and Tenant that it is their intent to relocate the operations to another location. In the event of such relocation, this Lease shall terminate effective as to the affected Premises as of the date of such damage or destruction and the insurance proceeds received by the Landlord and Tenant [as to Tenant, for Tenant's Improvements, the right to same carrying forward as to the new location] shall be utilized for the construction of new Improvements at an alternative location. In the event that the costs of construction of the Improvements for which the Landlord is responsible exceeds the insurable value of the operation which was subject to the casualty, the Landlord shall pay the additional costs for Improvements, and the annual Base Rent due pursuant to Section 3.1 shall be increased by an amount equal to ten (10%) percent of the Landlord's additional cost of construction of the new facility. This Lease, except for the adjustment of Base Rent as described above, shall govern as to the rights and obligations of the Landlord and Tenant at the substituted location, however, the Term of the Lease shall be in abeyance during the period of construction of the alternative Improvements. Tenant's obligation for payment of Base Rent and other monetary sums under this Lease as applicable to the new Premises shall commence as of the later to occur of (i) the date the improvements to be constructed on the new Premises are certified as complete by the applicable architect for such improvements in accordance with the plans and specifications agreed to in 12 18 writing by Landlord and Tenant and (ii) the date a Certificate of Occupancy is obtained for the operation of such new improvements. Landlord and Tenant shall, in good faith, fully cooperate with one another in the selection of the alternative site and relative to preparation of plans for Improvements and construction thereof. Nothing hereinabove withstanding to the contrary, if the Tenant failed to maintain insurance coverage required herein and as a result, proceeds are paid by the insurance company which are less than the full insurable value of the Improvements, Tenant shall be solely responsible for any such deficiency. SECTION 8.2 RESTORATION AND DEPOSIT OF FUNDS. (a) Prior to Tenant commencing any repair, restoration or rebuilding pursuant to Section 8.1 involving an estimated cost of more than One Hundred Thousand Dollars ($100,000), Tenant shall submit to Landlord for its approval, which will not be unreasonably withheld or delayed: (i) plans and specifications therefor, prepared by a licensed architect reasonably satisfactory to Landlord; (ii) copies of appropriate governmental permits; (iii) an estimate of the cost of the proposed work, certified to by said architect (iv) a fixed price construction contract in an amount not in excess of such architect's estimated cost from a reputable and experienced general contractor; and (v) satisfactory evidence of sufficient contractor's comprehensive general liability insurance covering Landlord, builder's risk insurance, and worker's compensation insurance. Upon completion of any such work by or on behalf of Tenant, Tenant shall provide Landlord with written evidence, in form and substance reasonably satisfactory to Landlord, showing that (i) Tenant has paid all contractors for all costs incurred in connection with such repair, restoration or rebuilding, and (ii) that the Premises is not encumbered by any mechanic's or materialmen's liens relating to such repair, restoration or rebuilding. Regarding Tenant's obligations with respect to mechanic's or materialmen's liens, reference is made herein to all of the terms and provisions of Section 5.2 in connection with such repair, restoration or rebuilding. (b) Provided that a Default does not then exist, then all sums arising by reason of such loss under insurance policies maintained by Tenant, shall be deposited with the Depositary (as hereinafter defined) to be available to Tenant for the repair, restoration and rebuilding of the Premises. Tenant shall diligently pursue the repair, restoration and rebuilding of the improvements in a good and workmanlike manner using only materials which are of a quality comparable to the quality of the materials used in the Improvements prior to their destruction or damage. The insurance proceeds will be disbursed to Tenant by the Depositary after delivery of evidence reasonably satisfactory to the Depositary that (A) such repairs, restoration, or rebuilding have been completed and effected in compliance with the plans and specifications for the restoration or rebuilding, (B) no mechanic's and materialman's liens against the Premises have been filed, or that all such liens have been paid or bonded around, and (C) all payments for work performed and materials purchased as of the date of such disbursement for which mechanic's and materialman's liens might arise have been paid or will be paid from such disbursement or that all such potential liens have been paid or bonded around. At the option of Tenant, such proceeds shall be advanced in reasonable installments. Each such installment (except the final installment) shall be advanced in an amount equal to the cost of the construction work completed since the last prior advance (or since commencement of work as to the first advance) less statutorily required retainage in respect of mechanic's and materialman's liens or retainage which may be required by Landlord's Financing Lender in an amount not to exceed ten percent (10%) of such cost. The amount of each installment requested shall be certified as being due and owing by Tenant's architect in charge, and each request shall include all bills for labor and materials for which reimbursement is requested and reasonably satisfactory evidence 13 19 that no lien has been placed against the Premises for any labor or material furnished for such work. The final disbursement, which shall be an amount equal to the balance of the insurance proceeds, shall be made upon receipt of (1) an architect's certificate of substantial completion as to the work from Tenant's architect, (2) reasonably satisfactory evidence that all bills incurred in connection with the work have been paid and (3) issuance of a certificate of occupancy by the applicable governmental agency, if required. The term "DEPOSITARY", as used herein, shall mean either: (i) Landlord's Financing Lender, or its designee provided that Landlord's Financing Lender is an institutional lender, its designee is not an Affiliate of Landlord, and such entity holds such funds in accordance with the terms of this lease, or related in any other manner to Landlord), or (ii) such other party that is acceptable to Landlord and Tenant, if there is no such Landlord's Financing Lender or if such Landlord's Financing Lender has refused to act as Depositary. (c) If no Default then exists, any excess of money received from insurance policies remaining with the Depositary after the repair or rebuilding of the Improvements shall, to the extent required by any Permitted Mortgagee, be applied to payment of Tenant's Permitted Mortgage, otherwise any such proceeds shall be paid to Tenant. (d) If Tenant shall not commence the repair or rebuilding of the Improvements within a period of sixty (60) days after damage or destruction by fire or other casualty and prosecute the same thereafter with such dispatch as may be necessary to complete the same within a reasonable period after said damage or destruction occurs; then, in addition to all other remedies Landlord may have either under this Lease, at law or in equity, the money received by and remaining in the hands of the Depositary shall be paid to and retained by Landlord as security for the continued performance and observance by Tenant of Tenant's covenants and agreements hereunder. SECTION 8.3 NOTICE OF DAMAGE. Tenant shall immediately notify Landlord and each Permitted Mortgagee of any destruction or damage to the Premises. SECTION 8.4 TOTAL TAKING. Should the entire Premises be taken (which term, as used in this Article 8, shall include any conveyance in avoidance or settlement of eminent domain, condemnation, or other similar proceedings) by any Governmental Authority, corporation, or other entity under the right of eminent domain, condemnation, or similar right, then Tenant's right of possession under this Lease shall terminate as of the date of taking possession by the condemning authority, and the award therefor will be distributed as follows: (1) first, to the payment of all reasonable fees and expenses incurred in collecting the award; (2) second, to Landlord's Financing Lender; and (3) third, to Landlord and Tenant, to the extent of their interests in the Premises, as the court having such jurisdiction of such taking shall determine taking into account certain factors including, without limitation, the term of the leasehold estate of the Tenant and the ownership interest of Landlord. After the determination and distribution of the condemnation award as herein provided, the Lease shall terminate. SECTION 8.5 PARTIAL TAKING. Should a portion of the Premises be taken by any Governmental Authority, corporation, or other entity under the right of eminent domain, condemnation, or similar right, this Lease shall nevertheless continue in effect as to the remainder of the Premises unless, in Tenant's reasonable judgment, so much of the Premises shall be so taken as to make it economically unsound to use the remainder for the uses and purposes contemplated hereby, whereupon this Lease shall terminate as of the date of taking of possession by the condemning authority in the same manner as if the whole of 14 20 the Premises had thus been taken, and the award therefor shall be distributed as provided in Section 8.4. In the event of a partial taking where this Lease is not terminated, all awards payable in respect thereof shall be payable to Landlord and Tenant, to the extent of their interests in the Premises, as the applicable condemning authority shall determine taking into account certain factors including, without limitation, the term of the leasehold estate of the Tenant and the ownership interest of Landlord. Following such partial taking, Landlord shall make all necessary repairs or alterations to the remaining Premises, required to make the remaining portions of the Premises an architectural whole. The Base Rent payable hereunder during the unexpired portion of the Lease shall be reduced to the extent fair and reasonable under the circumstances, effective on the date physical possession is taken by the condemning authority. SECTION 8.6 TEMPORARY TAKING. If the whole or any portion of the Premises shall be taken for temporary use or occupancy, the Term shall not be reduced or affected. The Base Rent payable hereunder during the unexpired portion of the Lease shall be reduced to the extent fair and reasonable under the circumstances and Tenant shall be entitled to receive the entire amount of any award therefor, less the amount of the reduction in the Base Rent. SECTION 8.7 NOTICE OF TAKING, COOPERATION. Tenant shall immediately notify Landlord and each Permitted Mortgagee of the commencement of any eminent domain, condemnation, or other similar proceedings with regard to Premises. Landlord and Tenant covenant and agree to fully cooperate in any condemnation, eminent domain, or similar proceeding in order to maximize the total award receivable in respect thereof. ARTICLE 9 TENANT'S FINANCING SECTION 9.1 TENANT'S RIGHT TO ENCUMBER. Tenant shall have the right, from time to time and at any time, without Landlord's consent or joinder, to encumber its interest in this Lease and the leasehold estate hereby created with one or more deeds of trust, mortgages, or other lien instruments to secure any borrowings or obligations of Tenant. Any such mortgages, deeds of trust, and/or other lien instruments, and the indebtedness secured thereby, provided that Landlord has been given notice thereof, are herein referred to as "PERMITTED MORTGAGES," and the holder or other beneficiary thereof are herein referred to as "PERMITTED MORTGAGEES." SECTION 9.2 TENANT'S MORTGAGE. If Tenant encumbers its interest in this Lease and the leasehold estate hereby created with liens as above provided, then Tenant shall notify Landlord thereof, providing with such notice the name and mailing address of the Permitted Mortgagee in question, Landlord shall upon request, acknowledge receipt of such notice, and for so long as the Permitted Mortgage in question remains in effect the following shall apply: (a) Landlord shall give to the Permitted Mortgagee a duplicate copy of any and all notices which Landlord gives to Tenant pursuant to the terms hereof, including notices of default, and no such notice shall be effective until such duplicate copy is transmitted to such Permitted Mortgagee, in the manner provided in Section 12.1. (b) There shall be no cancellation, surrender, or modification of this Lease by joint action of Landlord and Tenant without the prior written consent of the Permitted Mortgagee. 15 21 (c) If a Default should occur hereunder, then Landlord specifically agrees that: (1) Landlord shall not enforce or seek to enforce any of its rights, recourses, or remedies, until a notice specifying the event giving rise to such Default has been transmitted to the Permitted Mortgagee, in the manner provided in Section 12.1, and if the Permitted Mortgagee proceeds to cure the Default within a period of thirty (30) days after receipt of such notice or, as to non-monetary events of Default which by their very nature cannot be cured within such time period, the Permitted Mortgagee commences curing such Default within such time period and thereafter diligently pursues such cure to completion within sixty (60) days thereafter, then any payments made and all things done by the Permitted Mortgagee to effect such cure shall be as fully effective to prevent the exercise of any rights, recourses, or remedies by Landlord as if done by Tenant; (2) if the Default is a non-monetary default, the Permitted Mortgagee shall have a period of time in which to cure such Default equal to the greater of (i) the time period for such curing that is applicable to Tenant under the terms of this Lease, or (ii) sixty (60) days after the date that the Permitted Mortgagee has been notified of such Default, provided that the Permitted Mortgagee cures all defaults relating to the payment of Base Rent and neither Landlord nor the Premises is or would be liable or subject to any lien, tax, penalty, expense, liability, or damages because of such Default. If Landlord or the Premises is or will be liable or subject to any such lien, tax, penalty, expense, liability or damages because of the Default, then for so long as the Permitted Mortgagee is diligently and with continuity attempting to secure possession of the Premises (whether by foreclosure or other procedures), and provided such delay does not result in a foreclosure by Landlord's Financing Lender or loss of Landlord's interest in the Premises, Landlord shall allow the Permitted Mortgagee such time as may be reasonably necessary under the circumstances to obtain possession of the Premises in order to cure such Default, and during such time Landlord shall not enforce or seek to enforce any of its rights, remedies or recourses hereunder; and (d) No Permitted Mortgagee shall be or become liable to Landlord as an assignee of this Lease until such time as such Permitted Mortgagee, by foreclosure or other procedures, shall either acquire the rights and interests of Tenant under this Lease or shall actually take possession of the Premises, and upon such Permitted Mortgagee's assigning such rights and interests to another party or upon relinquishment of such possession, as the case may be, such Permitted Mortgagee shall have no further such liability. ARTICLE 10 WARRANTY OF TITLE AND PEACEFUL POSSESSION AND LANDLORD'S FINANCING SECTION 10.1 WARRANTY AS TO ENCUMBRANCES. Landlord represents, warrants and covenants that: (i) the representations and warranties set forth in Section 10.3 are true and correct; (ii) it owns title to the Land and the Premises free and clear of all liens, claims and encumbrances except the liens described in EXHIBIT B hereto securing the financing described therein ("LANDLORD'S FINANCING") and the other encumbrances specifically described in such EXHIBIT B; (iii) except as otherwise set forth in Section 10.2, Landlord's Financing shall not be modified in any manner without the prior written consent of Tenant; and (iv) the lender providing such Landlord's Financing ("LANDLORD'S FINANCING LENDER") has 16 22 executed, caused to be acknowledged (notarized in accordance with applicable law) and delivered to Landlord and Tenant a mutual recognition and attornment agreement, in form and substance reasonably satisfactory to Tenant, suitable for recording in the appropriate records to notify third parties of the existence of such agreement and that the Land and the Premises are subject thereto. Such agreement shall provide, among other provisions, that the Tenant's interest under this Lease shall be subordinate to the Landlord's Financing and that the Landlord's Financing Lender shall (i) give to Tenant a duplicate copy of any and all notices which Landlord's Financing Lender gives to Landlord, including notices of default, and no such notice shall be effective until such duplicate copy is actually received by Tenant in the manner provided in Section 12.1; (ii) give Tenant the right and opportunity to cure any defaults under the Landlord's Financing; and (iii) recognize and consent to Tenant's rights under this Lease in the event of a foreclosure or deed in lieu thereof so long as Tenant continues to perform its obligations under this Lease. As used herein, the term (A) "LANDLORD'S FINANCING LENDER" shall also include any lender that refinances Landlord's Financing or makes a new loan to Landlord, subject to Section 10.2, and (B) "LANDLORD'S FINANCING" shall include all finances secured by liens covering all or any portion of the Premises which are permitted under the terms of this Lease including, without limitation, all new loans. Moreover, Landlord covenants that Tenant shall and may peaceably and quietly have, hold, occupy, use, and enjoy the Premises during the Term, and may exercise all of its rights hereunder, subject only to the provisions of this Lease and applicable governmental laws, rules, and regulations; and Landlord agrees to warrant and forever defend Tenant's right to such occupancy, use, and enjoyment and the title to the Premises against the claims of any and all persons whomsoever lawfully claim the same, or any part thereof, subject only to provisions of this Lease and all applicable governmental laws, rules, and regulations. Landlord's Financing Lender shall not be or become liable to Tenant as an assignee of Landlord's interest in this Lease until such time as such Landlord's Financing Lender, by foreclosure or other procedures, shall either acquire the rights and interests of Landlord under this Lease, and upon Landlord's Financing Lender's assigning such rights and interests to another party, Landlord's Financing Lender shall have no further such liability. To the extent that Tenant cures any defaults of Landlord under Landlord's Financing, Tenant shall receive a credit against the Base Rent due pursuant to Section 3.1 hereinabove in an amount equal to the amount advanced by Tenant to cure such defaults, together with interest at the Tenant's parent company's customary borrowing rate as may be in effect from time to time. Such credit shall be charged against the monthly Base Rent installments, commencing as of the first monthly rental payment due after the first of such advances, until such time as the entire amount of such credit is exhausted. Thereafter, Base Rent shall commence in amounts required in Section 3.1 hereinabove, including payment of any partial installment which may be due as a result of a credit to the final monthly credit which is less than the full monthly Base Rent due. SECTION 10.2 LANDLORD'S MORTGAGE. During the Term, none of Landlord's Financing may be modified or refinanced or any new loan made except in accordance with the following: (a) The total mortgage indebtedness and encumbrances of any type against the Premises after the proposed refinancing or modification or new loan of Landlord's Financing does not exceed eighty percent (80%) of the fair market value of the Premises [including any improvements being made with 17 23 financing obtained for such construction] or the loan balance in existence as of the effective date of this Lease, whichever is greater; and (b) The effect of any such modification, refinancing or new loan does not result in an increase in principal and interest payable by Landlord during any Lease Year which exceeds Base Rent required to be paid by Tenant during any Lease Year. SECTION 10.3 REPRESENTATIONS OF LANDLORD. Landlord represents and warrants to Tenant as of the effective date of this Lease that: (a) The Premises are not subject to any prior lease, easement, adverse claim, or claims of parties in possession, whether or not shown by the public records, except as set forth on EXHIBIT B. (b) There is no pending or threatened condemnation action or agreement in lieu thereof which will or may affect the Premises or any part thereof in any respect whatsoever. (c) There is no action, suit or proceeding, including environmental, pending or threatened against or affecting the Premises or any part thereof. (d) The execution, delivery and performance of this Lease by Landlord has been duly authorized and this Lease is valid and enforceable against Landlord in accordance with its terms. (e) Landlord has no knowledge of any fact, action or proceeding, including environmental, whether actual, pending or threatened, which could result in the modification or termination of the present zoning classification of the Premises, or the termination of full free and adequate access to and from the Premises from all adjoining public highways and roads. (f) Landlord has not agreed to lease or convey or granted any rights with respect to or any part of the Premises or any interest therein to any other person or entity except as shown on EXHIBIT B. (g) The Premises are not subject to any restrictions (recorded or unrecorded), building and zoning laws or ordinances, or other laws, ordinances, rules, regulations and requirements of any Governmental Authority having jurisdiction which do or could prohibit the use of the Premises for the uses set forth in this Lease. (h) Landlord has not received any notice from any Governmental Authority having jurisdiction over the Premises requiring or specifying any work to be done to the Premises. (i) Landlord has no knowledge of any existing, threatened or contemplated action, circumstances or conditions (including but not limited to subsurface conditions) which would materially interfere with the development or use of the Premises for an automobile dealership. (j) As of the date hereof the Premises are, and on the Commencement Date the Premises will be in compliance in all material respects with all restrictive covenants and other restrictions applicable to the Premises and all applicable statutes, ordinances, rules and regulations (federal, state, county and municipal), including without limitation all zoning, environmental, building, health, subdivision regulations. Except as to matters relating to the presence of asbestos contained in the Premises, if any, 18 24 the representation and warranty set forth in this Subsection (j) shall not be applicable to the matters covered under Subsection (m) herein below. (k) The Premises have legal and physical public access to and from abutting roadways dedicated to and accepted by the State, City, or County where the Premises are located. (l) To the extent zoning regulations are applicable to the Premises, the Premises are zoned for use as an automobile dealership facility, for sale, trade, display, service and repair, painting, and other activities normally associated with a full service automobile dealership. (m) To the best of Landlord's knowledge, except as may otherwise be disclosed to Tenant in any written environmental audit report delivered to Tenant prior to the date of this Lease, no Hazardous Materials, pollutants or toxic substances have been placed, dumped, deposited or buried upon, in or under the Premises, there have been no leaks of petroleum, toxic or Hazardous Materials from any of the underground storage tank facilities and there is no contaminated soil, as defined by federal, state and/or local laws or regulations, in, upon or under the Premises by reason of any such wastes, pollutants, toxins, substances, or facilities. Tenant acknowledges that certain materials which may be considered Hazardous Materials are used in the normal course of the business operated on the Premises prior to the commencement date. Landlord represents that to the best of Landlord's knowledge, such use complies with all applicable governmental regulations and that it has no knowledge of any contamination on the Premises. (n) The Premises have an assured water supply sufficient to permit the operations now being conducted thereon, and as contemplated in this Lease with respect to the Improvements to be constructed on the Land, to be conducted in accordance with all governmental requirements. (o) All dimensions in the description to the Premises are net of existing and proposed rights-of-way, easements and dedications except as set forth on EXHIBIT B. (p) The Premises are not located in a flood plain or a flood hazard area for which flood insurance would be required or for which flood insurance is available. (q) Landlord warrants and guarantees that on the Commencement Date the wiring, floors, plumbing, underground plumbing, heating, air conditioning equipment, roofs, outer walls, stairways, doors, windows, plate glass and sprinkler equipment of the Premises are each and every one in good repair and are adequate to furnish the proper service for which each was installed and the heating plant will heat and air conditioning will cool the buildings constituting part of the Premises in accordance with the generally accepted design temperatures for the city and state in which the Premises is located. Landlord further warrants and guaranties that on the Commencement Date, the Premises and all appurtenances thereto, will comply with the building codes, fire, sanitary and safety regulations, ordinances and laws of the United States of America, city, county and state in which the Premises are located. Landlord further warrants and guarantees that at the commencement of this Lease, the Premises may be used for the purposes set out in this Lease without violating any such codes, regulations, ordinances, laws or any restrictive covenants running with the land. 19 25 (r) Landlord has all required occupancy permits and other licenses or permits required for the use and occupancy of the Premises. ARTICLE 11 DEFAULT AND REMEDIES SECTION 11.1 DEFAULT. Each of the following shall be deemed a "DEFAULT" by Tenant hereunder and a material breach of this Lease: (a) Whenever Tenant shall fail to pay any sum payable by Tenant to Landlord or any third party under this Lease on the date upon which the same is due to be paid, and such default shall continue for ten (10) days after Tenant shall have been given a written notice specifying such default; (b) Whenever Tenant shall fail to keep, perform, or observe any of the covenants, agreements, terms, or provisions contained in this Lease that are to be kept or performed by Tenant other than with respect to payment of Rent or other liquidated sums of money, and Tenant shall fail to immediately commence and take such steps as are necessary to remedy the same within thirty (30) days after Tenant shall have been given a written notice specifying the same, or having so commenced, shall thereafter fail to proceed diligently and with continuity to remedy the same; (c) Whenever an involuntary petition shall be filed against Tenant under any bankruptcy or insolvency law or under the reorganization provisions of any law of like import or whenever a receiver of Tenant, or of all or substantially all of the property of Tenant, shall be appointed without acquiescence, and such petition or appointment is not discharged or stayed within sixty (60) days after the happening of such event; or (d) Whenever Tenant shall make an assignment of its property for the benefit of creditors or shall file a voluntary petition under any bankruptcy or insolvency law, or seek relief under any other law for the benefit of debtors. SECTION 11.2 REMEDIES. If a Default occurs, then subject to the rights of any Permitted Mortgagee as provided in Section 9, Landlord may at any time thereafter prior to the curing thereof and without waiving any other rights hereunder or available to Landlord at law or in equity (Landlord's rights being cumulative), do any one or more of the following: (a) Landlord may terminate this Lease by giving Tenant written notice thereof, in which event this Lease and the leasehold estate hereby created and all interest of Tenant and all parties claiming by, through, or under Tenant shall automatically terminate upon the effective date of such notice with the same force and effect and to the same extent as if the effective date of such notice were the day originally fixed in Article 2 hereof for the expiration of the Term; and Landlord, its agents or representatives, shall have the right, without further demand or notice, to reenter and take possession of the Premises and remove all persons and property therefrom with or without process of law, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or existing breaches hereof. In the event of such termination, Tenant shall be liable to Landlord for damages in an amount equal to (A) the discounted present value of the amount by which the Rent reserved hereunder for the remainder of the existing Term (Initial or Renewal) exceeds the then net fair market rental value of the 20 26 Premises for such period of time, plus (B) all expenses incurred by Landlord enforcing its rights hereunder. (b) Landlord may terminate Tenant's right to possession of the Premises and enjoyment of the rents, issues, and profits therefrom without terminating this Lease or the leasehold estate created hereby, reenter and take possession of the Premises and remove all persons and property therefrom with or without process of law, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or existing breaches hereof, and lease, manage, and operate the Premises and collect the rents, issues, and profits therefrom all for the account of Tenant, and credit to the satisfaction of Tenant's obligations hereunder the net rental thus received (after deducting therefrom all reasonable costs and expenses of repossessing, leasing, managing, and operating the Premises). If the net rental so received by Landlord exceeds the amounts necessary to satisfy all of Tenant's obligations under this Lease, Landlord shall retain such excess. In no event shall Landlord be liable for failure to so lease, manage, or operate the Premises or collect the rentals due under any subleases and any such failure shall not reduce Tenant's liability hereunder. If Landlord elects to proceed under this Section 11.2(2), it may at any time thereafter elect to terminate this Lease as provided in Section 11.2(1). ARTICLE 12 MISCELLANEOUS SECTION 12.1 NOTICES. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be in writing and shall be deemed to have been validly given or served by (a) delivery of the same in person to the intended addressee, (b) by depositing the same with Federal Express or another reputable private courier service for next business day delivery to the intended addressee at its address set forth on the first page of this Agreement or at such other address as may be designated by such party as herein provided, (c) by facsimile copy transmission [confirmation sheet indicating transmission to be retained] or (d) by depositing the same in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the intended addressee at its address set forth below or at such other address as may be designated by such party as herein provided. All notices, demands and requests shall be effective upon such personal delivery upon actual receipt, or one (1) business day after being deposited with the private courier service, or two (2) business days after being deposited in the United States mail as required above. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other party hereto at least fifteen (15) days' prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America. For purposes of notice the addresses of the parties hereto shall, until changed, be as follows: Landlord: KC Partnership 3101 N. State Road 7 Hollywood, FL 33021 Facsimile: (954) 964-4760 Tenant: Courtesy Ford, Inc. Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, Texas 77024 Attention: John Turner Facsimile: (713) 627-6468 21 27 The parties hereto shall have the right from time to time to change their respective addresses for purposes of notice hereunder to any other location within the United States by giving a notice to such effect in accordance with the provisions of this Section 12.1. SECTION 12.2 PERFORMANCE OF OTHER PARTY'S OBLIGATIONS. If either party hereto fails to perform or observe any of its covenants, agreements, or obligations hereunder for a period of thirty (30) days after notice of such failure is given by the other party, then the other party shall have the right, but not the obligation, at its sole election but not as its exclusive remedy), to perform or observe the covenants, agreements, or obligations which are asserted to have not been performed or observed at the expense of the failing party and to recover all costs or expenses incurred in connection therewith, together with interest thereon from the date expended until repaid at an annual rate ("DEFAULT RATE") equal to the lesser of (a) three (3) percent above the prime rate of interest established from time to time by NationsBank (or a comparable rate of interest if such rate is not in effect) or (b) the maximum rate of interest permitted by applicable law. Any performance or observance by a party pursuant to this Section 12.2 shall not constitute a waiver of the other party's failure to perform or observe. SECTION 12.3 MODIFICATION AND NON-WAIVER. No variations, modifications, or changes herein or hereof shall be binding upon any party hereto unless set forth in a writing executed by it or by a duly authorized officer or agent. No waiver by either party of any breach or default of any term, condition, or provision hereof, including without limitation the acceptance by Landlord of any Rent at any time or in any manner other than as herein provided, shall be deemed a waiver of any other or subsequent breaches or defaults of any kind, character, or description under any circumstance. No waiver of any breach or default of any term, condition, or provision hereof shall be implied from any action of any party, and any such waiver, to be effective, shall be set out in a written instrument signed by the waiving party. SECTION 12.4 GOVERNING LAW. This Lease shall be construed and enforced in accordance with the laws of the state in which the Premises are located. SECTION 12.5 NUMBER AND GENDER; CAPTIONS; REFERENCES. Pronouns, wherever used herein, and of whatever gender, shall include natural persons and corporations and associations of every kind and character, and the singular shall include the plural wherever and as often as may be appropriate. Article and Section headings in this Lease are for convenience of reference and shall not affect the construction or interpretation of this Lease. Whenever the terms "hereof," "hereby," "herein," or words of similar import are used in this Lease, they shall be construed as referring to this Lease in its entirety rather than to a particular Section or provision, unless the context specifically indicates to the contrary. Any 22 28 reference to a particular "Article" or "Section" shall be construed as referring to the indicated Article or Section of this Lease. SECTION 12.6 CPI. "CPI" shall mean the Consumer Price Index for All Urban Consumers, All Items (Base Year 1982-84 = 100) published by the United States Department of Labor, Bureau of Labor Statistics. If the 1982-84 Base Year shall no longer be used as an index of 100, the revised index which would produce results equivalent, as nearly as possible to those which would be obtained hereunder if the CPI were not so revised. SECTION 12.7 ESTOPPEL CERTIFICATE. Landlord and Tenant shall execute and deliver to each other, promptly upon any request therefor by the other party, a certificate addressed as indicated by the requesting party and stating: (a) whether or not this Lease is in full force and effect; (b) whether or not this Lease has been modified or amended in any respect, and submitting copies of such modifications or amendments; (c) whether or not there are any existing defaults hereunder known to the party executing the certificate, and specifying the nature thereof; (d) whether or not any particular Article, Section, or provision of this Lease has been complied with; and (e) such other matters as may be reasonably requested. SECTION 12.8 SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, and the basis of the bargain between the parties hereto is not destroyed or rendered ineffective thereby, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. SECTION 12.9 ATTORNEY FEES. If litigation is ever instituted by either party hereto to enforce, or to seek damages for the breach of, any provision hereof, the prevailing party therein shall be promptly reimbursed by the other party for all attorneys' fees reasonably incurred by the prevailing party in connection with such litigation, including all trial and appellate levels. SECTION 12.10 SURRENDER OF PREMISES; HOLDING OVER. Upon termination or the expiration of this Lease, Tenant shall peaceably quit, deliver up, and surrender the Premises. If Tenant does not surrender possession of the Premises at the end of the Term, such action shall not extend the Term, Tenant shall be a tenant at sufferance, and during such time of occupancy Tenant shall pay to Landlord, as damages, an amount equal to twice the amount of Rent that was being paid immediately prior to the end of the Term. Landlord shall not be deemed to have accepted a surrender of the Premises by Tenant, or to have extended the Term, other than by execution of a written agreement specifically so stating. SECTION 12.11 RELATION OF PARTIES. It is the intention of Landlord and Tenant to hereby create the relationship of landlord and tenant, and no other relationship whatsoever is hereby created. Nothing in this Lease shall be construed to make Landlord and Tenant partners or joint venturers or to render either party hereto liable for any obligation of the other. SECTION 12.12 FORCE MAJEURE. As used herein "FORCE MAJEURE" means the occurrence of any event whereby Landlord or Tenant shall be delayed or prevented from the performance of any act required hereunder by reason of acts of God, strikes, lockouts, labor troubles, failure or refusal of 23 29 governmental authorities or agencies to timely issue permits or approvals or conduct reviews or inspections, civil disorder, 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). If Tenant or Landlord shall be delayed, hindered, or prevented from performance of any of its obligations by reason of Force Majeure, the time for performance of such obligation shall be extended for the period of such delay. In no event shall this provision pertain to any monetary obligations set forth in this Lease including payment of Rent from Tenant to Landlord. SECTION 12.13 NON-MERGER. Notwithstanding the fact that fee title to the land and to the leasehold estate hereby created may, at any time, be held by the same party, there shall be no merger of the leasehold estate hereby created unless the owner thereof executes and files for record in the appropriate real property records a document expressly providing for the merger of such estates. SECTION 12.14 ENTIRETIES. This Lease constitutes the entire agreement of the parties hereto with respect to its subject matter, and all prior agreements with respect thereto are merged herein. Any agreements entered into between Landlord and Tenant of even date herewith are not, however, merged herein. SECTION 12.15 RECORDATION. Landlord and Tenant will, at the request of the other, promptly execute an instrument in recordable form constituting a short form of this Lease, which shall be filed for record in the appropriate real property records, or at the request of either party this Lease shall be so filed for record. SECTION 12.16 SUCCESSORS AND ASSIGNS. This Lease shall constitute a real right and covenant running with the Premises, and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Whenever a reference is made herein to either party, such reference shall include the party's successors and assigns. SECTION 12.17 LANDLORD'S JOINDER. Landlord agrees to join with Tenant in the execution of such applications for permits and licenses from any Governmental Authority as may be reasonably necessary or appropriate to effectuate the intents and purposes of this Lease, provided that Landlord shall not incur or become liable for any obligation as a result thereof. SECTION 12.18 NO THIRD PARTIES BENEFITTED. Except as herein specifically and expressly otherwise provided with regard to notices and opportunities to cure defaults and certain enumerated rights granted to Permitted Mortgagees, the terms and provisions of this Lease are for the sole benefit of Landlord and Tenant, and no third party whatsoever, is intended to benefit herefrom. SECTION 12.19 SURVIVAL. Any terms and provisions of this Lease pertaining to rights, duties, or liabilities extending beyond the expiration or termination of this Lease shall survive the end of the Term. SECTION 12.20 PERPETUITIES. To the extent that the rule against perpetuities is applicable thereto, but not otherwise, the rights granted to Tenant in Article 13 hereof shall expire upon the earlier to occur of (a) the date set forth for expiration of such rights in said Article 13 or (b) the date which 24 30 is 21 years after the date of death of the last to die of the following parties: the last grandchild to survive of the presently living grandchildren of George Bush, former President of the United States of America. SECTION 12.21 TRANSFER OF LANDLORD'S INTEREST. Subject to the terms of the Landlord's Financing, Landlord may freely transfer and/or mortgage its interest in the Premises and under this Lease from time to time and at any time, provided that any such transfer or mortgage is expressly made subject to the terms, provisions, and conditions of this Lease, including specifically but without limitation Tenant's rights under Article 13, and the transferee or mortgagee agrees to be bound by the provisions hereof (in the case of a mortgagee, such agreement being contingent upon the mortgagee actually succeeding to the Landlord's interest in the Premises and hereunder by virtue of a foreclosure or conveyance in lieu thereof). SECTION 12.22 TENANT'S RIGHT TO ASSIGN. Tenant may assign its rights hereunder or sublease all or a portion of the Premises with Landlord's prior written approval, which approval will not be unreasonably withheld. provided that Tenant shall remain liable for all liabilities and obligations arising under this Lease. An assignment by Tenant to an affiliate under common control as that of the herein Tenant shall be deemed by Landlord to be approved. Tenant acknowledges that Landlord's approval may require the consent and/or joinder of Landlord's Financing Lender. SECTION 12.23 PAST DUE AMOUNTS. All amounts required to be paid by Tenant or Landlord under the terms and provisions of this Lease shall bear interest at the Default Rate from the date due until paid. SECTION 12.24 INDEPENDENT COUNSEL. Landlord and Tenant declare that each has had independent legal advice by counsel of their own selection; that each fully understands the facts and has been fully informed of all legal rights or liabilities; that after such advice or knowledge, each believes the Lease to be fair, just, reasonable and that each signs the Lease freely and voluntarily. SECTION 12.25 COOPERATION WITH LANDLORD'S LENDER. Tenant agrees to cooperate with any Lender utilized by Landlord relative to financing associated with this Lease and Improvements located upon the Premises, should such Lender request reasonable modifications to this Lease provided such modifications do not adversely diminish or otherwise modify the obligations of Landlord under this Lease or affect the rights of the Tenant granted under this Lease or create additional liability or obligations for Tenant beyond Tenant's current liability and obligations under this Lease. ARTICLE 13 OPTION TO PURCHASE PREMISES SECTION 13.1 RIGHT OF FIRST REFUSAL. (a) If Landlord shall receive a bona fide offer to purchase the Premises during the Term, then any contract which may be entered into between Landlord and a third party purchaser shall provide that the sale shall be subject to Tenant's right of refusal set forth in this Section 13.1. If Landlord shall receive such offer or execute such contract, Landlord shall send to Tenant a true and complete copy of the executed contract and the complete terms of the offer with Landlord's certification that it will accept 25 31 the offer, and Tenant shall have the option, to be exercised within thirty (30) days after receipt thereof, to make a contract with Landlord on the same terms and conditions set forth in such third party contract or offer. If Tenant, after receipt of the third party contract or the terms of the offer acceptable to Landlord, shall fail to exercise its option within the thirty (30) day period, Landlord shall have the right to conclude the proposed sale on the same terms as in the offer or contract originally forwarded to Tenant, provided the sale shall close within the timeframe set forth in the third party contract plus thirty (30) days. If the sale shall not close within said time frame plus thirty (30) days, Landlord shall repeat the procedure specified in this Section 13.1 before it can conclude any sale of the Premises. (b) Notwithstanding Tenant's failure to exercise its option, any sale of the Premises shall be subject to this Lease and Tenant's option to purchase the Premises and Tenant's right of first refusal shall remain in force and be binding on any party to the same extent as if said subsequent owner were Landlord herein, and said subsequent owner shall be required to do all of the things required of Landlord in this Lease prior to any such sale of the Premises. (c) If any third party contract or offer for the Premises shall include property other than the Premises, Tenant's right of first refusal shall, at its election, be either applicable to the entire property covered by such contract or offer, or applicable to the Premises only at a purchase price which shall be that part of the price offered by the third party, which the value of the Premises shall bear to the value of all the property included in such third party contract or offer. (d) Tenant's right to purchase shall not be extinguished, canceled or waived by Tenant failing to exercise its option as to any offer, contract or conveyance which is between Landlord and a related party, a nominee and his principal, or a sole shareholder and his corporation, or a corporation and its subsidiary or affiliate. SECTION 13.2 OPTION. (a) For and in consideration of the execution of this Lease by Tenant and the sum of Ten Dollars ($10.00), Tenant shall have the option to purchase the Premises at any time during the Term (including any extensions thereof), without premium or penalty, for the Purchase Price determined pursuant to this Section 13.2 (the "PURCHASE PRICE"), provided Landlord is given sixty (60) days written notice of Tenant's election to purchase and provided further that Tenant is not then in default under the terms of this Lease. (1) The purchase price of the Premises shall be determined by an appraisal conducted using an M.A.I. appraiser (or an appraiser having the same class of certification of an M.A.I. appraiser by the successor certification organization in the case that the designation of M.A.I. appraiser is changed or succeeded). The appraisal shall not take into consideration the Base Rent, terms or conditions of this Lease. The appraised value shall be reduced by the cost of any leasehold improvements made to the Premises by Tenant. (2) The Tenant, at its sole expense, shall obtain, and submit to Landlord, an appraisal of the fair market value of the Premises (the "FIRST APPRAISAL") from an M.A.I. appraiser (the 26 32 "FIRST APPRAISER"), and if Landlord shall accept such appraisal, then such First Appraisal shall be the Purchase Price. (3) If Landlord does not accept such First Appraisal, Landlord, at Landlord's sole expense shall obtain, and submit to Tenant, a second appraisal of the fair market value of the Premises (the "SECOND APPRAISAL") from an M.A.I. appraiser (the "SECOND APPRAISER"). If the numerical difference between the value of the First Appraisal and the value of the Second Appraisal is less than ten percent (10%) of the appraisal with the lower value, then the two appraisal values shall be averaged and that averaged value shall be the Purchase Price. (4) If the numerical difference between the value of the First Appraisal and the value of the Second Appraisal is equal to or greater than ten percent (10%) of the appraisal with the lower value, then the First Appraiser and the Second Appraiser shall choose a third M.A.I. appraiser (the "THIRD APPRAISER") who shall appraise the fair market value of the Premises (the "THIRD APPRAISAL"), and the three appraisal values shall be averaged and that averaged value shall be the Purchase Price. If the Third Appraisal is requested, the Landlord and Tenant shall each pay one-half (1/2) of the cost of such Third Appraisal. (b) In the event that the option herein granted shall be exercised as aforesaid, Landlord agrees to sell and Tenant agrees to purchase the Premises for the Purchase Price aforesaid and upon the following terms and conditions: (1) The Premises is to be conveyed at the time full payment of the Purchase Price is made by Tenant to Landlord (hereinafter called "CLOSING DATE"), but in no event later than three (3) months from the date of receipt of Tenant's notice of election, by general warranty deed conveying to Tenant or Tenant's nominee, title to the same, subject only to (i) the matters set forth in EXHIBIT B and other matters previously approved in writing by Tenant, (ii) any matters created by Tenant, and (iii) taxes and other Impositions assessed against the Premises or any part thereof but not yet due and payable, which charges, assessments, taxes and other Impositions shall be paid by Tenant; but free and clear of any mortgages, liens or encumbrances upon Landlord's interest. (2) For such deed and conveyance Tenant is to pay the Purchase Price in cash or by certified or bank check upon the delivery of such deed. (3) Full possession of the Premises is to be delivered to Tenant at the time of delivery of the deed. (4) The cost and expense of preparing the deed and any other documents relating to said conveyance and recording the same including title insurance premiums, Landlord's reasonable attorney's fees and real estate transfer taxes (including documentary stamps and sur-tax, if applicable), if any, shall be paid by Tenant. (5) The Rent provided for in this Lease shall be apportioned as of the Closing Date. 27 33 (6) The recording of a deed after the expiration of the Term of this Lease, conveying the Premises to a third party and reciting that the option in this Article has expired and has not been exercised shall be, as to all persons other than Tenant, conclusive evidence of such expiration and nonexercise. (c) Notwithstanding anything to the contrary contained herein Landlord may convey the Premises subject to the option herein granted; provided, however, that the Landlord has complied with the provisions of this Section 13.1 and the party to whom the Landlord conveys the Premises assumes in writing all of Landlord's obligations under this Lease. No such conveyance shall relieve the Landlord for liability for breach of representations as set forth in Article 10 of this Lease. (d) It is further understood and agreed that in the event Tenant gives written notice to Landlord sixty (60) days before the Expiration Date or the end of any Renewal Term, of Tenant's intention to purchase the Premises, the Term of this Lease then shall be extended until the payment to Landlord of the Purchase Price but in no event later than three (3) months therefrom. The Purchase Price shall be paid no later than the expiration of such three (3) month extension. In the event Tenant does not consummate the purchase pursuant to the terms and conditions of this Section 13.2, then the Tenant's options as set forth in this Section13.2 shall terminate. (e) Landlord will, at the request of Tenant, promptly execute an instrument in recordable form, reflecting Tenant's option to purchase the Premises, and may be part of the recorded instrument referred to in Section 12.15, pursuant to this Article 13, which shall be filed for record in the appropriate real property records. (f) In the event that such option shall not be exercised as aforesaid, Tenant shall, within ten (10) days upon demand of Landlord, deliver to Landlord an instrument in form suitable for recording and executed and acknowledged by Tenant whereby the option and all rights hereunder shall be released and discharged. SECTION 13.3 SPECIFIC PERFORMANCE. It is expressly agreed that the remedy at law for breach of any of the obligations set forth in this Article 13 is inadequate in view of the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of Landlord or Tenant to comply fully with each of such obligations. Accordingly, each of the aforesaid obligations shall be, and is hereby expressly made, enforceable by specific performance. ARTICLE 14 ARBITRATION SECTION 14.1 ARBITRATION PROVISIONS. EXCEPT AS TO TENANT'S EXERCISE OF REASONABLE JUDGMENT PURSUANT TO SECTION 8.5 OF THIS LEASE, ANY CONTROVERSY OR CLAIM BETWEEN THE PARTES HERETO RELATING TO THIS LEASE, INCLUDING, WITHOUT LIMITATION, ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION 28 34 ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN THE COUNTY AND STATE WHERE THE PREMISES ARE LOCATED. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. EXCEPT AS TO TENANT'S EXERCISE OF REASONABLE JUDGMENT PURSUANT TO SECTION 8.5 OF THIS LEASE, ANY PARTY TO THIS LEASE MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS LEASE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. ALL STATUTES OF LIMITATIONS THAT WOULD OTHERWISE BE APPLICABLE SHALL) APPLY TO ANY DISPUTES ASSERTED IN ANY ARBITRATION PROCEEDING HEREOF. THE ARBITRATORS SHALL HAVE THE RIGHT, TO AWARD COUNSEL FEES TO ANY PARTY, TO GRANT TEMPORARY OR PERMANENT INJUNCTIVE RELIEF, AND TO REQUIRE SPECIFIC PERFORMANCE. THE PARTIES SPECIFICALLY AGREE THAT THE ARBITRATORS MAY NOT AWARD AND THE PARTIES WAIVE ANY RIGHT TO ANY EXEMPLARY OR PUNITIVE DAMAGES. THE DECISION OR AWARD IN THE ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING UPON EACH OF THE PARTIES AND JUDGMENT ON SUCH AWARD OR DECISION MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. THE PARTIES BY EXECUTION OF THE LEASE AND INITIALING THIS PROVISION REPRESENT THAT THEY WERE GIVEN FULL AND COMPLETE OPPORTUNITY TO REVIEW SAME WITH COUNSEL OF THEIR CHOOSING AND THEY HAVE READ AND SIGNED SAME AS THEIR FREE AND VOLUNTARY ACT AND DEED. ARTICLE 15 SUBORDINATION AND ATTORNMENT SECTION 15.1 SUBORDINATION. This Lease and all rights of Tenant hereunder are and shall be subject and subordinate in all respects to all mortgages encumbering Landlord's interest in the Premises as permitted in the Lease (the "SUPERIOR MORTGAGE"). The provisions of this Section 15.1 shall be self-operative and no further instrument of subordination shall be required. If any Requesting Party shall seek confirmation of such subordination, Tenant shall promptly execute and deliver, at its own cost and expense, an instrument, in recordable form, to evidence such subordination; if Tenant fails to execute, acknowledge or deliver any such instrument within ten (10) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver any such instruments for and on behalf of Tenant. However, nothing herein withstanding to the contrary, the foregoing provisions shall not be effective until the Landlord shall have delivered to Tenant a Non- Disturbance Agreement, in the form required under Section 10.1, executed by each Landlord's Financing Lender and each mortgagee and holder of a Superior Mortgage. SECTION 15.2 ATTORNMENT. If, at any time prior to the termination of this Lease, the holder of a Superior Mortgage, or its successors or assigns, (herein collectively called the "SUPERIOR 29 35 MORTGAGEE") who acquire the interest of Landlord under this Lease through foreclosure action or a transfer-in-lieu thereof, whereby the Superior Mortgagee succeeds to the rights of Landlord under this Lease through possession or foreclosure or delivery of a new lease or deed or otherwise, Tenant agrees, at the election and upon request of any such party (hereinafter called the "SUCCESSOR LANDLORD") to attorn fully and completely from time to time, and to recognize any such Successor Landlord as Tenant's landlord under this Lease upon the executory terms of this Lease. Provided Tenant is not in default under the terms of this Lease, such Successor Landlord shall agree in writing to accept Tenant's attornment. The foregoing provisions of this Section 15.2 shall inure to the benefit of any such Successor Landlord and any successor or assign of Tenant. Tenant, upon demand of any such Successor Landlord, agrees to execute any instruments to evidence and confirm the foregoing provisions of this Section 15.2, reasonably satisfactory to any such Successor Landlord, acknowledging such attornment and setting forth the terms and conditions of its tenancy. SECTION 15.3 RADON GAS DISCLOSURE. Radon Gas: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in the buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. EXECUTED as of the date and year first above written. "LANDLORD" KC PARTNERSHIP, A FLORIDA GENERAL PARTNERSHIP, BY: /s/ JAMES S. CARROLL ------------------------------------------ NAME: JAMES S. CARROLL, TRUSTEE OF THE J. CARROLL ENTERPRISES TRUST UNDER AMENDED AND RESTATED TRUST AGREEMENT DATED AUGUST 3, 1993, GENERAL PARTNER "TENANT" COURTESY FORD, INC., A FLORIDA CORPORATION BY: /s/ JAMES S. CARROLL --------------------------------- NAME: JAMES S. CARROLL TITLE: PRESIDENT 30 36 LEASE AGREEMENT EXHIBIT A DESCRIPTION OF LAND Tract A of CORAL REEF ESTATES, according to the Plat thereof, as recorded in Plat Book 81, Page 74, of the Public Records of Dade County, Florida. 37 LEASE AGREEMENT EXHIBIT B EXCEPTIONS TO TITLE TO LAND 1. Restrictions, covenants, conditions and easements as contained on the Plat of Coral Reef Estates Second Addition, recorded in Plat Book 81, page 74, of the Public Records of Dade County, Florida. 2. Lease in favor of Freedom Financial Leasing Corporation filed April 1, 1996 in Official Records Book 17147, page 4641, of the Public Records of Dade County, Florida. 3. Easement in favor of Florida Water and Utilities Inc. filed June 24, 1968 in Official Records Book 5993, page 429, of the Public Records of Dade County, Florida. 4. Restrictions filed in Official Records Book 5342, page 381, of the Public Records of Dade County, Florida. 5. Resolution filed in Official Records Book 1884, page 501, of the Public Records of Dade County, Florida. 6. Easement in favor of Florida Water and Utilities filed in Official Records Book 5319, page 297, of the Public Records of Dade County, Florida. 7. Easement in favor of Florida Water and Utilities filed in Official Records Book 1859, page 130, of the Public Records of Dade County, Florida. No bldgs or structures. EX-10.45 16 AMENDED AND RESTATED SUBLEASE AGREEMENT - 3/16/98 1 EXHIBIT 10.45 ================================================================================ AMENDED AND RESTATED SUBLEASE AGREEMENT between KOONS DEVELOPMENT CO., A FLORIDA GENERAL PARTNERSHIP (Landlord) and KOONS FORD, INC., A FLORIDA CORPORATION (Tenant) HOLLYWOOD - - 441 ================================================================================ 2 LEASE AGREEMENT TABLE OF CONTENTS
Page ---- ARTICLE 1 LEASE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Premises Leased . . . . . . . . . . . . . . . . . . 1 Section 1.2 Premises Defined . . . . . . . . . . . . . . . . . 1 Section 1.3 Habendum . . . . . . . . . . . . . . . . . . . . . 1 Section 1.4 Amendment and Restatement of Prior Sub-Lease . . . 1 Section 1.5 Sublease Agreement . . . . . . . . . . . . . . . . 1 ARTICLE 2 TERM OF LEASE . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2.1 Initial Term and Commencement . . . . . . . . . . . 1 Section 2.2 Lease Year . . . . . . . . . . . . . . . . . . . . 1 Section 2.3 Lease Month . . . . . . . . . . . . . . . . . . . . 2 Section 2.4 Renewal Term . . . . . . . . . . . . . . . . . . . 2 ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 3.1 Base Rent . . . . . . . . . . . . . . . . . . . . . 2 Section 3.2 Additional Rent and Rent . . . . . . . . . . . . . 2 Section 3.3 Payment of Rent . . . . . . . . . . . . . . . . . . 3 Section 3.4 Late Charge . . . . . . . . . . . . . . . . . . . . 3 Section 3.5 Adjustment to Rent for Ford Improvements . . . . . 3 Section 3.6 Change of Facility Use. . . . . . . . . . . . . . . 3 ARTICLE 4 TAXES; UTILITIES . . . . . . . . . . . . . . . . . . . . . . 3 Section 4.1 Impositions Defined . . . . . . . . . . . . . . . . 3 Section 4.2 Tenant's Obligations . . . . . . . . . . . . . . . 4 Section 4.3 Tax Contest . . . . . . . . . . . . . . . . . . . . 4 Section 4.4 Evidence Concerning Impositions . . . . . . . . . . 4 Section 4.5 Utilities . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 5 IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 5.1 Alterations . . . . . . . . . . . . . . . . . . . . 4 Section 5.2 Mechanic's and Materialmen's Liens . . . . . . . . 5 Section 5.3 Ownership of Improvements . . . . . . . . . . . . . 5 Section 5.4 Asbestos . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 6 USE, ENVIRONMENTAL, MAINTENANCE, AND REPAIRS . . . . . . . . 6 Section 6.1 Use . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 6.2 Environment . . . . . . . . . . . . . . . . . . . . 6 Section 6.3 Maintenance and Repairs . . . . . . . . . . . . . . 9 Section 6.4 Americans with Disabilities Act . . . . . . . . . . 10
3 ARTICLE 7 INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . . 11 Section 7.1 Building Insurance . . . . . . . . . . . . . . . . 11 Section 7.2 Liability Insurance . . . . . . . . . . . . . . . . 11 Section 7.3 Policies . . . . . . . . . . . . . . . . . . . . . 11 Section 7.4 Tenant's Indemnity . . . . . . . . . . . . . . . . 12 Section 7.5 Landlord's Indemnity . . . . . . . . . . . . . . . 12 Section 7.6 Subrogation . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 8 CASUALTY; CONDEMNATION . . . . . . . . . . . . . . . . . . . 13 Section 8.1 Tenant's Obligation to Restore . . . . . . . . . . 13 Section 8.2 Restoration and Deposit of Funds . . . . . . . . . 14 Section 8.3 Notice of Damage . . . . . . . . . . . . . . . . . 15 Section 8.4 Total Taking . . . . . . . . . . . . . . . . . . . 15 Section 8.5 Partial Taking . . . . . . . . . . . . . . . . . . 16 Section 8.6 Temporary Taking . . . . . . . . . . . . . . . . . 16 Section 8.7 Notice of Taking, Cooperation . . . . . . . . . . . 16 ARTICLE 9 TENANT'S FINANCING . . . . . . . . . . . . . . . . . . . . . 16 Section 9.1 Tenant's Right to Encumber . . . . . . . . . . . . 16 Section 9.2 Tenant's Mortgage . . . . . . . . . . . . . . . . . 17 ARTICLE 10 WARRANTY OF TITLE AND PEACEFUL POSSESSIONAND LANDLORD'S FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 10.1 Warranty As to Encumbrances . . . . . . . . . . . . 18 Section 10.2 Landlord's Mortgage . . . . . . . . . . . . . . . . 19 Section 10.3 Representations of Landlord . . . . . . . . . . . . 19 ARTICLE 11 DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . 21 Section 11.1 Default . . . . . . . . . . . . . . . . . . . . . . 21 Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 23 Section 12.1 Notices. . . . . . . . . . . . . . . . . . . . . . 23 Section 12.2 Performance of Other Party's Obligations . . . . . 23 Section 12.3 Modification and Non-Waiver . . . . . . . . . . . . 24 Section 12.4 Governing Law . . . . . . . . . . . . . . . . . . . 24 Section 12.5 Number and Gender; Captions; References . . . . . . 24 Section 12.6 CPI . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 12.7 Estoppel Certificate . . . . . . . . . . . . . . . 24 Section 12.8 Severability . . . . . . . . . . . . . . . . . . . 25 Section 12.9 Attorney Fees . . . . . . . . . . . . . . . . . . . 25 Section 12.10 Surrender of Premises; Holding Over . . . . . . . . 25 Section 12.11 Relation of Parties . . . . . . . . . . . . . . . . 25 Section 12.12 Force Majeure . . . . . . . . . . . . . . . . . . . 25 Section 12.13 Non-Merger . . . . . . . . . . . . . . . . . . . . 25 Section 12.14 Entireties . . . . . . . . . . . . . . . . . . . . 25 Section 12.15 Recordation . . . . . . . . . . . . . . . . . . . . 26
ii 4 Section 12.16 Successors and Assigns . . . . . . . . . . . . . . 26 Section 12.17 Landlord's Joinder . . . . . . . . . . . . . . . . 26 Section 12.18 No Third Parties Benefitted . . . . . . . . . . . . 26 Section 12.19 Survival . . . . . . . . . . . . . . . . . . . . . 26 Section 12.20 Perpetuities . . . . . . . . . . . . . . . . . . . 26 Section 12.21 Transfer of Landlord's Interest . . . . . . . . . . 26 Section 12.22 Tenant's Right To Assign . . . . . . . . . . . . . 26 Section 12.23 Past Due Amounts . . . . . . . . . . . . . . . . . 27 Section 12.24 Independent Counsel . . . . . . . . . . . . . . . . 27 Section 12.25 Cooperation with Landlord's Lender. . . . . . . . . 27 Section 12.26 Receipt and Acknowledgment of Seminole Lease. . . . 27 Section 12.27 Fulfillment of Lessee's Obligation under the Seminole Lease. . . . . . . . . . . . . . . . . . . 27 Section 12.28 Certain Rights of Tenant Regarding the Seminole Leas27 ARTICLE 13 OPTION TO PURCHASE LEASEHOLD . . . . . . . . . . . . . . . . 28 Section 13.1 Right of First Refusal . . . . . . . . . . . . . . 28 Section 13.2 Option . . . . . . . . . . . . . . . . . . . . . . 29 Section 13.3 Specific Performance . . . . . . . . . . . . . . . .31 ARTICLE 14 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 14.1 Arbitration Provisions . . . . . . . . . . . . . . 31 ARTICLE 15 SUBORDINATION AND ATTORNMENT . . . . . . . . . . . . . . . . 32 Section 15.1 Subordination . . . . . . . . . . . . . . . . . . . 32 Section 15.2 Attornment . . . . . . . . . . . . . . . . . . . . 32 Section 15.3 Radon Gas Disclosure . . . . . . . . . . . . . . . 32
iii 5 EXHIBITS EXHIBIT A Description of Land EXHIBIT B Exceptions to Title to Land iv 6 AMENDED AND RESTATED SUBLEASE AGREEMENT This Amended and Restated Sublease Agreement ("LEASE") is entered into as of the 16th day of March, 1998, between KOONS DEVELOPMENT CO., A FLORIDA GENERAL PARTNERSHIP as ("LANDLORD"), and KOONS FORD, INC., A FLORIDA CORPORATION ("TENANT"). ARTICLE 1 LEASE OF PROPERTY SECTION 1.1 PREMISES LEASED. Landlord subleases to Tenant, and Tenant leases from Landlord the real property and premises described on EXHIBIT A (the "LAND"), including but not limited to all of the rights, interests, estates, and appurtenances thereto, all improvements thereon, and all other rights, titles, interests, and estates, if any, in adjacent streets and roads. SECTION 1.2 PREMISES DEFINED. All of the Land, properties, rights, estates, appurtenances, and interests leased to Tenant pursuant to Section 1.1, together with all improvements now or hereafter constructed thereon, are hereinafter collectively referred to as the "PREMISES". SECTION 1.3 HABENDUM. To have and to hold the Premises, together with all and singular the rights, privileges, and appurtenances thereunto attaching or in anywise belonging, exclusively unto Tenant, its successors and assigns, upon the terms and conditions set forth herein and subject to the matters set forth on EXHIBIT B. SECTION 1.4 AMENDMENT AND RESTATEMENT OF PRIOR SUB-LEASE. The Premises was previously subject to a lease agreement by and between Landlord and Tenant. This agreement shall constitute an Amended and Restated Sublease Agreement amending and restating the existing sublease. SECTION 1.5 SUBLEASE AGREEMENT. This is a Sublease Agreement. The property being subleased herein is subject to a Business Lease in favor of The Seminole Tribe of Florida dated December 15, 1978 (as supplemented) (the "SEMINOLE LEASE"). References hereinafter to the Landlord shall refer to Koons Development Co., a Florida General Partnership. References hereinafter to the Tenant shall refer to Koons Ford, Inc., a Florida Corporation. The primary Landlord, The Seminole Tribe of Florida, shall be referred to by name. ARTICLE 2 TERM OF LEASE SECTION 2.1 INITIAL TERM AND COMMENCEMENT. The initial term ("INITIAL TERM") of this Lease shall commence on the date hereof ("COMMENCEMENT DATE") and unless sooner terminated pursuant to the terms of this Lease, the initial term of this Lease shall expire on the "EXPIRATION DATE" (herein so called), which shall be (i) the last day of the one hundred twentieth (120th) Lease Month from and after the first day of the calendar month following the Commencement Date. SECTION 2.2 LEASE YEAR. A "LEASE YEAR" shall mean a twelve (12) Lease Month period commencing with the first day of the calendar month following the Commencement Date or any anniversary date thereof. 7 SECTION 2.3 LEASE MONTH. A "LEASE MONTH" shall mean a period of time during the term of this Lease commencing the first day of the calendar month and ending on the last day of the calendar month. The first Lease Month shall begin on the first day of the calendar month following the Commencement Date. SECTION 2.4 RENEWAL TERM. (a) If on the Expiration Date and the date Tenant notifies Landlord of its intention to renew the term of this Lease (as provided below), (i) Tenant has not been given notice of default under this Lease based upon a Default as hereinafter defined, and (ii) this Lease is in full force and effect, then Tenant, shall have and may exercise an option to renew this Lease for four (4) additional terms (each, a "RENEWAL TERM") of five (5) years each, upon the same Rent (hereinafter defined), as adjusted pursuant to the terms of Section 3.1, and other terms and conditions contained in this Lease. Whenever used in this Lease, "TERM", unless modified or specifically noted otherwise in the applicable context, shall mean the Initial Term together with each Renewal Term to the extent Tenant has exercised any option with respect to any Renewal Term. (b) If Tenant desires to renew this Lease, Tenant must notify Landlord in writing of its intention to renew on or before the date which is at least six (6) months but no more than twelve (12) months prior to the Expiration Date or the expiration date of any Renewal Term, as the case may be. ARTICLE 3 RENT SECTION 3.1 BASE RENT. Subject to the terms and provisions contained in this Section 3.1, Tenant shall pay Landlord monthly "BASE RENT" (herein so called) of Sixty-Two Thousand Five Hundred and no/100 Dollars ($62,500.00), in advance on or before the first day of each Lease Month during the Term, subject to adjustment as hereafter provided. If the Term commences on a day other than the first day of a calendar month, or ends on a day other than the last day of a calendar month, then the Base Rent for such month shall be prorated on the basis of one thirtieth (1/30th) of the monthly Base Rent for each day of such month. If the CPI on any Adjustment Date shall be greater than the CPI for the Commencement Date, monthly Base Rent commencing on the Adjustment Date shall be adjusted to be the original monthly Base Rent specified in this Section 3.1 plus an amount equal to one-half (1/2) of the product obtained by multiplying: (i) the original monthly Base Rent specified in this Section 3.1 by (ii) the percentage increase in the CPI from the Commencement Date through the January 1st prior to the Adjustment Date. "ADJUSTMENT DATE" shall be the first day of the first Lease Month of each Renewal Term. The term "CPI" shall have the meaning specified therefor in Section 12.6. Tenant shall also pay at the same times and places as the rental installments such Florida State Sales Tax, other such applicable taxes due on rentals and all other sums due hereunder either city, state, county or federal as may be in effect from time to time. SECTION 3.2 ADDITIONAL RENT AND RENT. All amounts required to be paid by Tenant under the terms of this Lease, other than Base Rent, are herein from time to time collectively referred to as "ADDITIONAL RENT." Base Rent and Additional Rent are herein collectively referred to as "RENT." 2 8 SECTION 3.3 PAYMENT OF RENT. Base Rent shall be payable to Landlord at the original or changed address of Landlord as set forth in Section 12.1 or to such other persons or at such other addresses in the United States of America as Landlord may designate from time to time in writing to Tenant; however, if Tenant receives notice of a default under the Landlord's Financing (defined below), then Tenant shall have the right, but not the obligation, to pay to Landlord's Financing Lender (defined below) any sums due and owing on such Landlord's Financing and all such payments by Tenant shall reduce the amount of Rent owing to Landlord. Additional Rent shall be paid as herein set forth. SECTION 3.4 LATE CHARGE. Any rent or other sum which is not paid within fifteen (15) days after the date due shall bear interest at the Default Rate from the date when the same is payable under the terms of this Lease until the same shall be paid. SECTION 3.5 ADJUSTMENT TO RENT FOR FORD IMPROVEMENTS. Landlord and Tenant recognize that Ford Leasing or its related entities ("FORD") may from time to time require that structural improvements to the Premises be made as a condition to the continuation of a Ford Dealership upon the Premises. In the event that Ford requires that such structural improvements be made to the Premises, Landlord shall, at its expense, construct such improvements. The Base Rent due pursuant to Section 3.1 hereinabove shall be increased by an amount equal to the costs of the improvements required by Ford, amortized over a fifteen (15) year period. The new Base Rent shall commence effective the next monthly period following the completion of the required improvements. SECTION 3.6 CHANGE OF FACILITY USE. The principals of Landlord and Tenant are presently pursuing the possible relocation of the dealership currently operating from the Premises. Should such relocation occur, alternate operations for the Premises will be required following vacation. In the event the revenues derived from the new operation are such that the funds available for payment of Base Rent are less than those resulting from the operation of the business at the Premises as of the Commencement Date, then, in such event, the Base Rent shall be reduced proportionately in a manner consistent with the relationship that the Base Rent paid prior to such relocation bears to the revenues derived from current operations on the Premises and the revenues derived following the placement of the new business operation at the Premises. In no event shall the Base Rent payable by Tenant be less than the debt service attributable to the Premises, provided the principal amount of any debt so serviced shall not increase during the term of the Lease. ARTICLE 4 TAXES; UTILITIES SECTION 4.1 IMPOSITIONS DEFINED. "IMPOSITIONS" means all real estate and ad valorem taxes, and associated levies, including penalties levied for failure of Tenant to pay any of same in a timely manner, which shall or may during the Term be assessed, levied or imposed by any Governmental Authority (defined below) upon (a) the Premises or any part thereof, (b) the buildings or improvements now or hereafter comprising a part thereof, the appurtenances thereto or the sidewalks, streets, or vaults adjacent thereto. Impositions shall not include any income tax, capital levy, estate, succession, inheritance or transfer taxes, or similar tax of Landlord; any franchise tax imposed upon any owner of the fee of the Premises; or any income, profits, or revenue tax, assessment, or charge imposed upon the rent or other benefit received by Landlord under this Lease by any municipality, county, state, the United States of America, or any other governmental body, subdivision, agency, or authority (all of such foregoing governmental bodies are collectively referred to herein as "GOVERNMENTAL AUTHORITIES"). 3 9 SECTION 4.2 TENANT'S OBLIGATIONS. During the Term, Tenant will pay all Impositions before they become delinquent. Impositions that are payable by Tenant for the tax year in which this Lease commences as well as during the year in which the Term ends shall be apportioned so that Tenant shall pay its share of the Impositions payable by Tenant for the portion of such Taxes allocable to the portion of such year occurring during the Term. Where any Imposition that Tenant is obligated to pay may be paid pursuant to law in installments, Tenant may pay such Imposition in installments as and when such installments become due. Tenant shall, if so requested, deliver to Landlord evidence of payment of all Impositions Tenant is obligated to pay hereunder, concurrently with the making of such payment. SECTION 4.3 TAX CONTEST. Tenant may, at its expense, contest the validity or amount of any Imposition for which it is responsible, in which event the payment thereof may be deferred, as permitted by law, during the pendency of such contest, if diligently prosecuted. Landlord shall cooperate with Tenant in connection with any such contest but Landlord shall not be required to spend any sums or incur any liability in cooperating with Tenant. All taxes must be paid prior to the date they become delinquent. In the event that the property subject to this Agreement is encumbered by financing, the Tenant shall pay all taxes within the time frame established by such lender. SECTION 4.4 EVIDENCE CONCERNING IMPOSITIONS. The certificate, advice, bill, or statement issued or given by the appropriate officials authorized by law to issue the same or to receive payment of any Imposition of the existence, nonpayment, or amount of such Imposition shall be prima facie evidence for all purposes of the existence, nonpayment, or amount of such Imposition. SECTION 4.5 UTILITIES. Tenant shall pay all charges for gas, electricity, light, heat, air conditioning, power, telephone, and other communication services, and all other utilities and similar services rendered or supplied to the Premises, and all water, refuse, sewer service charges, or other similar charges levied or charged against, or in connection with, the Premises. ARTICLE 5 IMPROVEMENTS SECTION 5.1 ALTERATIONS. At any time and from time to time during the Term, Tenant may perform such alteration, renovation, repair, refurbishment, and other work (herein such matters being collectively called the "ALTERATIONS") with regard to any Improvements as Tenant may elect. All buildings, structures, and other improvements located at any time on the Land are herein called the "IMPROVEMENTS." Any and all alterations, renovation, repair, refurbishment, or other work with regard thereto shall be performed, in accordance with the following "CONSTRUCTION STANDARDS" herein so referenced): (i) All such construction or work shall be performed in a good and workmanlike manner in accordance with good industry practice for the type of work in question; (ii) All such construction or work shall be done in compliance with all applicable building codes, ordinances, and other laws or regulations of Governmental Authorities having jurisdiction; (iii) Tenant shall have obtained and shall maintain in force and effect the insurance coverage required in Article 7 with respect to the type of construction or work in question; (iv) After commencement, such construction or work shall be prosecuted with due diligence to its completion; and (v) With the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed and shall be deemed given if a request is not approved or denied within thirty (30) days after notice, no Alteration shall be made which (x) involves any material repairs or modifications to the 4 10 structural portions of the Premises, or (y) would impair the market value, structural integrity or usefulness of the Premises for the purposes for which the same are presently being used. SECTION 5.2 MECHANIC'S AND MATERIALMEN'S LIENS. Tenant shall have no right, authority, or power to bind Landlord or any interest of Landlord in the Premises for any claim for labor or for material or for any other charge or expense incurred in construction of any Improvements or performing any alteration, renovation, repair, refurbishment, or other work with regard thereto, nor to render Landlord's interest in the Premises liable for any lien or right of lien for any labor, materials, or other charge or expense incurred in connection therewith, and Tenant shall in no way be considered as the agent of Landlord in the construction, erection, or operation of any such Improvements. If any liens or claims for labor or materials supplied or claimed to have been supplied to the Premises shall be filed against the interest of the Landlord, Tenant shall promptly pay or bond such liens to Landlord's reasonable satisfaction or otherwise obtain the release or discharge thereof. SECTION 5.3 OWNERSHIP OF IMPROVEMENTS. During the Term all currently existing Improvements shall be solely the property of Landlord. All other Improvements created by Alterations which may be added by Tenant (which do not constitute replacements of existing Improvements) shall be the property of Tenant, but at the end of the Term, all then-existing Improvements shall be the property of Landlord. However, upon expiration or earlier termination of this Lease, Tenant shall have the right to remove all trade fixtures, movable equipment, furniture, furnishings and other personal property located in the Premises and other items not permanently attached to the Premises provided that Tenant repairs any damages caused by the removal of such items. Nothing hereinabove withstanding to the contrary, any lifts or hydraulics installed upon the Premises by Tenant, whether as an original installation or replacement, shall remain on the Premises and shall become the property of the Landlord. SECTION 5.4 ASBESTOS. Landlord shall remain fully liable and responsible for any asbestos and any other Hazardous Substances as hereinafter defined present on any portion of the Premises prior to the Commencement Date of this Lease even if such asbestos is in an unfriable or undisturbed state on the Commencement Date of this Lease and Tenant thereafter disturbs such Materials in any manner including, without limitation, in connection with any Alterations performed by Tenant on the Premises. If Tenant intentionally disturbs or causes to be disturbed by any contractor or other party any asbestos presently located on the Premises of which Tenant has actual knowledge, then any such disturbance of such asbestos shall only be done in accordance with all laws, regulations, ordinances, or requirements of any Governmental Authority having jurisdiction in the Premises including, without limitation, those which govern the disposition of Hazardous Materials. Any expenses associated with correction of such disturbance caused by the Tenant or its contractors shall be borne by the Tenant. ARTICLE 6 USE, ENVIRONMENTAL, MAINTENANCE, AND REPAIRS SECTION 6.1 USE. Subject to the terms and provisions hereof, Tenant may use and enjoy the Premises for the sale, lease, trade, repair or service of motor or other vehicles and other uses normally associated therewith including, without limitation, the sale of parts and services. Without limiting the generality of the foregoing, the provisions relating to use of the Premises shall be broadly construed to encompass all uses normally associated with premises occupied by automobile, boat and recreational vehicle dealerships. Tenant shall not use or occupy, permit the Premises to be used or occupied, nor do or permit anything 5 11 to be done in or on the Premises in a manner which would constitute a public or private nuisance, or which would violate any laws, regulations, ordinances, or requirements of any Governmental Authority having jurisdiction in the Premises including, without limitation, those which relate to Hazardous Materials. Tenant shall make no use of the Premises which violates the terms of the Seminole Lease or restrictions imposed by Landlord's Financing Lender, as hereinafter defined, which are listed on EXHIBIT B hereto. Landlord hereby represents and warrants to Tenant that the uses set forth in this Section 6.1 do not violate any of the terms or provisions of the Seminole Lease or any restrictions imposed by Landlord's Financing Lender, and that the Premises, as currently being used, do not violate any such terms or provisions. SECTION 6.2 ENVIRONMENT. (a) For purposes of this Lease, the term "HAZARDOUS MATERIAL" means (i) any substance, product, waste or other material of any nature whatsoever which is or becomes listed, regulated, or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. ("CERCLA"); the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. ("RCRA"); the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Water Act, 33 U.S.C. Section 1251 et seq.; the Federal Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Federal Clean Water Act, 33 U.S.C. Section 1151 et seq.; the National Environmental Policy Act, 42 U.S.C. Section 1857 et seq.; the Regulations of the Environmental Protection Agency, 33 C.F.R. and 40 C.F.R.; Chapters 373, 376, 380 and 403 of the Florida Statutes and rules related thereto, including Chapters 17, 27 and 40 of the Florida Administrative Code; and all Broward County environmental protection ordinances, (the above-cited Florida state statutes are hereinafter collectively referred to as the "STATE TOXIC SUBSTANCES LAWS") or any other federal, state or local statute, law, ordinance, resolution, 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, (ii) any substance, product, waste or other material of any nature whatsoever which may give rise to liability under any of the above statutes or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decisions of a state or federal court, (iii) petroleum or crude oil other than petroleum and petroleum products which are contained within regularly operated motor vehicles, and (iv) asbestos. (b) Tenant represents, warrants, acknowledges and agrees that: (i) Subject to the terms and provisions of this Lease, Tenant will not undertake, permit, authorize or suffer, the manufacture, handling, generation, transportation, storage, treatment, discharge, release, burial or disposal on, under or about the Premises of any Hazardous Material, or the transportation to or from the Premises of any Hazardous Material; (ii) Tenant will not cause, permit, authorize or suffer any Hazardous Material to be placed, held, located or disposed of, on, under or about any other real property all or any portion of which is legally or beneficially owned (or any interest or estate therein which is owned) by the Tenant in any jurisdiction now or hereafter having in effect a so-called "Superlien" law or ordinance or any part thereof the effect of which law or ordinance would be to create a lien on the Premises to secure any obligation in connection with the real property in such other jurisdiction. 6 12 (c) From and after the Commencement Date, Tenant shall keep and maintain the Premises in compliance with, and shall not cause or permit the Premises to be in violation of, any federal, state or local laws, ordinances or regulations relating to health and safety, industrial hygiene or to the environmental conditions on, under or about the Premises including, but not limited to, air, soil and ground water conditions. Tenant hereby covenants and agrees that neither it nor any agent, servant, employee, or tenant shall generate, manufacture, handle, store, treat, discharge, release, bury or dispose of on, under or about the Premises, any Hazardous Material. Without limiting the generality of the foregoing provisions of this Subsection, Tenant agrees at all times to comply fully and in a timely manner with, and to cause all of its employees, agents, contractors, subcontractors, tenants and any other persons occupying or present on the Premises to so comply with, all federal, state and local laws, regulations, guidelines, codes, statutes and ordinances applicable to the generation, manufacture, handling, storage, treatment, discharge, release, burial or disposal of any Hazardous Material located or present on, under or about the Premises by, through or under Tenant after the Commencement Date, or the transportation to or from the Premises of any Hazardous Material. Any sublease executed after the date hereof concerning the Premises shall contain a provision prohibiting the lessee, and any agent, servant, employee or tenant of the lessee, from generating, manufacturing, storing, treating, discharging, releasing, burying or disposing on, under or about the Premises, or transporting to or from the Premises, any Hazardous Material. (d) If the release, threat of release, placement on, under or about the Premises, or the use, generation, manufacture, storage, treatment, discharge, release, burial or disposal on, under or about the Premises, or transportation to or from the Premises, of any Hazardous Material: (i) gives rise to liability, costs or damages (including, but not limited to, a response action, remedial action, or removal action) under RCRA, CERCLA, the State Toxic Substances Laws, or any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decision of a state or federal court, (ii) causes or threatens to cause a significant public health effect, or (iii) pollutes or threatens to pollute the environment, the Tenant shall promptly take any and all response, remedial and removal action necessary to clean up the Premises and any other effected property and mitigate exposure to liability arising from the Hazardous Material, if required by law or by any governmental authority. (e) Tenant shall indemnify, defend with counsel reasonably satisfactory to Landlord, protect and hold harmless Landlord, its directors, officers, employees, agents, assigns and any successor or successors to Landlord's interest under this Lease from and against all claims, actual damages (including but not limited to special and consequential damages), punitive damages, injuries, costs, response costs, losses, demands, debts, liens, liabilities, causes of action, suits, legal or administrative proceedings, interest, fines, charges, penalties and expenses (including but not limited to attorneys' and expert witness fees and costs incurred in connection with defending against any of the foregoing or in enforcing this indemnity) of any kind whatsoever paid, incurred or suffered by, or asserted against, any indemnified party at any time prior to any retaking of the Premises by Landlord directly or indirectly arising from or attributable to (i) any breach by Tenant of any of its agreements, warranties or representations set forth in this Section 6.2, or (ii) any repair, cleanup or detoxification, or preparation and implementation of any removal, remedial, response, closure or other plan concerning any Hazardous Material which arises on, under or about the Premises after the Commencement Date and is attributable to Tenant and not to Landlord or any other party not under the control, employed by, contracted with or affiliated with Tenant, regardless of whether undertaken due to governmental action. Without limiting the generality of the foregoing indemnity, such indemnity is intended to operate as an agreement pursuant to Section 107 (e) of CERCLA, 42 U.S.C. Section 9607(e), to insure, protect, hold harmless and indemnify Landlord for any liability pursuant to such statute, to the extent Tenant is liable pursuant to this Section 6.2. (f) Tenant shall promptly give Landlord (i) a copy of any notice, correspondence or information it receives from any federal, state or other governmental authority regarding Hazardous Materials on, under or about the Premises or Hazardous Materials which affect or may affect the Premises, or regarding any actions instituted, completed or threatened by any such governmental authority concerning Hazardous Materials which affect or may affect the Premises, (ii) written notice of any knowledge or information Tenant obtains regarding Hazardous Materials on, under or about the Premises or incurred by Tenant (other than commercially reasonable quantities of customarily used cleaning compounds and the like and the matters covered 7 13 in subsections (h) and (i) of this Section 6.2), a third party or any government agency to study, assess, contain or remove any Hazardous Materials on, under, about or near the Premises for which expense or loss Tenant may be liable or for which a lien may be imposed on the Premises, (iii) written notice of any knowledge or information Tenant obtains regarding the release or discovery of Hazardous Materials on, under or about the Premises or on other sites owned, occupied or operated by Tenant or by any person for whose conduct Tenant is or may be responsible, or whose liability may result in a lien on or otherwise affect the Premises, (iv) written notice of all claims made or threatened by any third party against Tenant or the Premises relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Material, and (v) written notice of Tenant's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Premises that could subject the Premises to any restrictions on the ownership, occupancy, transferability or use of the Premises under any of the statutes cited in Subsection (a) of this Section or any regulation adopted pursuant thereto. Notwithstanding anything to the contrary contained herein, Tenant shall not be under any obligation to provide notice of any contamination so long as any of the principal(s) of Landlord (currently being James S. Carroll, William C. Carroll, Janet L. Giles and Ralph S. Kerr) are responsible for the operation of the dealership at the Premises. (g) Notwithstanding anything to the contrary contained herein, the indemnity contained in this Section 6.2 shall continue indefinitely from the date of Tenant's execution of this Lease and shall survive the termination of all agreements between Tenant and Landlord. The indemnity contained in this Section 6.2 in no way limits the scope or enforceability of any other indemnity contained herein. (h) Commercially reasonable quantities of customarily used cleaning compounds and the like, which are stored, used and disposed of in compliance with applicable environmental laws, shall be excluded from any obligation of Tenant hereunder this Section 6.2. Commercially reasonable quantities of products customarily used in Tenant's business and the like, which are stored, used and disposed of in compliance with applicable environmental laws, are hereby permitted by Landlord. (i) Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no liability or obligation under this Section 6.2 or elsewhere in this Lease for any matter existing on, under or about the Premises prior to the Commencement Date, including, without limitation, the removal or remediation of any Hazardous Materials and Landlord shall maintain full liability for such pre-Commencement Date contamination. Landlord shall indemnify, defend with counsel reasonably satisfactory to Tenant, protect and hold harmless Tenant, its directors, officers, employees, agents, assigns and any successor or successors to Tenant's interest under this Lease from and against all claims, actual damages (including but not limited to special and consequential damages), punitive damages, injuries, costs, response costs, losses, demands, debts, liens, liabilities, causes of action, suits, legal or administrative proceedings, interest, fines, charges, penalties and expenses (including but not limited to attorneys' and expert witness fees and costs incurred in connection with defending against any of the foregoing or in enforcing this indemnity) of any kind whatsoever paid, incurred or suffered by, or asserted against, any indemnified party directly or indirectly arising from or attributable to (1) any breach by Landlord any of its agreements, warranties or representations set forth in this Section 6.2(i), or (2) any repair, cleanup or detoxification, or preparation and implementation of any removal, remedial, response, closure or other plan concerning any Hazardous Material on, under or about the Premises prior to the Commencement Date attributable to Landlord or any other party under the control, employed by, contracted with or otherwise associated with Landlord in any manner, regardless of whether undertaken due to governmental action. Without limiting the generality of the foregoing indemnity, such indemnity is intended to operate as an agreement pursuant to Section 107 (e) of CERCLA, 42 U.S.C. Section 9607(e), to insure, protect, hold harmless and indemnify Tenant for any liability pursuant to such statute, to the extent Landlord is liable pursuant to this Section 6.2(i). 8 14 SECTION 6.3 MAINTENANCE AND REPAIRS. During the Term of this Lease, in addition to the Rent herein provided, Tenant agrees to pay all costs and charges for repair and maintenance of the Premises, except as otherwise provided herein. Tenant agrees to surrender the Premises at the expiration or earlier termination of this Lease in as good condition as at the commencement of the term of this Lease except, Tenant shall not be responsible for the repair or condition of those portions of the premises which Landlord agrees to maintain nor damage by dry rot, termites, sinking of floors, or ordinary wear and tear. Landlord agrees to maintain in good repair, at Landlord's cost, the roof, outer walls (which will include the bulkheads under plate glass windows), downspouts, underground plumbing, underground and in the wall wiring, support of floors, and, without limitation, structural portions of the Premises. Tenant shall keep in good repair the electrical equipment, air conditioning equipment and heating equipment, and when required, Tenant shall replace such components with items of at least scope and quality of those being replaced. In the event Tenant has replaced any of such equipment prior to the end of its normal useful life and the Term of this Lease terminates or expires in accordance with the provisions contained in this Lease, then Landlord shall pay to Tenant on such termination date or expiration date, as the case may be, an amount equal to the cost of such equipment paid by Tenant times a fraction, the numerator of which is the number of months in the normal useful life of such equipment minus the number of months from the date of installation of such equipment to the date of termination or expiration, as the case may be, of the Term, and the denominator of which is the number of months in the normal useful life of such equipment. No such payment shall be required to made by Landlord if the Term is terminated due to the occurrence and continuation of a Default by Tenant. Tenant agrees to replace any plate, window or door glass broken in the Premises with glass of like kind and quality, except Tenant shall not be required to replace glass broken due to settlement or defective construction of the building or due to the failure of Landlord to maintain and repair those portions of the Premises which Landlord agrees herein to maintain and repair or due to negligent repair of said premises by Landlord. Landlord agrees to replace glass broken in the Premises when breakage is due to any of the causes set forth in the next preceding sentence which shall relieve Tenant from replacing said glass as set forth herein. Landlord and Tenant shall, comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act. Any repairs required to be made by the Landlord and Tenant shall be made in a prompt and workmanlike manner. All goods and materials used shall be in quality equal to or better than that being replaced. The Tenant shall supply the Landlord with copies of all warranties offered as to any replacements and shall supply Landlord with copies of any invoices for repairs or replacements, the cost of which exceeds $5,000.00. Tenant's failure to supply such warranties and invoices shall not be deemed a default under the terms of this Lease. Landlord and Tenant shall, comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act. Any repairs required to be made by the Landlord and Tenant shall be made in a prompt and workmanlike manner. All goods and materials used shall be in quality equal to or better than that being replaced. The Tenant shall supply the Landlord with copies of all warranties offered as to any replacements and shall supply Landlord with copies of any invoices for repairs or replacements, the cost of which exceeds $5,000.00. Tenant's failure to supply such warranties and invoices shall not be deemed a default under the terms of this Lease. Subject to the other terms of this Lease, Tenant acknowledges that it has inspected and that the Premises, including all fixtures, equipment and furnishings contained therein, are in satisfactory or excellent condition and accepts the Premises in its "AS IS" condition, without requiring Landlord to make any repairs or replacements thereof. Tenant hereby waives any objection to and releases Landlord from 9 15 any liability arising from the condition of the Premises from and after the Commencement Date, except for matters as herein set forth. Any Improvements being constructed upon the Land together with all equipment and hardware, may be warrantied by third party vendors who have performed labor or rendered materials thereto. The Tenant shall be entitled to the benefit of all such warranties and the Landlord shall fully cooperate in securing the services of such third party vendors for warranty work during the Term of this Lease. SECTION 6.4 AMERICANS WITH DISABILITIES ACT. Landlord shall be responsible for compliance with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act, attributable to the Premises as of the Commencement Date of this Lease. In the event the Tenant makes any modifications to the Premises, all such modifications shall comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to the Premises, including the Americans with Disabilities Act, including modifications which are required by such governmental agencies, as a result of such modifications, to remaining unmodified portions of the Premises. ARTICLE 7 INSURANCE AND INDEMNITY SECTION 7.1 BUILDING INSURANCE. Tenant will, at its cost and expense, keep and maintain in force the following policies of insurance: (1) Insurance on the Improvements against loss or damage by fire and against loss or damage by any other risk now and from time to time insured against by "extended coverage" provisions of policies generally in force on improvements of like type in the city in which the Premises are located, and in builder's risk completed value form during construction of improvements by Tenant, in amounts sufficient to provide coverage for the full insurable value of the Improvements; the policy for such insurance shall have a replacement cost endorsement or similar provision. "FULL INSURABLE VALUE," shall mean actual replacement value (exclusive of cost of excavation, foundations, and footings below the surface of the ground or below the lowest basement level), and such full insurable value shall be determined by Tenant's insurer, and confirmed from time to time at the request of Landlord by one of the insurers. The Tenant shall maintain all storm and flood insurances which are customarily maintained for properties similar to the Premises in the County in which the Premises are located, or which is required by Landlord's Lender (if any), and only if such coverage is available, to fully insure the Improvements including all such coverages which might later come into existence as a result of changes in the insurance coverages available or required in the future. (2) Worker's Compensation Insurance as to Tenant's employees involved in the construction, operation, or maintenance of the Premises in compliance with applicable law. (3) Such other insurance against other insurable hazards which at the time are commonly insured against in the case of improvements similarly situated, due regard being given to the height and type of the Improvements, their construction, location, use, and occupancy. 10 16 SECTION 7.2 LIABILITY INSURANCE. Tenant shall secure and maintain in force comprehensive general liability insurance, including contractual liability specifically applying to the provisions of this Lease and completed operations liability, with limits of not less than Ten Million Dollars ($10,000,000) with respect to bodily injury or death to any number of persons in any one accident or occurrence and with respect to property damage in any one accident or occurrence, such limits to be increased in the event of request by Landlord by an amount which may be reasonable at the time. SECTION 7.3 POLICIES. All insurance maintained in accordance with the provisions of this Article 7 shall be issued by companies reasonably satisfactory to Landlord, and shall be carried in the name of both Landlord and Tenant, as their respective interests may appear, and shall contain a mortgagee clause acceptable to the Landlord's Financing Lender and the Permitted Mortgagees. All property policies shall (i) be subject to prior written approval of Landlord, which shall not be unreasonably withheld or delayed, and (ii) expressly provide that any loss thereunder may be adjusted with Tenant, Landlord's Financing Lender and Permitted Mortgagees, but, unless required otherwise under Landlord's Financing, shall be payable to Tenant and disbursed as set forth in Section 8.2. All property and liability insurance policies shall name Landlord as an additional named insured and shall include contractual liability endorsements. Tenant shall furnish Landlord, Landlord's Financing Lender and each Permitted Mortgagee with evidence of all insurance policies required under this Article 7 and shall furnish and maintain with each of such parties, at all times, a certificate of the insurance carrier certifying that such insurance shall not be canceled without at least fifteen (15) days advance written notice to each of such parties. SECTION 7.4 TENANT'S INDEMNITY. Subject to Section 7.6, Tenant shall indemnify and hold harmless Landlord, its shareholders, partners, trustees, members, directors, officers, employees and its successors and assigns (the "INDEMNIFIED LANDLORD PARTIES"), from all claims, suits, actions, and proceedings whatsoever which may be brought or instituted on account of or growing out of any Default and any and all injuries or damages, including death, to persons or property on the Premises and all losses, liabilities, judgments, settlements, costs, penalties, damages, and expenses relating thereto, including but not limited to attorneys' fees and other costs of defending against, investigating, and settling the Claims, to the extent, but only to the extent, such Claims are not attributable to (i) events or conditions that occurred or existed, in whole or in part, prior to the date when Tenant first occupied the Premises or (ii) failure of any components of the Improvements that Landlord is required to maintain ("CLAIMS"), Tenant shall assume on behalf of the Indemnified Landlord Parties and conduct with due diligence and in good faith the defense of all such Claims against any of the Indemnified Landlord Parties. Tenant may contest the validity of any such Claims, in the name of Landlord or Tenant, as Tenant may deem appropriate, provided that the expenses thereof shall be paid by Tenant. The foregoing covenants and agreements of Tenant shall survive the expiration or termination of this Lease. SECTION 7.5 LANDLORD'S INDEMNITY. Subject to Section 7.6, Landlord shall indemnify and hold harmless Tenant, its shareholders, partners, trustees, members, directors, officers, employees and its successors and assigns (the "INDEMNIFIED TENANT PARTIES"), from all claims which may be brought or instituted on account of or growing out of any default by Landlord of its obligations under this Lease and all injuries or damages, including death, to persons or property on the Premises and all losses, liabilities, judgments, settlements, costs, penalties, damages, and expenses relating thereto, including but not limited to attorneys' fees and other costs of defending against, investigating, and settling the claims, to the extent, but only to the extent, any such claims are attributable to or arise out of: (i) events or conditions that existed or occurred, in whole or in part, prior to the date when Tenant first occupied the Premises; (ii) 11 17 failure of any components of the Improvements which Landlord is required to maintain; and (iii) Landlord's representations or warranties or asbestos in any form which is present on the Premises prior to the date of this Lease. Landlord shall assume on behalf of the Indemnified Tenant Parties and conduct with due diligence and in good faith the defense of all Claims against any of the Indemnified Tenant Parties. Landlord may contest the validity of any Claims, in the name of Landlord or Tenant, as Landlord may deem appropriate, provided that the expenses thereof shall be paid by Landlord. The foregoing covenants and agreements of Landlord shall survive the Term and expiration or termination of this Lease. SECTION 7.6 SUBROGATION. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each hereby waives any and all rights of recovery, claims, actions, or causes of action against the other, its agents, officers, and employees for any loss or damage that may occur to any improvements located on the Premises, or any part thereof, or any personal property of such party therein, by reason of fire, the elements, or any other cause which is insured under standard "all risk of direct loss" insurance policies available in the state in which the Premises are located, regardless of cause or origin, including negligence of either party hereto, its agents, officers, or employees. No insurer of one party shall hold any right of subrogation against the other party as to any such loss or damage. ARTICLE 8 CASUALTY; CONDEMNATION SECTION 8.1 TENANT'S OBLIGATION TO RESTORE. Subject to the other terms of this Section 8.1, in the event of damage to, or destruction of, any Improvements by fire or other casualty, Tenant shall promptly repair, replace, restore, and reconstruct the same, all in compliance with the provisions of Section 8.2. If insurance proceeds are insufficient to pay for required replacement, repairs, restoration, etc., then Tenant shall be obligated to promptly repair, replace, restore, and reconstruct the Improvements, all in compliance with the provisions of Section 8.2, notwithstanding the unavailability of insurance proceeds for such purpose. In the event that a Permitted Mortgagee (as hereinafter defined) or Landlord's Financing Lender (as hereinafter defined), as the case may be, requires that payment of insurance proceeds be made to it and not be made available for required replacement, repairs, restoration, etc., then to the extent that such funds are withheld, the Tenant shall not be responsible for performing required replacement, repairs, restoration, or reconstruction of the Improvements. In the event of a casualty loss wherein the insurance proceeds are not be used for replacement, repairs, restoration, etc., or the Improvements, as a result of Landlord's Financing Lender or by consent of the parties, the insurance proceeds shall be applied as follows: (1) first, to pay the cost of razing the Improvements and leveling, cleaning and otherwise putting the Premises in good order; (2) second, to Landlord's Financing Lender; (3) third, to the payment to Tenant for any of its improvements; and (4) fourth, to Landlord, to the extent of any remaining proceeds. Distribution of insurance proceeds is being made in conformity with Section 5.3 of this Lease. 12 18 Notwithstanding the foregoing, in the event of destruction or damage involving more than seventy-five percent (75%) of the interior floor area of the Improvements, Tenant shall have no obligation to rebuild unless the Landlord and Tenant may agree to rebuild the Improvements. In the event the parties have not agreed to rebuild the Premises then it is recognized between Landlord and Tenant that it is their intent to relocate the operations to another location. In the event of such relocation, this Lease shall terminate effective as to the affected Premises as of the date of such damage or destruction and the insurance proceeds received by the Landlord and Tenant [as to Tenant, for Tenant's Improvements, the right to same carrying forward as to the new location] shall be utilized for the construction of new Improvements at an alternative location. In the event that the costs of construction of the Improvements for which the Landlord is responsible exceeds the insurable value of the operation which was subject to the casualty, the Landlord shall pay the additional costs for Improvements, and the annual Base Rent due pursuant to Section 3.1 shall be increased by an amount equal to ten (10%) percent of the Landlord's additional cost of construction of the new facility. This Lease, except for the adjustment of Base Rent as described above, shall govern as to the rights and obligations of the Landlord and Tenant at the substituted location, however, the Term of the Lease shall be in abeyance during the period of construction of the alternative Improvements. Tenant's obligation for payment of Base Rent and other monetary sums under this Lease as applicable to the new Premises shall commence as of the later to occur of (i) the date the improvements to be constructed on the new Premises are certified as complete by the applicable architect for such improvements in accordance with the plans and specifications agreed to in writing by Landlord and Tenant and (ii) the date a Certificate of Occupancy is obtained for the operation of such new improvements. Landlord and Tenant shall, in good faith, fully cooperate with one another in the selection of the alternative site and relative to preparation of plans for Improvements and construction thereof. Nothing hereinabove withstanding to the contrary, if the Tenant failed to maintain insurance coverage required herein and as a result, proceeds are paid by the insurance company which are less than the full insurable value of the Improvements, Tenant shall be solely responsible for any such deficiency. SECTION 8.2 RESTORATION AND DEPOSIT OF FUNDS. (a) Prior to Tenant commencing any repair, restoration or rebuilding pursuant to Section 8.1 involving an estimated cost of more than One Hundred Thousand Dollars ($100,000), Tenant shall submit to Landlord for its approval, which will not be unreasonably withheld or delayed: (i) plans and specifications therefor, prepared by a licensed architect reasonably satisfactory to Landlord; (ii) copies of appropriate governmental permits; (iii) an estimate of the cost of the proposed work, certified to by said architect (iv) a fixed price construction contract in an amount not in excess of such architect's estimated cost from a reputable and experienced general contractor; and (v) satisfactory evidence of sufficient contractor's comprehensive general liability insurance covering Landlord, builder's risk insurance, and worker's compensation insurance. Upon completion of any such work by or on behalf of Tenant, Tenant shall provide Landlord with written evidence, in form and substance reasonably satisfactory to Landlord, showing that (i) Tenant has paid all contractors for all costs incurred in connection with such repair, restoration or rebuilding, and (ii) that the Premises is not encumbered by any mechanic's or materialmen's liens relating to such repair, restoration or rebuilding. Regarding Tenant's obligations with respect to mechanic's or materialmen's liens, reference is made herein to all of the terms and provisions of Section 5.3 in connection with such repair, restoration or rebuilding. (b) Provided that a Default does not then exist, then all sums arising by reason of such loss under insurance policies maintained by Tenant, shall be deposited with the Depositary (as hereinafter 13 19 defined) to be available to Tenant for the repair, restoration and rebuilding of the Premises. Tenant shall diligently pursue the repair, restoration and rebuilding of the improvements in a good and workmanlike manner using only materials which are of a quality comparable to the quality of the materials used in the Improvements prior to their destruction or damage. The insurance proceeds will be disbursed to Tenant by the Depositary after delivery of evidence reasonably satisfactory to the Depositary that (A) such repairs, restoration, or rebuilding have been completed and effected in compliance with the plans and specifications for the restoration or rebuilding, (B) no mechanic's and materialman's liens against the Premises have been filed, or that all such liens have been paid or bonded around, and (C) all payments for work performed and materials purchased as of the date of such disbursement for which mechanic's and materialman's liens might arise have been paid or will be paid from such disbursement or that all such potential liens have been paid or bonded around. At the option of Tenant, such proceeds shall be advanced in reasonable installments. Each such installment (except the final installment) shall be advanced in an amount equal to the cost of the construction work completed since the last prior advance (or since commencement of work as to the first advance) less statutorily required retainage in respect of mechanic's and materialman's liens or retainage which may be required by Landlord's Financing Lender in an amount not to exceed ten percent (10%) of such cost. The amount of each installment requested shall be certified as being due and owing by Tenant's architect in charge, and each request shall include all bills for labor and materials for which reimbursement is requested and reasonably satisfactory evidence that no lien has been placed against the Premises for any labor or material furnished for such work. The final disbursement, which shall be an amount equal to the balance of the insurance proceeds, shall be made upon receipt of (1) an architect's certificate of substantial completion as to the work from Tenant's architect, (2) reasonably satisfactory evidence that all bills incurred in connection with the work have been paid and (3) issuance of a certificate of occupancy by the applicable governmental agency, if required. The term "DEPOSITARY", as used herein, shall mean either: (i) Landlord's Financing Lender, or its designee provided that Landlord's Financing Lender is an institutional lender, its designee is not an Affiliate of Landlord, and such entity holds such funds in accordance with the terms of this lease, or related in any other manner to Landlord), or (ii) such other party that is acceptable to Landlord and Tenant, if there is no such Landlord's Financing Lender or if such Landlord's Financing Lender has refused to act as Depositary. (c) If no Default then exists, any excess of money received from insurance policies remaining with the Depositary after the repair or rebuilding of the Improvements shall, to the extent required by any Permitted Mortgagee, be applied to payment of Tenant's Permitted Mortgage, otherwise any such proceeds shall be paid to Tenant. (d) If Tenant shall not commence the repair or rebuilding of the Improvements within a period of sixty (60) days after damage or destruction by fire or other casualty and prosecute the same thereafter with such dispatch as may be necessary to complete the same within a reasonable period after said damage or destruction occurs; then, in addition to all other remedies Landlord may have either under this Lease, at law or in equity, the money received by and remaining in the hands of the Depositary shall be paid to and retained by Landlord as security for the continued performance and observance by Tenant of Tenant's covenants and agreements hereunder. SECTION 8.3 NOTICE OF DAMAGE. Tenant shall immediately notify Landlord and each Permitted Mortgagee of any destruction or damage to the Premises. 14 20 SECTION 8.4 TOTAL TAKING. Should the entire Premises be taken (which term, as used in this Article 8, shall include any conveyance in avoidance or settlement of eminent domain, condemnation, or other similar proceedings) by any Governmental Authority, corporation, or other entity under the right of eminent domain, condemnation, or similar right, then Tenant's right of possession under this Lease shall terminate as of the date of taking possession by the condemning authority, and the award therefor will be distributed as follows: (1) first, to the payment of all reasonable fees and expenses incurred in collecting the award; (2) second, to Landlord's Financing Lender; and (3) third, to Landlord and Tenant, to the extent of their interests in the Premises, as the court having such jurisdiction of such taking shall determine taking into account certain factors including, without limitation, the term of the leasehold estate of the Tenant and the ownership interest of Landlord. After the determination and distribution of the condemnation award as herein provided, the Lease shall terminate. SECTION 8.5 PARTIAL TAKING. Should a portion of the Premises be taken by any Governmental Authority, corporation, or other entity under the right of eminent domain, condemnation, or similar right, this Lease shall nevertheless continue in effect as to the remainder of the Premises unless, in Tenant's reasonable judgment, so much of the Premises shall be so taken as to make it economically unsound to use the remainder for the uses and purposes contemplated hereby, whereupon this Lease shall terminate as of the date of taking of possession by the condemning authority in the same manner as if the whole of the Premises had thus been taken, and the award therefor shall be distributed as provided in Section 8.4. In the event of a partial taking where this Lease is not terminated, all awards payable in respect thereof shall be payable to Landlord and Tenant, to the extent of their interests in the Premises, as the applicable condemning authority shall determine taking into account certain factors including, without limitation, the term of the leasehold estate of the Tenant and the ownership interest of Landlord. Following such partial taking, Landlord shall make all necessary repairs or alterations to the remaining Premises, required to make the remaining portions of the Premises an architectural whole. The Base Rent payable hereunder during the unexpired portion of the Lease shall be reduced to the extent fair and reasonable under the circumstances, effective on the date physical possession is taken by the condemning authority. Tenant acknowledges that tentative plans exist for the widening of State Road 441, such road running along the west boundary of the property. Should the applicable governmental agency effectuate the taking of land for the widening of State Road 441, the Tenant agrees that such taking shall not constitute a basis for termination of this lease. As of the date of the execution of this Lease, to the best of Landlord's knowledge, the widening of State Road 441 will involve property already within the right- of-way owned by the applicable governmental agency. SECTION 8.6 TEMPORARY TAKING. If the whole or any portion of the Premises shall be taken for temporary use or occupancy, the Term shall not be reduced or affected. The Base Rent payable hereunder during the unexpired portion of the Lease shall be reduced to the extent fair and reasonable under the circumstances and Tenant shall be entitled to receive the entire amount of any award therefor, less the amount of the reduction in the Base Rent. SECTION 8.7 NOTICE OF TAKING, COOPERATION. Tenant shall immediately notify Landlord and each Permitted Mortgagee of the commencement of any eminent domain, condemnation, or other similar proceedings with regard to Premises. Landlord and Tenant covenant and agree to fully cooperate in any condemnation, eminent domain, or similar proceeding in order to maximize the total award receivable in respect thereof. 15 21 ARTICLE 9 TENANT'S FINANCING SECTION 9.1 TENANT'S RIGHT TO ENCUMBER. Tenant shall have the right, from time to time and at any time, without Landlord's consent or joinder, to encumber its interest in this Lease and the leasehold estate hereby created with one or more deeds of trust, mortgages, or other lien instruments to secure any borrowings or obligations of Tenant. Any such mortgages, deeds of trust, and/or other lien instruments, and the indebtedness secured thereby, provided that Landlord has been given notice thereof, are herein referred to as "PERMITTED MORTGAGES," and the holder or other beneficiary thereof are herein referred to as "PERMITTED MORTGAGEES." SECTION 9.2 TENANT'S MORTGAGE. If Tenant encumbers its interest in this Lease and the leasehold estate hereby created with liens as above provided, then Tenant shall notify Landlord thereof, providing with such notice the name and mailing address of the Permitted Mortgagee in question, Landlord shall upon request, acknowledge receipt of such notice, and for so long as the Permitted Mortgage in question remains in effect the following shall apply: (a) Landlord shall give to the Permitted Mortgagee a duplicate copy of any and all notices which Landlord gives to Tenant pursuant to the terms hereof, including notices of default, and no such notice shall be effective until such duplicate copy is transmitted to such Permitted Mortgagee, in the manner provided in Section 12.1. (b) There shall be no cancellation, surrender, or modification of this Lease by joint action of Landlord and Tenant without the prior written consent of the Permitted Mortgagee. (c) If a Default should occur hereunder, then Landlord specifically agrees that: (1) Landlord shall not enforce or seek to enforce any of its rights, recourses, or remedies, until a notice specifying the event giving rise to such Default has been transmitted to the Permitted Mortgagee, in the manner provided in Section 12.1, and if the Permitted Mortgagee proceeds to cure the Default within a period of thirty (30) days after receipt of such notice or, as to non-monetary events of Default which by their very nature cannot be cured within such time period, the Permitted Mortgagee commences curing such Default within such time period and thereafter diligently pursues such cure to completion within sixty (60) days thereafter, then any payments made and all things done by the Permitted Mortgagee to effect such cure shall be as fully effective to prevent the exercise of any rights, recourses, or remedies by Landlord as if done by Tenant; (2) if the Default is a non-monetary default, the Permitted Mortgagee shall have a period of time in which to cure such Default equal to the greater of (i) the time period for such curing that is applicable to Tenant under the terms of this Lease, or (ii) sixty (60) days after the date that the Permitted Mortgagee has been notified of such Default, provided that the Permitted Mortgagee cures all defaults relating to the payment of Base Rent and neither Landlord nor the Premises is or would be liable or subject to any lien, tax, penalty, expense, liability, or damages because of such Default. If Landlord or the Premises is or will be liable or subject to any such lien, tax, penalty, expense, liability or damages because of the Default, then for so long as the Permitted Mortgagee is diligently and with continuity attempting to secure possession of the Premises (whether by foreclosure or other procedures), and provided such delay does not jeopardize the interests of the Landlord, Landlord shall allow the Permitted Mortgagee such time as may be reasonably necessary under the circumstances to obtain possession of the 16 22 Premises in order to cure such Default, and during such time Landlord shall not enforce or seek to enforce any of its rights, remedies or recourses hereunder; and (d) No Permitted Mortgagee shall be or become liable to Landlord as an assignee of this Lease until such time as such Permitted Mortgagee, by foreclosure or other procedures, shall either acquire the rights and interests of Tenant under this Lease or shall actually take possession of the Premises, and upon such Permitted Mortgagee's assigning such rights and interests to another party or upon relinquishment of such possession, as the case may be, such Permitted Mortgagee shall have no further such liability. ARTICLE 10 WARRANTY OF TITLE AND PEACEFUL POSSESSION AND LANDLORD'S FINANCING SECTION 10.1 WARRANTY AS TO ENCUMBRANCES. Landlord represents, warrants and covenants that: (i) the representations and warranties set forth in Section 10.3 are true and correct; (ii) it owns title to the Land and the Premises free and clear of all liens, claims and encumbrances except the liens described in EXHIBIT B hereto securing the financing described therein ("LANDLORD'S FINANCING") and the other encumbrances specifically described in such EXHIBIT B; (iii) except as otherwise set forth in Section 10.2, Landlord's Financing shall not be modified in any manner without the prior written consent of Tenant; and (iv) the lender providing such Landlord's Financing ("LANDLORD'S FINANCING LENDER") has executed, caused to be acknowledged (notarized in accordance with applicable law) and delivered to Landlord and Tenant a mutual recognition and attornment agreement, in form and substance reasonably satisfactory to Tenant, suitable for recording in the appropriate records to notify third parties of the existence of such agreement and that the Land and the Premises are subject thereto. Such agreement shall provide, among other provisions, that the Tenant's interest under this Lease shall be subordinate to the Landlord's Financing and that the Landlord's Financing Lender shall (i) give to Tenant a duplicate copy of any and all notices which Landlord's Financing Lender gives to Landlord, including notices of default, and no such notice shall be effective until such duplicate copy is actually received by Tenant in the manner provided in Section 12.1; (ii) give Tenant the right and opportunity to cure any defaults under the Landlord's Financing; and (iii) recognize and consent to Tenant's rights under this Lease in the event of a foreclosure or deed in lieu thereof so long as Tenant continues to perform its obligations under this Lease. As used herein, the term (A) "LANDLORD'S FINANCING LENDER" shall also include any lender that refinances Landlord's Financing or makes a new loan to Landlord, subject to Section 10.2, and (B) "LANDLORD'S FINANCING" shall include all financing secured by liens covering all or any portion of the Premises which are permitted under the terms of this Lease, including, without limitation, all new loans. Moreover, Landlord covenants that Tenant shall and may peaceably and quietly have, hold, occupy, use, and enjoy the Premises during the Term, and may exercise all of its rights hereunder, subject only to the provisions of this Lease and applicable governmental laws, rules, and regulations; and Landlord agrees to warrant and forever defend Tenant's right to such occupancy, use, and enjoyment and the title to the Premises against the claims of any and all persons whomsoever lawfully claim the same, or any part thereof, subject only to provisions of this Lease and all applicable governmental laws, rules, and regulations. Landlord's Financing Lender shall not be or become liable to Tenant as an assignee of Landlord's interest in this Lease until such time as such Landlord's Financing Lender, by foreclosure or other 17 23 procedures, shall either acquire the rights and interests of Landlord under this Lease, and upon Landlord's Financing Lender's assigning such rights and interests to another party, Landlord's Financing Lender shall have no further such liability. To the extent that Tenant cures any defaults of Landlord under Landlord's Financing, Tenant shall receive a credit against the Base Rent due pursuant to Section 3.1 hereinabove in an amount equal to the amount advanced by Tenant to cure such defaults, together with interest at the Tenant's parent company's customary borrowing rate as may be in effect from time to time. Such credit shall be charged against the monthly Base Rent installments, commencing as of the first monthly rental payment due after the first of such advances, until such time as the entire amount of such credit is exhausted. Thereafter, Base Rent shall commence in amounts required in Section 3.1 hereinabove, including payment of any partial installment which may be due as a result of a credit to the final monthly credit which is less than the full monthly Base Rent due. SECTION 10.2 LANDLORD'S MORTGAGE. During the Term, none of Landlord's Financing may be modified or refinanced or any new loan made except in accordance with the following: (a) The total mortgage indebtedness and encumbrances of any type against the Premises after the proposed refinancing or modification or new loan of Landlord's Financing does not exceed eighty percent (80%) of the fair market value of the Premises including any improvements being made with financing obtained for such construction or the loan balance in existence as of the effective date of this Lease, whichever is greater; and (b) The effect of any such modification, refinancing or new loan does not result in an increase in principal and interest payable by Landlord during any Lease Year which exceeds Base Rent required to be paid by Tenant during any Lease Year. SECTION 10.3 REPRESENTATIONS OF LANDLORD. Landlord represents and warrants to Tenant as of the effective date of this Lease that: (a) The Premises are not subject to any prior lease, easement, adverse claim, or claims of parties in possession, whether or not shown by the public records, except as set forth on EXHIBIT B. (b) There is no pending or threatened condemnation action or agreement in lieu thereof which will or may affect the Premises or any part thereof in any respect whatsoever, except as noted in Section 8.5 hereinabove. (c) There is no action, suit or proceeding, including environmental, pending or threatened against or affecting the Premises or any part thereof. (d) The execution, delivery and performance of this Lease by Landlord has been duly authorized and this Lease is valid and enforceable against Landlord in accordance with its terms. (e) Landlord has no knowledge of any fact, action or proceeding, including environmental, whether actual, pending or threatened, which could result in the modification or termination of the present zoning classification of the Premises, or the termination of full free and adequate access to and from the Premises from all adjoining public highways and roads. 18 24 (f) Landlord has not agreed to lease or convey or granted any rights with respect to or any part of the Premises or any interest therein to any other person or entity. (g) The Premises are not subject to any restrictions (recorded or unrecorded), building and zoning laws or ordinances, or other laws, ordinances, rules, regulations and requirements of any Governmental Authority having jurisdiction which do or could prohibit the use of the Premises for the uses set forth in this Lease. (h) Landlord has not received any notice from any Governmental Authority having jurisdiction over the Premises requiring or specifying any work to be done to the Premises. (i) Landlord has no knowledge of any existing, threatened or contemplated action, circumstances or conditions (including but not limited to subsurface conditions) which would materially interfere with the development or use of the Premises for an automobile dealership. (j) As of the date hereof the Premises are, and on the Commencement Date the Premises will be in compliance in all material respects with all restrictive covenants and other restrictions applicable to the Premises and all applicable statutes, ordinances, rules and regulations (federal, state, county and municipal), including without limitation all zoning, environmental, building, health, subdivision regulations. Except as to matters relating to the presence of asbestos contained in the Premises, if any, the representation and warranty set forth in this Subsection (j) shall not be applicable to the matters covered under Subsection (m) herein below. (k) The Premises have legal and physical public access to and from abutting roadways dedicated to and accepted by the State, City, or County where the Premises are located. (l) To the extent zoning regulations are applicable to the Premises, the Premises are zoned for use as an automobile dealership facility, for sale, trade, display, service and repair, painting, and other activities normally associated with a full service automobile dealership. (m) To the best of Landlord's knowledge, except as may otherwise be disclosed to Tenant in any written environmental audit report delivered to Tenant prior to the date of this Lease, no Hazardous Materials, pollutants or toxic substances have been placed, dumped, deposited or buried upon, in or under the Premises, there have been no leaks of petroleum, toxic or Hazardous Materials from any of the underground storage tank facilities and there is no contaminated soil, as defined by federal, state and/or local laws or regulations, in, upon or under the Premises by reason of any such wastes, pollutants, toxins, substances, or facilities. Tenant acknowledges that certain materials which may be considered Hazardous Materials are used in the normal course of the business operated on the Premises prior to the commencement date. Landlord represents that to the best of Landlord's knowledge, such use complies with all applicable governmental regulations and that it has no knowledge of any contamination on the Premises. (n) The Premises have an assured water supply sufficient to permit the operations now being conducted thereon to be conducted in accordance with all governmental requirements. (o) All dimensions in the description to the Premises are net of existing and proposed rights-of-way, easements and dedications except as set forth on EXHIBIT B. 19 25 (p) The Premises are not located in a flood plain or a flood hazard area for which flood insurance would be required or for which flood insurance is available. (q) Landlord warrants and guarantees that on the Commencement Date the wiring, floors, plumbing, underground plumbing, heating, air conditioning equipment, roofs, outer walls, stairways, doors, windows, plate glass and sprinkler equipment of the Premises are each and every one in good repair and are adequate to furnish the proper service for which each was installed and the heating plant will heat and air conditioning will cool the buildings constituting part of the Premises in accordance with the generally accepted design temperatures for the city and state in which the Premises is located. Landlord further warrants and guaranties that on the Commencement Date, the Premises and all appurtenances thereto, will comply with the building codes, fire, sanitary and safety regulations, ordinances and laws of the United States of America, city, county and state in which the Premises are located. Landlord further warrants and guarantees that at the commencement of this Lease, the Premises may be used for the purposes set out in this Lease without violating any such codes, regulations, ordinances, laws or any restrictive covenants running with the land. (r) Landlord has all required occupancy permits and other licenses or permits required for the use and occupancy of the Premises. (s) A true and correct copy of the Seminole Lease has been delivered to Tenant prior to the date hereof, and the Seminole Lease is in full force and effect and has not been modified except as set forth in Supplemental Agreement No. 1 dated March 15, 1979 and Supplemental Agreement No. 2 dated October 30, 1979, true and correct copies of which have been delivered to Tenant prior to the date hereof. (t) Landlord is not in default of any its obligations under the Seminole Lease, and the execution of this Sublease by Landlord and Tenant or the leasing of the Premises by Tenant will not constitute a default under the Seminole Lease including, without limitation, the terms and provisions of Section 7 of the Seminole Lease relating to sublease, assignment or transfer of this Lease. (u) None of the other parties to the Seminole Lease is in default of any of its obligations under the Seminole Lease. ARTICLE 11 DEFAULT AND REMEDIES SECTION 11.1 DEFAULT. Each of the following shall be deemed a "DEFAULT" by Tenant hereunder and a material breach of this Lease: (a) Whenever Tenant shall fail to pay any sum payable by Tenant to Landlord or any third party under this Lease on the date upon which the same is due to be paid, and such default shall continue for ten (10) days after Tenant shall have been given a written notice specifying such default; (b) Whenever Tenant shall fail to keep, perform, or observe any of the covenants, agreements, terms, or provisions contained in this Lease that are to be kept or performed by Tenant other than with respect to payment of Rent or other liquidated sums of money, and Tenant shall fail to immediately commence and take such steps as are necessary to remedy the same within thirty (30) days after Tenant 20 26 shall have been given a written notice specifying the same, or having so commenced, shall thereafter fail to proceed diligently and with continuity to remedy the same; (c) Whenever an involuntary petition shall be filed against Tenant under any bankruptcy or insolvency law or under the reorganization provisions of any law of like import or whenever a receiver of Tenant, or of all or substantially all of the property of Tenant, shall be appointed without acquiescence, and such petition or appointment is not discharged or stayed within sixty (60) days after the happening of such event; or (d) Whenever Tenant shall make an assignment of its property for the benefit of creditors or shall file a voluntary petition under any bankruptcy or insolvency law, or seek relief under any other law for the benefit of debtors. (e) Tenant acknowledges that it has received and reviewed the Seminole Lease and the Supplemental Agreement No. 1 and Supplemental Agreement No. 2. Tenant shall not take any action which will result in the Landlord's default under the terms of the Seminole Lease; provided, however, Landlord represents and warrants that the Tenant's use and occupancy of the Premises as presently being used will not violate the terms of the Seminole Lease. SECTION 11.2 REMEDIES. If a Default occurs, then subject to the rights of any Permitted Mortgagee as provided in Section 9, Landlord may at any time thereafter prior to the curing thereof and without waiving any other rights hereunder or available to Landlord at law or in equity (Landlord's rights being cumulative), do any one or more of the following: (a) Landlord may terminate this Lease by giving Tenant written notice thereof, in which event this Lease and the leasehold estate hereby created and all interest of Tenant and all parties claiming by, through, or under Tenant shall automatically terminate upon the effective date of such notice with the same force and effect and to the same extent as if the effective date of such notice were the day originally fixed in Article 2 hereof for the expiration of the Term; and Landlord, its agents or representatives, shall have the right, without further demand or notice, to reenter and take possession of the Premises and remove all persons and property therefrom with or without process of law, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or existing breaches hereof. In the event of such termination, Tenant shall be liable to Landlord for damages in an amount equal to (A) the discounted present value of the amount by which the Rent reserved hereunder for the remainder of the existing Term (Initial or Renewal) exceeds the then net fair market rental value of the Premises for such period of time, plus (B) all expenses incurred by Landlord enforcing its rights hereunder. (b) Landlord may terminate Tenant's right to possession of the Premises and enjoyment of the rents, issues, and profits therefrom without terminating this Lease or the leasehold estate created hereby, reenter and take possession of the Premises and remove all persons and property therefrom with or without process of law, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or existing breaches hereof, and lease, manage, and operate the Premises and collect the rents, issues, and profits therefrom all for the account of Tenant, and credit to the satisfaction of Tenant's obligations hereunder the net rental thus received (after deducting therefrom all reasonable costs and expenses of repossessing, leasing, managing, and operating the Premises). If the net rental so received by Landlord exceeds the amounts necessary to satisfy all of Tenant's obligations 21 27 under this Lease, Landlord shall retain such excess. In no event shall Landlord be liable for failure to so lease, manage, or operate the Premises or collect the rentals due under any subleases and any such failure shall not reduce Tenant's liability hereunder. If Landlord elects to proceed under this Section 11.2(2), it may at any time thereafter elect to terminate this Lease as provided in Section 11.2(1). ARTICLE 12 MISCELLANEOUS SECTION 12.1 NOTICES. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be in writing and shall be deemed to have been validly given or served by (a) delivery of the same in person to the intended addressee, (b) by depositing the same with Federal Express or another reputable private courier service for next business day delivery to the intended addressee at its address set forth on the first page of this Agreement or at such other address as may be designated by such party as herein provided, (c) by facsimile copy transmission [confirmation sheet indicating transmission to be retained] or (d) by depositing the same in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the intended addressee at its address set forth below or at such other address as may be designated by such party as herein provided. All notices, demands and requests shall be effective upon such personal delivery upon actual receipt, or one (1) business day after being deposited with the private courier service, or two (2) business days after being deposited in the United States mail as required above. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other party hereto at least fifteen (15) days' prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America. For purposes of notice the addresses of the parties hereto shall, until changed, be as follows: Landlord: Koons Development Co. 3101 N. State Road 7 Hollywood, FL 33021 Facsimile: (954) 964-4760 Tenant: Koons Ford, Inc. Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, Texas 77024 Attention: John Turner Facsimile: (713) 627-6468 The parties hereto shall have the right from time to time to change their respective addresses for purposes of notice hereunder to any other location within the United States by giving a notice to such effect in accordance with the provisions of this Section 12.1. 22 28 SECTION 12.2 PERFORMANCE OF OTHER PARTY'S OBLIGATIONS. If either party hereto fails to perform or observe any of its covenants, agreements, or obligations hereunder for a period of thirty (30) days after notice of such failure is given by the other party, then the other party shall have the right, but not the obligation, at its sole election but not as its exclusive remedy), to perform or observe the covenants, agreements, or obligations which are asserted to have not been performed or observed at the expense of the failing party and to recover all costs or expenses incurred in connection therewith, together with interest thereon from the date expended until repaid at an annual rate ("DEFAULT RATE") equal to the lesser of (a) three (3) percent above the prime rate of interest established from time to time by NationsBank (or a comparable rate of interest if such rate is not in effect) or (b) the maximum rate of interest permitted by applicable law. Any performance or observance by a party pursuant to this Section 12.2 shall not constitute a waiver of the other party's failure to perform or observe. SECTION 12.3 MODIFICATION AND NON-WAIVER. No variations, modifications, or changes herein or hereof shall be binding upon any party hereto unless set forth in a writing executed by it or by a duly authorized officer or agent. No waiver by either party of any breach or default of any term, condition, or provision hereof, including without limitation the acceptance by Landlord of any Rent at any time or in any manner other than as herein provided, shall be deemed a waiver of any other or subsequent breaches or defaults of any kind, character, or description under any circumstance. No waiver of any breach or default of any term, condition, or provision hereof shall be implied from any action of any party, and any such waiver, to be effective, shall be set out in a written instrument signed by the waiving party. SECTION 12.4 GOVERNING LAW. This Lease shall be construed and enforced in accordance with the laws of the state in which the Premises are located. SECTION 12.5 NUMBER AND GENDER; CAPTIONS; REFERENCES. Pronouns, wherever used herein, and of whatever gender, shall include natural persons and corporations and associations of every kind and character, and the singular shall include the plural wherever and as often as may be appropriate. Article and Section headings in this Lease are for convenience of reference and shall not affect the construction or interpretation of this Lease. Whenever the terms "hereof," "hereby," "herein," or words of similar import are used in this Lease, they shall be construed as referring to this Lease in its entirety rather than to a particular Section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "Article" or "Section" shall be construed as referring to the indicated Article or Section of this Lease. SECTION 12.6 CPI. "CPI" shall mean the Consumer Price Index for All Urban Consumers, All Items (Base Year 1982-84 = 100) published by the United States Department of Labor, Bureau of Labor Statistics. If the 1982-84 Base Year shall no longer be used as an index of 100, the revised index which would produce results equivalent, as nearly as possible to those which would be obtained hereunder if the CPI were not so revised. SECTION 12.7 ESTOPPEL CERTIFICATE. Landlord and Tenant shall execute and deliver to each other, promptly upon any request therefor by the other party, a certificate addressed as indicated by the requesting party and stating: (a) whether or not this Lease is in full force and effect; (b) whether or not this Lease has been modified or amended in any respect, and submitting copies of such modifications or amendments; (c) whether or not there are any existing defaults hereunder known to the party executing 23 29 the certificate, and specifying the nature thereof; (d) whether or not any particular Article, Section, or provision of this Lease has been complied with; and (e) such other matters as may be reasonably requested. SECTION 12.8 SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, and the basis of the bargain between the parties hereto is not destroyed or rendered ineffective thereby, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. SECTION 12.9 ATTORNEY FEES. If litigation is ever instituted by either party hereto to enforce, or to seek damages for the breach of, any provision hereof, the prevailing party therein shall be promptly reimbursed by the other party for all attorneys' fees reasonably incurred by the prevailing party in connection with such litigation, including all trial and appellate levels. SECTION 12.10 SURRENDER OF PREMISES; HOLDING OVER. Upon termination or the expiration of this Lease, Tenant shall peaceably quit, deliver up, and surrender the Premises. If Tenant does not surrender possession of the Premises at the end of the Term, such action shall not extend the Term, Tenant shall be a tenant at sufferance, and during such time of occupancy Tenant shall pay to Landlord, as damages, an amount equal to twice the amount of Rent that was being paid immediately prior to the end of the Term. Landlord shall not be deemed to have accepted a surrender of the Premises by Tenant, or to have extended the Term, other than by execution of a written agreement specifically so stating. SECTION 12.11 RELATION OF PARTIES. It is the intention of Landlord and Tenant to hereby create the relationship of landlord and tenant, and no other relationship whatsoever is hereby created. Nothing in this Lease shall be construed to make Landlord and Tenant partners or joint venturers or to render either party hereto liable for any obligation of the other. SECTION 12.12 FORCE MAJEURE. As used herein "FORCE MAJEURE" means the occurrence of any event whereby Landlord or Tenant shall be delayed or prevented from the performance of any act required hereunder by reason of acts of God, strikes, lockouts, labor troubles, failure or refusal of governmental authorities or agencies to timely issue permits or approvals or conduct reviews or inspections, civil disorder, 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). If Tenant or Landlord shall be delayed, hindered, or prevented from performance of any of its obligations by reason of Force Majeure, the time for performance of such obligation shall be extended for the period of such delay. In no event shall this provision pertain to any monetary obligations set forth in this Lease including payment of Rent from Tenant to Landlord. SECTION 12.13 NON-MERGER. Notwithstanding the fact that fee title to the land and to the leasehold estate hereby created may, at any time, be held by the same party, there shall be no merger of the leasehold estate hereby created unless the owner thereof executes and files for record in the appropriate real property records a document expressly providing for the merger of such estates. SECTION 12.14 ENTIRETIES. This Lease constitutes the entire agreement of the parties hereto with respect to its subject matter, and all prior agreements with respect thereto are merged herein. Any 24 30 agreements entered into between Landlord and Tenant of even date herewith are not, however, merged herein. SECTION 12.15 RECORDATION. Landlord and Tenant will, at the request of the other, promptly execute an instrument in recordable form constituting a short form of this Lease, which shall be filed for record in the appropriate real property records, or at the request of either party this Lease shall be so filed for record. SECTION 12.16 SUCCESSORS AND ASSIGNS. This Lease shall constitute a real right and covenant running with the Premises, and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Whenever a reference is made herein to either party, such reference shall include the party's successors and assigns. SECTION 12.17 LANDLORD'S JOINDER. Landlord agrees to join with Tenant in the execution of such applications for permits and licenses from any Governmental Authority as may be reasonably necessary or appropriate to effectuate the intents and purposes of this Lease, provided that Landlord shall not incur or become liable for any obligation as a result thereof. SECTION 12.18 NO THIRD PARTIES BENEFITTED. Except as herein specifically and expressly otherwise provided with regard to notices and opportunities to cure defaults and certain enumerated rights granted to Permitted Mortgagees, the terms and provisions of this Lease are for the sole benefit of Landlord and Tenant, and no third party whatsoever, is intended to benefit herefrom. SECTION 12.19 SURVIVAL. Any terms and provisions of this Lease pertaining to rights, duties, or liabilities extending beyond the expiration or termination of this Lease shall survive the end of the Term. SECTION 12.20 PERPETUITIES. To the extent that the rule against perpetuities is applicable thereto, but not otherwise, the rights granted to Tenant in Article 13 hereof shall expire upon the earlier to occur of (a) the date set forth for expiration of such rights in said Article 13 or (b) the date which is 21 years after the date of death of the last to die of the following parties: the last grandchild to survive of the presently living grandchildren of George Bush, former President of the United States of America. SECTION 12.21 TRANSFER OF LANDLORD'S INTEREST. Subject to the terms of the Landlord's Financing, Landlord may freely transfer and/or mortgage its interest in the Premises and under this Lease from time to time and at any time, provided that any such transfer or mortgage is expressly made subject to the terms, provisions, and conditions of this Lease, including specifically but without limitation Tenant's rights under Article 13, and the transferee or mortgagee agrees to be bound by the provisions hereof (in the case of a mortgagee, such agreement being contingent upon the mortgagee actually succeeding to the Landlord's interest in the Premises and hereunder by virtue of a foreclosure or conveyance in lieu thereof). SECTION 12.22 TENANT'S RIGHT TO ASSIGN. Tenant may assign its rights hereunder or sublease all or a portion of the Premises with Landlord's prior written approval, which approval will not be unreasonably withheld. provided that Tenant shall remain liable for all liabilities and obligations arising under this Lease. An assignment by Tenant to an affiliate under common control as that of the herein 25 31 Tenant shall be deemed by Landlord to be approved. Tenant acknowledges that Landlord's approval may require the consent and/or joinder of Landlord's Financing Lender. Tenant further acknowledges that Landlord's approval may require the consent and/or joinder of The Seminole Tribe. SECTION 12.23 PAST DUE AMOUNTS. All amounts required to be paid by Tenant or Landlord under the terms and provisions of this Lease shall bear interest at the Default Rate from the date due until paid. SECTION 12.24 INDEPENDENT COUNSEL. Landlord and Tenant declare that each has had independent legal advice by counsel of their own selection; that each fully understands the facts and has been fully informed of all legal rights or liabilities; that after such advice or knowledge, each believes the Lease to be fair, just, reasonable and that each signs the Lease freely and voluntarily. SECTION 12.25 COOPERATION WITH LANDLORD'S LENDER. Tenant agrees to cooperate with any Lender utilized by Landlord relative to financing associated with this Lease and Improvements located upon the Premises, should such Lender request reasonable modifications to this Lease provided such modifications do not adversely diminish or otherwise modify the obligations of Landlord under this Lease or affect the rights of the Tenant granted under this Lease or create additional liability or obligations for Tenant beyond Tenant's current liability and obligations under this Lease. SECTION 12.26 RECEIPT AND ACKNOWLEDGMENT OF SEMINOLE LEASE. Tenant acknowledges receipt of a copy of the Seminole Lease together with a copy of Supplemental Agreement No. 1 and Supplement Agreement No. 2 thereto. Tenant agrees that it will not violate the terms of the Seminole Lease, as supplemented by Supplemental Agreement No. 1 and Supplement Agreement No. 2, nor take any action which will, or could result, in a default thereunder thereby jeopardizing the Landlord's lease rights therein; subject to the terms and provisions of Section 6.1 and 10.3 of this Lease. SECTION 12.27 FULFILLMENT OF LESSEE'S OBLIGATION UNDER THE SEMINOLE LEASE. Landlord agrees that it has not and will not violate any of the terms of the Seminole Lease, as supplemented, nor take any action which will, or could result, in a default thereunder thereby jeopardizing the Landlord's lease rights therein. SECTION 12.28 CERTAIN RIGHTS OF TENANT REGARDING THE SEMINOLE LEASE. The following shall be applicable with respect to the Seminole Lease: (a) Landlord shall deliver to Tenant copies of all notices (i) received by Landlord from any of the other parties under the Seminole Lease immediately upon receipt thereof, and (ii) sent by Landlord to any of the other parties under the Seminole Lease simultaneously with the sending of each such notice. (b) Simultaneously with the forwarding of each payment of rent to the Lessor under the Seminole Lease, Landlord shall deliver to Tenant a copy of each check covering each rental payment together with a copy of the correspondence forwarding each such check. Promptly after receipt by Landlord of each canceled check, Landlord shall forward a copy of same to Tenant. (c) If Tenant has not received a copy of any check required to be delivered to Tenant under the terms of clause (b) immediately above on or before the date the applicable rental payment is required 26 32 to be made by Landlord under the Seminole Lease, Tenant may (but shall have no obligation) notify Landlord of the failure to receive such copy of such check. Should Landlord fail to forward same to Tenant within two (2) business days of receipt of notice from Tenant, Tenant shall be entitled to, but shall not have the obligation to, pay to Lessor under the Seminole Lease the then applicable rental payment. The amount of each such payment made by Tenant to Lessor under the Seminole Lease shall be offset against the immediately next occurring payments of Base Rent due under this Lease until credit for the entire amount of each such payment made by Tenant under the Seminole Lease has been credited to the payment of Base Rent under this Lease. (d) In addition to the right to make such direct payments to the Lessor under the Seminole Lease as set forth hereinabove, Tenant shall have the right, but not the obligation, to cure all defaults of Landlord under the Seminole Lease. All amounts expended by Tenant in connection with the curing of each such default shall be credited to the payment of Base Rent in the manner required in clause (c) immediately above. (e) Landlord shall not modify, amend, cancel or terminate the Seminole Lease without the prior written consent of Tenant, which consent shall not be unreasonably withheld. ARTICLE 13 OPTION TO PURCHASE LEASEHOLD SECTION 13.1 RIGHT OF FIRST REFUSAL. (a) If Landlord shall receive a bona fide offer to purchase the Premises (as herein defined as the Landlord's leasehold interest in the Premises and Land) during the Term, then any contract which may be entered into between Landlord and a third party purchaser shall provide that the sale shall be subject to Tenant's right of refusal set forth in this Section 13.1. If Landlord shall receive such offer or execute such contract, Landlord shall send to Tenant a true and complete copy of the executed contract and the complete terms of the offer with Landlord's certification that it will accept the offer, and Tenant shall have the option, to be exercised within thirty (30) days after receipt thereof, to make a contract with Landlord on the same terms and conditions set forth in such third party contract or offer. If Tenant, after receipt of the third party contract or the terms of the offer acceptable to Landlord, shall fail to exercise its option within the thirty (30) day period, Landlord shall have the right to conclude the proposed sale on the same terms as in the offer or contract originally forwarded to Tenant, provided the sale shall close within the timeframe set forth in the third party contract plus thirty (30) days. If the sale shall not close within said time frame plus thirty (30) days, Landlord shall repeat the procedure specified in this Section 13.1 before it can conclude any sale of the Premises. (b) Notwithstanding Tenant's failure to exercise its option, any sale of the Premises shall be subject to this Lease and Tenant's option to purchase the Premises and Tenant's right of first refusal shall remain in force and be binding on any party to the same extent as if said subsequent owner were Landlord herein, and said subsequent owner shall be required to do all of the things required of Landlord in this Lease prior to any such sale of the Premises. (c) If any third party contract or offer for the Premises shall include property other than the Premises, Tenant's right of first refusal shall, at its election, be either applicable to the entire property 27 33 covered by such contract or offer, or applicable to the Premises only at a purchase price which shall be that part of the price offered by the third party, which the value of the Premises shall bear to the value of all the property included in such third party contract or offer. (d) Tenant's right to purchase shall not be extinguished, canceled or waived by Tenant failing to exercise its option as to any offer, contract or conveyance which is between Landlord and a related party, a nominee and his principal, or a sole shareholder and his corporation, or a corporation and its subsidiary or affiliate. SECTION 13.2 OPTION. (a) For and in consideration of the execution of this Lease and the sum of Ten Dollars ($10.00), Tenant shall have the option to purchase the Landlord's interest in the Seminole Lease at any time during the Term (including any extensions thereof), without premium or penalty for the Purchase Price determined pursuant to this Section 13.2 (the "PURCHASE PRICE"), provided Landlord is given sixty (60) days written notice of Tenant's election to purchase and provided further that Tenant is not then in default under the terms of this Lease. (1) The purchase price of the Premises shall be determined by an appraisal conducted using an M.A.I. appraiser (or an appraiser having the same class of certification of an M.A.I. appraiser by the successor certification organization in the case that the designation of M.A.I. appraiser is changed or succeeded). The appraisal shall not take into consideration the Base Rent, terms or conditions of this Lease. The appraised value shall be reduced by the cost of any leasehold improvements made to the Premises by the Tenant. (2) The Tenant, at its sole expense, shall obtain, and submit to the Landlord, an appraisal of the fair market value of the Premises (the "FIRST APPRAISAL") from an M.A.I. appraiser (the "FIRST APPRAISER"), and if Landlord shall accept such appraisal, then such First Appraisal shall be the Purchase Price. (3) If Landlord does not accept such First Appraisal, Landlord, at the Landlord's sole expense shall obtain, and submit to the Tenant, a second appraisal of the fair market value of the Premises (the "SECOND APPRAISAL") from an M.A.I. appraiser (the "SECOND APPRAISER"). If the numerical difference between the value of the First Appraisal and the value of the Second Appraisal is less than ten percent (10%) of the appraisal with the lower value, then the two appraisal values shall be averaged and that averaged value shall be the Purchase Price. (4) If the numerical difference between the value of the First Appraisal and the value of the Second Appraisal is equal to or greater than ten percent (10%) of the appraisal with the lower value, then the First Appraiser and the Second Appraiser shall choose a third M.A.I. appraiser (the "THIRD APPRAISER") who shall appraise the fair market value of the Premises (the "THIRD APPRAISAL"), and the three appraisal values shall be averaged and that averaged value shall be the Purchase Price. If the Third Appraisal is requested, the Landlord and Tenant shall each pay one-half (1/2) of the cost of such Third Appraisal. 28 34 (b) In the event that the option herein granted shall be exercised as aforesaid, Landlord agrees to sell and Tenant agrees to purchase the Premises for the Purchase Price aforesaid and upon the following terms and conditions: (1) The Premises is to be conveyed at the time full payment of the Purchase Price is made by Tenant to Landlord (hereinafter called "CLOSING DATE"), but in no event later than three (3) months from the date of receipt of Tenant's notice of election, by general warranty deed conveying to Tenant or Tenant's nominee, title to the same, subject only to (i) the matters set forth in EXHIBIT B and other matters previously approved in writing by Tenant, (ii) any matters created by Tenant, and (iii) taxes and other Impositions assessed against the Premises or any part thereof but not yet due and payable, which charges, assessments, taxes and other Impositions shall be paid by Tenant; but free and clear of any mortgages, liens or encumbrances upon Landlord's interest. (2) For such assignment and conveyance Tenant is to pay the Purchase Price in cash or by certified or bank check upon the delivery of such deed. (3) Full possession of the Premises is to be delivered to Tenant at the time of delivery of the deed. (4) The cost and expense of preparing the deed and any other documents relating to said conveyance and recording the same including title insurance premiums, Landlord's reasonable attorney's fees and real estate transfer taxes (including documentary stamps and sur-tax, if applicable), if any, shall be paid by Tenant. (5) The Rent provided for in this Lease shall be apportioned as of the Closing Date. (6) The recording of a deed after the expiration of the Term of this Lease, conveying the Premises to a third party and reciting that the option in this Article has expired and has not been exercised shall be, as to all persons other than Tenant, conclusive evidence of such expiration and nonexercise. (c) Notwithstanding anything to the contrary contained herein Landlord may convey the Premises subject to the option herein granted; provided, however, that the Landlord has complied with the provisions of this Section 13.2 and the party to whom the Landlord conveys the Premises assumes in writing all of Landlord's obligations under this Lease. No such conveyance shall relieve the Landlord for liability for breach of representations as set forth in Article 10 of this Lease. (d) It is further understood and agreed that in the event Tenant gives written notice to Landlord sixty (60) days before the Expiration Date or the end of any Renewal Term, of Tenant's intention to purchase the Premises, the Term of this Lease then shall be extended until the payment to Landlord of the Purchase Price but in no event later than three (3) months therefrom. The Purchase Price shall be paid no later than the expiration of such three (3) month extension. In the event Tenant does not consummate the purchase pursuant to the terms and conditions of this Section 13.2, then the Tenant's options as set forth in this Section13.2 shall terminate. 29 35 (e) Landlord will, at the request of Tenant, promptly execute an instrument in recordable form, reflecting Tenant's option to purchase the Premises, and may be part of the recorded instrument referred to in Section 12.15, pursuant to this Article 13, which shall be filed for record in the appropriate real property records. (f) In the event that such option shall not be exercised as aforesaid, Tenant shall, within ten (10) days upon demand of Landlord, deliver to Landlord an instrument in form suitable for recording and executed and acknowledged by Tenant whereby the option and all rights hereunder shall be released and discharged. SECTION 13.3 SPECIFIC PERFORMANCE. It is expressly agreed that the remedy at law for breach of any of the obligations set forth in this Article 13 is inadequate in view of the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of Landlord or Tenant to comply fully with each of such obligations. Accordingly, each of the aforesaid obligations shall be, and is hereby expressly made, enforceable by specific performance. ARTICLE 14 ARBITRATION SECTION 14.1 ARBITRATION PROVISIONS. EXCEPT AS TO TENANT'S EXERCISE OF REASONABLE JUDGMENT PURSUANT TO SECTION 8.5 OF THIS LEASE, ANY CONTROVERSY OR CLAIM BETWEEN THE PARTES HERETO RELATING TO THIS LEASE, INCLUDING, WITHOUT LIMITATION, ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN THE COUNTY AND STATE WHERE THE PREMISES ARE LOCATED. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. EXCEPT AS TO TENANT'S EXERCISE OF REASONABLE JUDGMENT PURSUANT TO SECTION 8.5 OF THIS LEASE, ANY PARTY TO THIS LEASE MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS LEASE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. ALL STATUTES OF LIMITATIONS THAT WOULD OTHERWISE BE APPLICABLE SHALL) APPLY TO ANY DISPUTES ASSERTED IN ANY ARBITRATION PROCEEDING HEREOF. THE ARBITRATORS SHALL HAVE THE RIGHT, TO AWARD COUNSEL FEES TO ANY PARTY, TO GRANT TEMPORARY OR PERMANENT INJUNCTIVE RELIEF, AND TO REQUIRE SPECIFIC PERFORMANCE. THE PARTIES SPECIFICALLY AGREE THAT THE ARBITRATORS MAY NOT AWARD AND THE PARTIES WAIVE ANY RIGHT TO ANY EXEMPLARY OR PUNITIVE DAMAGES. THE DECISION OR AWARD IN THE ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING UPON EACH OF THE PARTIES AND JUDGMENT ON 30 36 SUCH AWARD OR DECISION MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. THE PARTIES BY EXECUTION OF THE LEASE AND INITIALING THIS PROVISION REPRESENT THAT THEY WERE GIVEN FULL AND COMPLETE OPPORTUNITY TO REVIEW SAME WITH COUNSEL OF THEIR CHOOSING AND THEY HAVE READ AND SIGNED SAME AS THEIR FREE AND VOLUNTARY ACT AND DEED. ARTICLE 15 SUBORDINATION AND ATTORNMENT SECTION 15.1 SUBORDINATION. This Lease and all rights of Tenant hereunder are and shall be subject and subordinate in all respects to all mortgages encumbering Landlord's interest in the Premises as permitted in the Lease (the "SUPERIOR MORTGAGE"). The provisions of this Section 15.1 shall be self-operative and no further instrument of subordination shall be required. If any Requesting Party shall seek confirmation of such subordination, Tenant shall promptly execute and deliver, at its own cost and expense, an instrument, in recordable form, to evidence such subordination; if Tenant fails to execute, acknowledge or deliver any such instrument within ten (10) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver any such instruments for and on behalf of Tenant. However, nothing herein withstanding to the contrary, the foregoing provisions shall not be effective until the Landlord shall have delivered to Tenant a Non-Disturbance Agreement, in the form required under Section 10.1, executed by each Landlord's Financing Lender and each mortgagee and holder of a Superior Mortgage. SECTION 15.2 ATTORNMENT. If, at any time prior to the termination of this Lease, the holder of a Superior Mortgage, or its successors or assigns, (herein collectively called the "SUPERIOR MORTGAGEE") who acquire the interest of Landlord under this Lease through foreclosure action or a transfer-in-lieu thereof, whereby the Superior Mortgagee succeeds to the rights of Landlord under this Lease through possession or foreclosure or delivery of a new lease or deed or otherwise, Tenant agrees, at the election and upon request of any such party (hereinafter called the "SUCCESSOR LANDLORD") to attorn fully and completely from time to time, and to recognize any such Successor Landlord as Tenant's landlord under this Lease upon the executory terms of this Lease. Provided Tenant is not in default under the terms of this Lease, such Successor Landlord shall agree in writing to accept Tenant's attornment. The foregoing provisions of this Section 15.2 shall inure to the benefit of any such Successor Landlord and any successor or assign of Tenant. Tenant, upon demand of any such Successor Landlord, agrees to execute any instruments to evidence and confirm the foregoing provisions of this Section 15.2, reasonably satisfactory to any such Successor Landlord, acknowledging such attornment and setting forth the terms and conditions of its tenancy. SECTION 15.3 RADON GAS DISCLOSURE. Radon Gas: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in the buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. EXECUTED as of the date and year first above written. "LANDLORD" KOONS DEVELOPMENT CO., A FLORIDA GENERAL PARTNERSHIP BY: /s/ JAMES S. CARROLL ------------------------------------------ NAME: JAMES S. CARROLL, TRUSTEE OF THE J. CARROLL ENTERPRISES TRUST U/AD/ AUGUST 3, 1993, GENERAL PARTNER "TENANT" KOONS FORD, INC. A FLORIDA CORPORATION BY: /s/ JAMES S. CARROLL -------------------------------------- NAME: JAMES S. CARROLL TITLE: PRESIDENT 31 37 LEASE AGREEMENT EXHIBIT A DESCRIPTION OF LAND SEE LEGAL DESCRIPTION ATTACHED HERETO. 38 LEASE AGREEMENT EXHIBIT B EXCEPTIONS TO TITLE TO LAND 1. Easement in favor of Florida Power and Light Company recorded in Official Records Book 8920, page 63, of the Public Records of Broward County, Florida. 2. Right of Way Grant recorded in Official Records Book 20151, page 650, of the Public Records of Broward County, Florida. 3. Terms and provisions contained in lease by and between The Seminole Tribe of Florida as lessor and Koons Ford Inc., a Florida corporation as evidenced by Memorandum of Lease recorded in Official Records Book 8531, page 821, as assigned to Koons Development Company by Assignment dated March 15, 1979 and amended by Supplemental Agreement No. 2 dated October 30, 1979 and as sub-leased to Koons Ford, Inc. by instrument to be recorded in the Public Records of Broward County, Florida. EX-10.46 17 MULTI-PARTY AGREEMENT - 3/16/98 1 EXHIBIT 10.46 AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of the Merger Date (as defined herein), by and among the following parties: I. KC PARTNERSHIP, a Florida general partnership ("Owner"). II. FORD LEASING DEVELOPMENT COMPANY, a Delaware corporation ("Ford Leasing"). III. PERIMETER FORD, INC., a Delaware corporation ("Old Perimeter"). IV. PF MERGER, INC., a Delaware corporation ("Perimeter"). V. COMERICA BANK, a Michigan banking corporation ("Comerica"). RECITALS 1. Reference is made to that certain real property more particularly described in Exhibit "A" attached hereto and by this reference incorporated herein (the "Premises"). 2. In December, 1986, the following transactions and instruments were entered into: (a) By Deed recorded January 7, 1987, at Book 10561, Page 432 (the "Ford Leasing Deed") (unless otherwise specifically indicated to the contrary, all references in this Agreement to instruments recorded shall mean to the public records of the Clerk of the Superior Court of Fulton County, Georgia), Ford Leasing conveyed the Premises to Owner. (b) By instrument entitled "Lease Agreement" Owner leased the Premises to Ford Leasing (the "Main Lease"). A "Short Form Lease" regarding the Main Lease was recorded at Book 10561, Page 435 (the "Main Lease Notice"). (c) By instrument entitled "Dealership Sublease" Ford Leasing subleased the Premises to Old Perimeter (the "Perimeter Sublease"). No "Memorandum of Lease" or "Short Form Lease" or similar instrument was recorded in the public records regarding the Perimeter Sublease. (d) Ford Motor Credit Company, a Delaware corporation ("FMCC") made various loans (the "FMCC Loans") to either Owner or affiliates of Owner that were secured by various mortgages, mortgage modifications, and other instruments, all encumbering the Premises (collectively the "FMCC Mortgages"). Page -1- 2 (e) Owner, Ford Leasing and FMCC entered into an Agreement (the "Old Agreement"), as recorded at Book 10570, page 494. The purpose of the Old Agreement was to provide public notice of certain conditions regarding the Ford Leasing Deed, the Main Lease and the FMCC Mortgages. The purpose of this Agreement is to replace and supersede the Old Agreement. 3. Simultaneously as of the Merger Date, the following transactions shall occur: (a) Old Perimeter is merging into Perimeter, with Perimeter being the surviving corporation. The effective date of such merger shall be referred to as the "Merger Date." (b) Comerica is providing new mortgage financing to Owner (the "Loan"), the purposes of which are to payoff the FMCC Loans and to provide additional funds to Owner. The Loan shall be secured by a first priority Deed to Secure Debt on the Premises (the "Mortgage"). (c) Effective as of the Merger Date, the Main Lease and the Perimeter Sublease are being modified, as set forth herein. 4. Effective as of the Merger Date, Owner and Perimeter are entering into an agreement setting forth certain rights and obligations pertaining to the use and occupancy of the Premises (the "Operations / Lease Agreement"). NOW, THEREFORE, in consideration of the mutual covenants contained herein, the receipt and adequacy of which is acknowledged by the parties, the parties agree as follows: 1. Recitals. The parties agree that the Recitals are true and correct and are hereby made a part of this Agreement. All instruments and documents referenced in the Recitals are hereby incorporated into and made a part hereof. 2. Definitions. The following terms as used herein shall have the meanings hereinafter specified, unless the context otherwise requires: (1) Main Lease shall mean the Main Lease, as defined in the Recitals, the leasehold estate created thereby, and all rights of the tenant created thereunder; however, amended as follows: (1) Article 2. Basic Rent shall be as set forth in Exhibit "B" attached hereto. The Basic Rent will be subject to adjustment as a result of the construction of anticipated improvements upon the Premises. Such adjustment will be effective provided a like adjustment is imposed upon Perimeter under the Perimeter Sublease. (2) Section 8.03, last paragraph is modified by the addition of the following: Page -2- 3 In addition, Control Period shall relate to a period of time during which Perimeter (as defined in this Agreement) is the subtenant under the Sublease. (2) Perimeter Sublease shall mean the Perimeter Sublease, as defined in the Recitals, the leasehold estate created thereby, and all rights of the tenant created thereunder; however, amended as follows: (1) Article 2. Basic Rent shall be as set forth in Exhibit "B" attached hereto. The Basic Rent will be subject to adjustment as a result of the construction of anticipated improvements upon the Premises. (2) As of the Merger date, (i) all right, title and interest of Old Perimeter in and to the Perimeter Sublease is assigned from Old Perimeter to Perimeter, and (ii) Old Perimeter shall have no further obligations under the Perimeter Sublease. As of the Merger Date, Perimeter hereby agrees to assume all obligations of Old Perimeter under the Perimeter Sublease. Ford Leasing hereby consents to such assignment and assumption. (3) Note shall mean any promissory note executed and delivered by Owner in favor of Comerica to evidence a loan by Comerica to Owner, and which promissory note is secured by a Mortgage. It is agreed that there may be more than one Note. (4) Owner Guaranty shall mean any guaranty given by Owner in favor of Comerica whereby Owner guarantees any obligations owed by affiliates of Owner to Comerica. (5) Mortgage shall mean any Deed to Secure Debt, or other form of mortgage encumbrance instrument, whereby Owner grants in favor of Comerica a lien upon the Premises to secure the Note and the Owner Guaranty. It is agreed that there may be more than one Mortgage. Comerica agrees that the Mortgage(s) shall not secure a total aggregate indebtedness in excess of Five Million Dollars ($5,000,000.00), plus any amounts advanced by Comerica to protect its rights under the Mortgage, and plus interest thereon. (6) Comerica shall mean Comerica Bank, a Michigan banking corporation, and after any assignment of the Note and the Mortgage to another holder, shall mean the then holder of the Note and the Mortgage. (7) Foreclosure Proceedings shall mean the foreclosure by any means provided for in the Mortgage or at law or in equity, including, without limitation, the taking possession of the Premises pursuant to the Mortgage. Page -3- 4 (8) Operations / Lease Agreement shall mean the Operations / Lease Agreement entered into between Owner and Perimeter. 3. Ford Leasing Subordination. Ford Leasing agrees that the Main Lease is and shall continue to be subject and subordinate to the Mortgage and to all extensions, renewals and amendments to the Mortgage, provided that any such extensions, renewals or amendments shall not have the effect of (a) increasing the principal of or the interest on the Note or otherwise increasing the indebtedness secured by the Mortgage beyond the amount provided for in this Agreement, and/or (b) changing any term or provision of the Note or the Mortgage so as to make the same inconsistent or in conflict with the terms and provisions of this Agreement. 4. Attornment. Ford Leasing agrees for the benefit of Comerica and Perimeter as follows: (a) Foreclosure Proceedings shall not terminate the Main Lease, the Operations/Lease Agreement or the Perimeter Sublease. In the event Comerica takes possession of the Premises pursuant to any Foreclosure Proceeding, Ford Leasing agrees to attorn to Comerica; and in the event of any foreclosure sale conducted pursuant to any Foreclosure Proceedings, Ford Leasing agrees to attorn to the purchaser at such foreclosure sale (the "Purchaser"). Said attornment is to be effective and self-operative without the execution of any other instrument immediately upon Comerica or any successor or assignee of Comerica succeeding to the rights of Owner under the Main Lease, and the Main Lease shall continue in accordance with its terms between Ford Leasing, as tenant, and Comerica or any successor or assignee of Comerica, as landlord; provided, however, that Comerica or any successor or assignee of Comerica shall not: (i) be bound by any prepayment of rent or additional rent, deposit, rental security or any other sums paid to any prior landlord under the Main Lease including, without limitation, by Ford Leasing unless received and receipted for by Comerica or its successor or assignee; (ii) be bound by any amendment or modification of the Main Lease made without the consent of Comerica or its successor or assignee; (iii) be personally liable under the Main Lease, and Comerica's or its successor's or assignee's liability under the Main Lease shall be limited solely to the interest of Comerica or its successor or assignee in the Premises; (iv) be liable for any act or omission of any prior landlord under the Main Lease including, without limitation, Owner, that results in a default under the Main Lease that continues after Comerica or its successors or assigns becomes Landlord, except to the extent that Comerica was given notice of such act or omission and an opportunity to cure; and (v) be subject to any offsets, defenses, claims or counterclaims which Ford Leasing might have against any prior landlord under the Main Lease including, without limitation, Owner except to the extent that Comerica was given notice of default giving rise to the offset, defense, claim or counterclaim and an opportunity to cure. (b) The provisions of Section 8.03 of the Main Lease shall not be in force and effect to relieve Ford Leasing of its obligations to perform or observe the terms and provisions of the Main Lease: Page -4- 5 (i) from and after the commencement of any Foreclosure Proceedings, and so long as such Foreclosure Proceeding is conducted by Comerica, and (ii) from and after such time as Comerica or any Purchaser (other than a person or entity controlled by or under common control with Owner named herein and the subtenant under the Sublease, as defined in the Main Lease, which terms "controlled by" or "under common control with", as used with respect to any person or entity, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting securities or by contract or otherwise) shall become the owner of the Premises pursuant to any Foreclosure Proceeding; provided, however, the terms and conditions of Section 8.03 of the Main Lease shall be deemed to be in force and effect with respect to obligations of Ford Leasing which accrued, or derived from a state of facts or conditions which occurred or existed, prior to the date of the commencement of any such Foreclosure Proceeding. The provisions of this Subparagraph (b) shall not constitute a waiver by Ford Leasing of any provisions of the subtenant under the Sublease, as defined in the Main Lease, or Owner under the Main Lease, or otherwise relieve such subtenant or Owner of its obligations under the Sublease, as defined in the Main Lease, and the Main Lease, respectively. In the event a foreclosure action (judicial or non-judicial) is commenced by Comerica and the Premises are placed for sale by the Court through such proceedings, Ford Leasing shall have the right to purchase the Premises within a fifteen (15) day period prior to the date of the sale for an amount equal to the sum set forth in the foreclosure final judgment together with accrued interest. Owner retains the right to satisfy the obligations due Comerica as pertaining to the Premises prior to the commencement of such fifteen (15) day period. Ford Leasing's right to purchase shall prevail over any Option to Purchase granted Perimeter under the Operations / Lease Agreement. Ford Leasing's right to purchase as provided in this paragraph shall terminate effective 6:00 PM the day prior to the Court ordered foreclosure sale. 5. Proceeds; Non-Disturbance. Comerica hereby agrees for the benefit of Ford Leasing and Perimeter as follows: (a) Proceeds. Notwithstanding anything to the contrary contained in the Mortgage, the fire and extended coverage insurance on the Premises required by the Main Lease shall name Ford Leasing as sole loss payee. Ford Leasing, in accordance with the terms of the Main Lease will make available any insurance or condemnation proceeds for the restoration of the buildings and other improvements that are part of the Premises that are damaged or destroyed or taken in any condemnation proceedings, all in accordance with the terms of the Main Lease. (b) Non-Disturbance. So long as no default by Ford Leasing under the Main Lease shall have occurred and be continuing so that Owner would be entitled to enter into and upon Page -5- 6 the Premises and repossess the same and evict Ford Leasing and thereby terminate the Main Lease, the Main Lease shall continue in full force and effect, and the Main Lease shall not be terminated, cut off or otherwise disturbed as a result of a Foreclosure Proceeding or otherwise except in accordance with the terms and provisions of the Main Lease. In the event of a Foreclosure Proceeding, Comerica will not name Ford Leasing as a party defendant so as to terminate or disturb the Main Lease or to obtain a judgment against Ford Leasing in any Foreclosure Proceeding. Any sale conducted pursuant to any Foreclosure Proceeding shall be expressly subject to the Main Lease; and any Purchaser shall assume all duties and obligations of Owner under the Main Lease. (c) Non-Disturbance. So long as no default by Perimeter under the Perimeter Sublease or Operations / Lease Agreement shall have occurred and be continuing that would permit Owner to terminate the Operations / Lease Agreement or which would permit Ford Leasing to terminate the Perimeter Sublease, then the Operations / Lease Agreement, Main Lease and Perimeter Sublease shall continue in full force and effect, and the Perimeter Sublease, the Operations / Lease Agreement, Main Lease and Perimeter Sublease shall not be terminated, cut off or otherwise disturbed as a result of a Foreclosure Proceeding or otherwise except in accordance with the terms and provisions of the Perimeter Sublease, the Operations / Lease Agreement, Main Lease and Perimeter Sublease. In the event of a Foreclosure Proceeding, Comerica will not name Perimeter as a party defendant so as to terminate or disturb the Perimeter Sublease, the Operations / Lease Agreement, Main Lease or Perimeter Sublease or to obtain a judgment against Ford Leasing or Perimeter in any Foreclosure Proceeding. Any sale conducted pursuant to any Foreclosure Proceeding shall be expressly subject to the Perimeter Sublease, the Operations / Lease Agreement, Main Lease and Perimeter Sublease; and any Purchaser shall assume all duties and obligations of Owner under the Main Lease, Perimeter Sublease and Operations / Lease Agreement. (d) Notice of Default. Comerica agrees to deliver to Ford Leasing and Perimeter a copy of each notice of default under the Note or the Mortgage that Comerica delivers to Owner; and no notice of default under the Note or Mortgage shall be deemed to be effective as against Owner unless and until a copy of such notice shall have been delivered to Ford Leasing and Perimeter, and Ford Leasing and Perimeter shall have the right (but not the obligation) to cure such default within 30 days after the giving of such notice to Ford Leasing and Perimeter for curing any default in the payment of any installment of principal and/or interest and within 90 days after the giving of such notice for curing any other default. 6. Severability. If any provision of this Agreement or the application thereof to any person, entity or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, and the application of such provision to any person, entity or circumstance other than that as to which it is held invalid or unenforceable, as the case may be, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 7. Notices. All notices, consents and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been properly given if Page -6- 7 hand delivered, delivered by a nationally recognized overnight delivery service (such as Federal Express), or sent by United States registered or certified mail, postage paid (a) if to Owner, at 3101 North State Road 7, Hollywood, Florida 33021. (b) if to Ford Leasing, at One Parklane Blvd., Suite 1500 East, Dearborn, MI 48126-2477, attn: Global Real Estate Services; and (c) if to Comerica, at 411 W. Lafayette Street, P. O. Box 75000, National Dealer Services - 3517, Detroit, Michigan 48275-3517. (d) if to Perimeter or Old Perimeter, attn: B.B. Hollingsworth, Jr., Group 1 Automotive, Inc., 950 Echo Lane, Suite 350, Houston, TX 77024. Any notice by certified or registered mail shall be deemed to have been given on the date of certification or registration thereof. Any notice by overnight delivery shall be deemed given the next business day following receipt of same by such carrier. Any party hereto may at any time designate a different address to which such notices, consents or other communications shall be sent by giving notice to the other parties hereto in the manner aforesaid for the giving of notices. 8. Successors and Assigns. The rights and obligations hereunder shall be binding upon and shall inure to the parties hereto and their respective personal representatives and successors and assigns. 9. Governing Law. This Agreement shall be governed by the laws of the State of Georgia. 10. Notice Recording. This Agreement shall not be recorded. The Notice of Lease and Purchase Options attached hereto as Exhibit "D" and by this reference incorporated herein shall be recorded in the public records where the Premises are located. 11. Release Price of Premises. Comerica agrees to release the lien of the Mortgage upon payment to Comerica of cash in the amount of Four Million Dollars ($4,000,000.00) plus any unpaid accrued interest under the Note, and this amount shall first be used to pay all amounts owing to Comerica, whether unpaid principal, accrued interest, or other costs, under the Note, and with the balance going to pay amounts owing to Comerica under obligations guaranteed by the Owner Guaranty. 12. Representations of Ford Leasing - Ford Lease. Ford Leasing hereby certifies that, to its knowledge: (i) there are no defaults on the part of Owner under the Main Lease, (ii) the Main Lease is a complete statement of the agreement of the parties thereto with respect to the letting of the Premises, (iii) the Main Lease is in full force and effect, (iv) all conditions to the effectiveness or continuing effectiveness of the Main Lease required to be satisfied as of the date hereof have been Page -7- 8 satisfied, and (v) Ford Leasing has not paid, and shall not pay, rent for more than one (1) month in advance. 13. Representations of Owner. Owner hereby certifies and covenants that: (i) there are no defaults on the part of Ford Leasing under the Main Lease, (ii) the Main Lease is a complete statement of the agreement of the parties thereto with respect to the letting of the Premises, (iii) the Main Lease is in full force and effect, (iv) all conditions to the effectiveness or continuing effectiveness of the Main Lease required to be satisfied as of the date hereof have been satisfied, and (v) Owner has not received, and shall not accept, rent for more than one (1) month in advance, whether under the Main Lease or the Operations / Lease Agreement. 14. Ford Leasing's Notification of Comerica - Main Lease. Ford Leasing will notify Comerica of any default by the Owner which would entitle Ford Leasing to cancel the Main Lease or abate the rent payable thereunder, and Ford Leasing agrees that notwithstanding any provision of the Main Lease, no notice of cancellation thereof and no abatement of rent thereunder shall be effective unless Comerica has received notice and has failed within sixty (60) days of the date thereof to cure such default which gave rise to such right of cancellation or abatement; however, it is understood that Comerica is not obligated to take any actions whatsoever with regard to the cure of such default. 15. Ford Leasing's Notification of Comerica - Perimeter Lease. Ford Leasing will notify Comerica of any default by Perimeter which would entitle Ford Leasing to cancel the Perimeter Lease, and Ford Leasing agrees that notwithstanding any provision of the Perimeter Lease, no notice of cancellation thereof shall be effective unless Comerica has received notice and has failed within sixty (60) days of the date thereof to cure such default which gave rise to such right of cancellation; however, it is understood that Comerica is not obligated to take any actions whatsoever with regard to the cure of such default. 16. Operations / Lease Agreement Between Owner and Perimeter. Owner and Perimeter are entering into a separate Operations / Lease Agreement concurrently herewith. To the extent that there is any conflict between Operations / Lease Agreement and the Perimeter Lease, as between Perimeter and Ford Leasing, the Perimeter Lease shall prevail and Perimeter and Ford Leasing shall comply with the terms therewith. As between Owner and Perimeter, Owner and Perimeter each shall be obligated to perform its obligations under the Operations / Lease Agreement as set forth therein. To the extent that Perimeter may required by Ford Leasing to perform any obligation under the Perimeter Sublease that Owner is required to perform under the Operations / Lease Agreement, Owner shall reimburse Perimeter for any amounts expended pursuant as if same was an obligation of Owner under the Operations / Lease Agreement. Perimeter shall not be required to make any payments to Ford Leasing under the Sublease so long as (i) the provisions of Section 8.03 of the Main Lease are in effect and relieves Ford Leasing of its obligation to perform or observe the terms and provisions of the Main Lease and (ii) Perimeter makes the payments required under the terms of the Operations / Lease Agreement. Page -8- 9 A true and correct copy of the Operations / Lease Agreement is attached hereto as Exhibit "D" and has been provided to Ford Leasing. Owner and Perimeter shall not modify any provisions of such Operations / Lease Agreement without the prior consent of Ford Leasing. Ford Leasing shall not be required to make any payment to Owner under the Main Lease so long as Perimeter makes the payments required under the terms of the Operations / Lease Agreement. Perimeter and Owner acknowledge that Perimeter's right to exercise any upcoming Option to Renew as set forth in Section 2.4 of the Operations / Lease Agreement are contingent upon the continuation of a Ford dealership upon the Premises. In the event Ford Leasing shall exercise its Option to Purchase the property either pursuant to its Option to Purchase or Right of First Refusal, then in such event, the Operations / Lease Agreement shall terminate and the rights of the parties shall be governed by the Main Lease and Dealership Sublease. However, the rent increase as provided for in this Agreement shall terminate and rent shall be due as provided for in the Main Lease and Dealership Sublease. The parties hereto agree that a Memorandum of such Operations / Lease Agreement may be recorded in the Public Records in the County where the Premises are located. 17. Ford Motor Company Site Improvements. Owner and Perimeter acknowledge that Ford Motor Company has required site improvements as set forth in Exhibit "E" attached hereto. Owner shall complete the improvements required by Ford Motor Company in such agreement within the time frame set forth therein. In the event that the improvements are not so completed, then the parties hereto agree that the rent set forth in this Agreement shall revert to the rent due pursuant to the Main Lease and Dealership Sublease immediately prior to the execution hereof. 18. Execution. It is not necessary for all parties to sign the same original of this Agreement, and instead this Agreement may be signed in multiple counterparts and collectively the multiple counterparts shall constitute the Agreement. Further, the parties hereto may execute multiple originals of this Agreement, and each original shall be effective. Any of the parties hereto may execute a counterpart of this Agreement, and then transmit via facsimile the executed counterpart of this Agreement to any person, and such receiving person shall be entitled to rely upon such copy received via facsimile as if it were an original document. Exhibits Exhibit "A" - Description of Premises Exhibit "B" - Basic Rent Exhibit "C" - Notice of Lease and Purchase Options Exhibit "D" - Operations / Lease Agreement Exhibit "E" - Site Improvements Page -9- 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERIMETER FORD, INC., a Delaware corporation By: /s/ JAMES S. CARROLL ---------------------------------------- James S. Carroll, as its President (CORPORATE SEAL) Date executed: March 19, 1998 COMERICA BANK, a Michigan banking corporation By: /s/ DAVID M. GARBARZ ------------------------------------- David M. Garbarz, as its _______ Vice President (CORPORATE SEAL) Date executed: March 19, 1998 KC PARTNERSHIP, a Florida general partnership, by an authorized general partner: /s/ JAMES S. CARROLL --------------------------------------------- JAMES S. CARROLL, as Trustee of the J. Carroll Enterprises Trust under agreement dated August 3, 1993, on behalf of the trust as general partner of KC PARTNERSHIP, a Florida general partnership, on behalf of the partnership Date executed: March 19, 1998 FORD LEASING DEVELOPMENT COMPANY, a Delaware Corporation By: /s/ EXECUTED ------------------------------------------ ------------------------------------------ Its -------------------------------------- Date executed: March 19, 1998 Page -10- 11 EXHIBIT "A" - LEGAL DESCRIPTION All that tract or parcel of land lying and being in Land Lot 35 of the 17th District of Fulton County, Georgia and being more particularly described as follows: BEGINNING at a 1/2" rebar iron pin found at the intersection of the Westerly right-of-way of Georgia Highway No. 400 with the Northerly right-of-way of Mount Vernon Highway (80' R/W); thence running South 68 degrees 39 minutes West along the Northwesterly right-of-way of Mount Vernon Highway a distance of 381.4 feet to a 1/2" rebar iron pin found at the intersection of the Northwesterly right-of-way of Mount Vernon Highway with the Northeasterly right-of-way of Barfield Road Extension (80' R/W); thence running North 59 degrees 36 minutes West a distance of 37.1 feet to a 1/2" rebar iron pin found on the Northeasterly right-of-way of Barfield Road Extension; thence running North 19 degrees 22 minutes 30 seconds West along said right-of-way an arc distance of 231.36 feet (Cord = 229.62') to a point; thence running North 31 degrees 13 minutes West along said right-of-way a distance of 414.3 feet to a 1/2" rebar iron pin found; thence running North 25 degrees 22 minutes West along said right-of-way a distance of 54.0 feet to an 1/2" rebar iron pin found; thence running North 30 degrees 57 minutes 33 seconds West along said right-of-way a distance of 270.2 feet to a 1/2" rebar iron pin found; thence running North 89 degrees 30 minutes East a distance of 409.3 feet to a 1/2" rebar iron pin found; thence running South 00 degrees 14 minutes West a distance of 161.7 feet to a 1/2" rebar iron pin found; thence running North 89 degrees 40 minutes East a distance of 383.25 feet to a marker found on the Westerly right-of-way of Georgia Highway No. 400; thence running South 09 degrees 47 minutes East along said right-of-way a distance of 257.0 feet to a concrete monument found; thence running South 01 degrees 41 minutes East along said right-of-way a distance of 81.1 feet to a concrete monument found; thence running South 01 degrees 21 minutes East along said right-of-way a distance of 239.54 feet to a concrete monument found at the intersection of the said Westerly right-of-way of Georgia Highway No. 400 with the Northwesterly right- of-way of Mount Vernon Highway and the true point of beginning. 12 EXHIBIT "B" - BASIC RENT Capitalized terms used in this Exhibit which are not defined herein shall have the meanings ascribed to such terms in the Operations / Lease Agreement. Tenant shall pay Landlord monthly "BASIC RENT" (herein so called) of Fifty Seven Thousand Two Hundred Fifty and no/100 Dollars ($57,250.00), in advance on or before the first day of each Lease Month during the Lease Term, subject to adjustment as hereafter provided. If the Term commences on a day other than the first day of a calendar month, or ends on a day other than the last day of a calendar month, then the Basic Rent for such month shall be prorated on the basis of one thirtieth (1/30th) of the monthly Basic Rent for each day of such month. If the CPI on any Adjustment Date shall be greater than the CPI for the Commencement Date, monthly Basic Rent commencing on the Adjustment Date shall be adjusted to be the original monthly Basic Rent specified herein an amount equal to one-half (1/2) of the product obtained by multiplying: (i) the original monthly Basic Rent specified in herein by (ii) the percentage increase in the CPI from the Commencement Date through the January 1st prior to the Adjustment Date. "ADJUSTMENT DATE" shall be the first day of the first Lease Month of each five (5) year Renewal Term following the initial ten (10) year lease term. "CPI" shall mean the Consumer Price Index for All Urban Consumers, All Items (Base Year 1982-84 = 100) published by the United States Department of Labor, Bureau of Labor Statistics. If the 1982-84 Base Year shall no longer be used as an index of 100, the revised index which would produce results equivalent, as nearly as possible to those which would be obtained hereunder if the CPI were not so revised. 13 EXHIBIT "C" - NOTICE OF LEASE AND PURCHASE OPTIONS 14 EXHIBIT "D" - OPERATIONS / LEASE AGREEMENT 15 EXHIBIT "E" - SITE IMPROVEMENTS EX-10.47 18 PURCHASE AGREEMENT - PRESTIGE CHRYSLER 1 EXHIBIT 10.47 PURCHASE AGREEMENT AMONG GROUP 1 AUTOMOTIVE, INC., MSAP MERGER CORP., A WHOLLY-OWNED SUBSIDIARY OF GROUP 1 AUTOMOTIVE, INC., THE LIMITED PARTNERS OF PRESTIGE CHRYSLER PLYMOUTH SOUTH, LTD. AND THE STOCKHOLDERS OF PRESTIGE CHRYSLER PLYMOUTH, INC. DATED AS OF DECEMBER 18, 1997 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II THE ACQUISITION 2.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNERS 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.7 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.8 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.9 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.13 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.14 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.15 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.16 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.18 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.20 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.21 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.22 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-i- 3 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE OWNERS 4.1 Capital Stock and Limited Partnership Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.5 Authorization For Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VI COVENANTS OF THE OWNERS 6.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 18 6.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.8 Owners' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.10 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.11 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.12 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.13 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.14 Tax Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.15 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-ii- 4 ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.5 Tax Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 24 8.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 24 8.3 Additional Conditions Precedent to Obligations of the Owners. . . . . . . . . . . . . . . . . . . 25 ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Owners to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.2 Agreement by Group 1 to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.3 Conditions of indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.2 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.6 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.15 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-iii- 5 GROUP 1 AUTOMOTIVE, INC. PURCHASE AGREEMENT This Purchase Agreement (this "Agreement"), dated as of the 18th day of December, 1997, is among Group 1 Automotive, Inc., a Delaware corporation ("Group 1"), MSAP Merger Corp., a Texas corporation and a wholly-owned subsidiary of Group 1 ("Acquisition Sub"), the stockholders ("Stockholders") of Prestige Chrysler Plymouth, Inc., a Texas corporation (the "General Partner"), and the limited partners ("Limited Partners") of Prestige Chrysler Plymouth South, LTD., a Texas limited partnership (the "Company"). The Stockholders and the Limited Partners are collectively referred to herein as the "Owners" and are listed on the signature pages hereof under the caption "Owners." RECITALS: WHEREAS, the Owners are the holders of all of the issued and outstanding capital stock of the General Partner; WHEREAS, the General Partner is the sole general partner of the Company; WHEREAS, the Owners are the holders of all of the limited partnership interests in the Company; WHEREAS, Acquisition Sub proposes to acquire all of the capital stock of the General Partner and all of the limited partnership interests in the Company from the Owners (the "Acquisition") on the terms and conditions set forth herein; WHEREAS, Group 1, through certain of its wholly owned subsidiaries, also proposes to acquire (i) the outstanding capital stock of Maxwell Chrysler, Plymouth, Dodge, Inc. and the limited partnership interests of Maxwell Chrysler, Plymouth, Dodge, LTD. and (ii) the outstanding capital stock of MMK Interests, Inc. and the limited partnership interests of Prestige Chrysler, Plymouth Northwest, LTD., pursuant to agreements (the "Other Agreements") that are similar to this Agreement; and WHEREAS, the parties hereto wish to set forth the representations, warranties, agreements and conditions under which Acquisition Sub shall purchase, and the Owners shall sell, all of the capital stock of the General Partner and all of the limited partnership interests in the Company. NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: 6 ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined has the meaning ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. ARTICLE II THE ACQUISITION 2.1 The Acquisition. At the Closing, each Owner shall sell to Acquisition Sub and Acquisition Sub shall purchase from each Owner that number of shares of Common Stock of the General Partner and the limited partnership interests in the Company as set forth opposite their respective names in Exhibit A hereto in exchange for the consideration set forth opposite their respective names in Exhibit A hereto. 2.2 Closing Date. The Closing of the Acquisition as contemplated by this Agreement shall take place at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002, as soon as practicable after the satisfaction or waiver of the conditions set forth in Article VIII or at such other time and place and on such other date as Group 1 and the Owners shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date," and shall be effective as of the first day of the month in which the Closing Date occurs. 2.3 Transfer of Shares. At the Closing, and subject to the satisfaction or waiver of the conditions set forth in Article VIII, the Owners will sell, transfer and deliver that number of shares of Common Stock of the General Partner and the limited partnership interests in the Company as set forth opposite their respective names in Exhibit A hereto to Acquisition Sub (in proper form and duly endorsed for transfer) and Acquisition Sub will purchase such shares of Common Stock of the General Partner and the limited partnership interests in the Company and will deliver to the Owners the consideration (in proper form) set forth opposite their respective names in Exhibit A hereto. -2- 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNERS The Owners hereby represent and warrant to Group 1 as follows: 3.1 Organization. (a) The Company is a limited partnership duly organized, validly existing and in good standing under the laws of the state of Texas with all requisite power and authority to own or lease its properties and conduct its business as now owned, leased or conducted. A true and complete copy of the limited partnership agreement of the Company is included in Schedule 3.1. The minute books of the Company previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by its partners. (b) The General Partner is a corporation duly organized, validly existing and in good standing under the laws of the state of Texas with all requisite corporate power and authority to own or lease its properties and conduct its business as now owned, leased or conducted. The General Partner has conducted no business other than as General Partner of the Company, owns no property or assets other than its general partner interest in the Company and has no liabilities or obligations other than as related to its capacity as general partner of the Company. True and complete copies of the articles of incorporation and bylaws of the General Partner are included in Schedule 3.1. The minute books of the General Partner previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by its board of directors and stockholders in their capacities as such. 3.2 Qualification. Each of the Company and the General Partner is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary. Schedule 3.2 sets forth a list of the jurisdictions in which each of the Company and the General Partner is qualified to do business, if any. 3.3 Absence of Conflicts. Except to the extent set forth in the Schedule 3.3, neither the execution and delivery by the Owners of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by them at, or prior to, the Closing, nor the performance by the Owners of their obligations under this Agreement or any such instrument, document or agreement will (assuming receipt of all consents, approvals, authorizations, permits, certificates and orders disclosed as requisite in Schedule 4.3) (a) violate or breach the terms of or cause a default under (i) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority with respect to the Company or the General Partner, (ii) any applicable permits received from any Governmental Authority with respect to the Company or the General Partner, (iii) the limited partnership agreement of the Company or the articles of incorporation or bylaws of the General Partner or (iv) any contract or agreement to which the Company or the General Partner is a party or by which they, or any of their properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of the Company or the General Partner, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any -3- 8 existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority with respect to the Company or the General Partner, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 3.4 Equity Investments. The General Partner owns no equity securities, interests or other investments other than its general partner interest in the Company. The Company owns no equity securities, interests or other investments in any Person. 3.5 Capitalization. (a) The authorized capital stock of the General Partner consists of ____ shares of Common Stock of the General Partner, of which ____ shares are issued and outstanding (___ shares being held in treasury). Each outstanding share of the Common Stock of the General Partner has been duly authorized, is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights of any stockholder. Set forth in Schedule 3.5(a) are the names, social security or I.R.S. identification numbers and addresses (as reflected in the corporate records of the General Partner) of each record holder of the Common Stock of the General Partner, together with the number of shares held by each such Person. Except as set forth above, there are no shares of capital stock of, or other equity interests in, the General Partner authorized, issued or outstanding. There is not outstanding any ownership interest or other security, including without limitation any option, warrant or right, entitling the holder thereof to purchase or otherwise acquire any ownership interest of the General Partner. There are no contracts, agreements, commitments or arrangements obligating the General Partner (i) to issue, sell, pledge, dispose of or encumber any ownership interest of, or any options, warrants or rights of any kind to acquire, or any securities that are convertible into or exercisable or exchangeable for, any ownership interest of, any class of ownership interest of the General Partner or (ii) to redeem, purchase or acquire or offer to acquire any ownership interest of, or any outstanding option, warrant or right to acquire, or any securities that are convertible into or exercisable or exchangeable for, any ownership interest of, any class of ownership interest of the General Partner. (b) The limited partner interest of the Company consists of the following: [__________]. Each outstanding limited partner interest of the Company has been duly authorized and validly issued in accordance with the limited partnership agreement of the Company. Set forth in Schedule 3.5(b) are the names and addresses of each limited partner of the Company together with the limited partner interest held by each limited partner. Except as set forth above and except for the general partner interest of the General Partner, there are no other partnership interests authorized or outstanding of the Company. There are no contracts, agreements, commitments, arrangements, rights or options of any kind to acquire any interest in the Company. 3.6 Financial Statements. Included in Schedule 3.6 are true and complete copies of the financial statements of the Company consisting of (i) an unaudited balance sheet of the Company as of October 31, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the ten month period then ended (the "Company Interim Financial Statements") and (ii) an -4- 9 audited balance sheet of the Company as of December 31, 1996 (the "Company 1996 Balance Sheet") and the related audited statements of income, changes in stockholders' equity and cash flows for the year then ended (including the notes thereto) (the "Company 1996 Financial Statements") and (collectively with the Company Interim Financial Statements, the "Company Financial Statements"). The Company Financial Statements present fairly the financial position of the Company and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. The Company Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of the Company reflected in the Company Financial Statements and as incurred since October 31, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful accounts shown in the Company Interim Financial Statements) in the ordinary course of business and, except as set forth in Schedule 3.6, are not in dispute or subject to counterclaim, set-off or renegotiation. Schedule 3.6 contains an aged schedule of accounts receivable included in the Interim Balance Sheet. 3.7 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet or as set forth in Schedule 3.7, the Company does not have any liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP. 3.8 Certain Agreements. Except as set forth in Schedule 3.8, neither the Company nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a non-competition, territorial exclusivity or other provision covering such subject matter purportedly enforceable by a third party against the Company, or any of its officers or directors, the scope of the business or operations of the Company, or any of its officers or directors, geographically or otherwise. 3.9 Contracts and Commitments. Schedule 3.9 includes (i) a list of all contracts to which the Company is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of the Company ("Material Contracts"); (ii) a list of all real or personal property leases to which the Company is a party involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which the Company is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between the Company and any of their officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. 3.10 Absence of Changes. Except as set forth in Schedule 3.10, there has not been, since December 31, 1996, any adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of the Company. Except as set forth in Schedule 3.10, since October 31, 1997, the Company has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. -5- 10 Notwithstanding the preceding sentence, the Company makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since December 31, 1996, for any employee who after such increase would receive annual compensation of less than $50,000. 3.11 Tax Matters. (a) Except as set forth in Schedule 3.11 (and except for filings and payments of assessments the failure of which to file or pay will not materially adversely affect the Company or the General Partner), (i) all Tax Returns which are required to be filed on or before the Closing Date by or with respect to the Company or the General Partner have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to the Company or the General Partner have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. (b) All Tax Returns of, or with respect to, the Company or the General Partner have been audited by the applicable governmental authority, or the applicable statute of limitations has expired, for all periods up to and including December 31, 1996 except as included on Schedule 3.11(b). (c) There is no claim against the Company for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to the Company or the General Partner, other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.11(c). (d) Except as set forth in Schedule 3.11(d), there is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company or the General Partner, or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to the Company or the General Partner. (e) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to the Company or the General Partner up to and through the periods covered thereby. (f) All Tax allocation or sharing agreements affecting the Company or the General Partner shall be terminated prior to the Closing Date and no payments shall be due or will become due by the Company or the General Partner on or after the Closing Date pursuant to any such agreement or arrangement. -6- 11 (g) Except as set forth in Schedule 3.11(g), the Company or the General Partner will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. (h) The General Partner has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (i) From the end of its most recent tax year through the Closing Date, (a) the General Partner continuously has been and will be an S Corporation within the meaning of section 1361 of the Code, and (b) each holder of the stock of the General Partner has been an individual resident of the United States or an estate or trust described in section 1361(c)(2) that is permitted to hold the stock of an S Corporation. 3.12 Litigation. (a) Except as set forth in Schedule 3.12(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of the Owners, threatened against or specifically affecting the Company or the General Partner before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent set forth in Schedule 3.12(b), each of the Company and the General Partner has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of the Owners, no event has occurred which, with the lapse of time or action by a third party could result in a default under any contract or other agreement to which the Company or the General Partner is a party or by which they or any of their properties is bound or under any applicable Order of any Court or Governmental Authority. 3.13 Compliance with Law. Except as set forth in Schedule 3.13, each of the Company and the General Partner in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. 3.14 Permits. Except as set forth in Schedule 3.14, the Company or the General Partner owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities necessary for the conduct of their business. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and each of the Company and the General Partner is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. -7- 12 3.15 Employee Benefit Plans and Policies. (a) Schedule 3.15(a) provides a description of each of the following which is sponsored, maintained or contributed to by the Company for the benefit of its employees, or has been so sponsored, maintained or contributed to within six years prior to the Closing Date: (i) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA ("Plan"); and (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not described in Section 2.17(a)(i) ("Benefit Program or Agreement"). True and complete copies of each of the Plans, Benefit Programs or Agreements, related trusts, if applicable, and all amendments thereto, have been furnished to Group 1. (b) The Company does not contribute to or have an obligation to contribute to, and have not at any time contributed to or had an obligation to contribute to, a plan subject to Title IV of ERISA, including, without limitation, a multiemployer plan within the meaning of Section 3(37) of ERISA. (c) Except as otherwise set forth in Schedule 3.15(c), (i) Each Plan and each Benefit Program or Agreement has been administered, maintained and operated in accordance with the terms thereof and in compliance with its governing documents and applicable law (including, where applicable, ERISA and the Code); (ii) There is no matter pending with respect to any of the Plans before any governmental agency, and there are no actions, suits or claims pending (other than routine claims for benefits) or threatened against, or with respect to, any of the Plans or Benefit Programs or Agreements or their assets; (iii) No act, omission or transaction has occurred which would result in imposition on the Company of (A) breach of fiduciary duty liability damages under Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (iv) Each of the Plans intended to be qualified under Section 401 of the Code satisfies the requirements of such Section, has received a favorable -8- 13 determination letter from the Internal Revenue Service regarding such qualified status and has not, since receipt of the most recent favorable determination letter, been amended or operated in a way which would adversely affect such qualified status; (v) As to any Plan intended to be qualified under Section 401 of the Code, there has been no termination or partial termination of the Plan within the meaning of Section 411(d)(3) of the Code; and (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (A) require the Company to make a larger contribution to, or pay greater benefits under, any Plan or Benefit Program or Agreement than it otherwise would or (B) create or give rise to any additional vested rights or service credits under any Plan or Benefit Program or Agreement. (d) There does not currently exist, and there has not at any time existed, any corporation, trade, business or entity under common control with the Company, within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA. (e) Termination of employment of any employee of the Company after consummation of the transactions contemplated by this Agreement would not result in payments under the Plans or Benefit Programs or Agreements which, in the aggregate, would result in imposition of the sanctions imposed under Sections 280G and 4999 of the Code. (f) Each Plan which is an "employee welfare benefit plan", as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued thereunder prior to such amendment or termination. (g) Schedule 3.15(g) sets forth by name and job description of the employees of the Company as of the date of this Agreement (the "Company Employees"). None of said employees are subject to union or collective bargaining agreements. The Company has not at any time had or been threatened with any work stoppages or other labor disputes or controversies with respect to its employees. 3.16 Properties. (a) The Company does not own any real property or any interest therein. Schedule 3.16(b) (the "Leased Properties") sets forth the location and size of, principal improvements and buildings on, and Liens on all parcels of real estate leased by the Company (individually, a "Leased Property" and collectively, the "Leased Properties"). True and correct copies of all such Liens are attached to Schedule 3.16(a). Except as set forth in Schedule 3.18(a), with respect to each Leased Property: -9- 14 (i) the Company has good and valid leasehold interests in each parcel of its Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of the Company or the Stockholders, threatened condemnation proceedings, suits or administrative actions relating to the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) except as set forth in Schedule 3.16(a), the legal descriptions for the parcels of Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the leasing or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Leased Property, except as set forth in Schedule 3.16(a); (vi) there are no outstanding options or rights of first refusal to purchase the parcels of Leased Property, or any portion thereof or interest therein; (vii) there are no parties (other than the Company) in possession of the parcels of Leased Property, other than tenants under any leases disclosed in Schedule 3.16(a) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Leased Property are supplied with utilities and other services necessary for the operation of such facilities; (ix) each parcel of Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Leased Property are in good repair and adequate for the use of such Leased Property in the manner in which presently used; and -10- 15 (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Leased Property, except as set forth in Schedule 3.16(a). (b) Except as set forth in Schedule 3.16(b), each of the Company has good and marketable title to all of its Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of the Company are in good operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.17 Insurance. Schedule 3.17 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Company (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. The Company is presently insured, and since the inception of operations by the Company has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. The Company has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as set forth in Schedule 3.17, no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. The Company has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. The execution of this Agreement and the consummation of the transactions contemplated hereby will not cause such insurance policies to lapse, terminate or be canceled and will not result in any party thereto having the right to terminate or cancel such insurance policies. 3.18 Affiliate Interests. Except as set forth in Schedule 3.18, no employee, officer or director, or former employee, officer or director, of the Company or the General Partner has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business information, trademarks, service marks or trade names, used in or pertaining to the business of the Company, except for the normal rights of employees, partners, and stockholders. 3.19 Environmental Matters. Except as set forth in Schedule 3.19, to the best of Owners' knowledge: (a) The Company is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, dumping, discharging, release or disposal of Hazardous Substances, or other Waste. The Company is currently not liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. The Company is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. -11- 16 (b) The Company has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of its business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.19(b), and the Company is in compliance with all the terms, conditions and requirements of such Licenses, and copies of such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or threatened by any Governmental Authority or third parties against the Company or its business, operations, properties, or assets, which question the validity or entitlement of the Company to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of the Company and the operation of its business. (c) The Company has not received or is aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving the Company or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of their business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) The Company is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Owned Properties or the Leases Premises. (e) The Company has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. The Company has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. (f) The Company has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Owned Properties or the -12- 17 Leased Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leases Premises or to any properties adjacent thereto. (g) The Company has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor has it allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified the Company that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Neither the Company nor the Owners have received notice or have knowledge of any facts which could give rise to any notice, that the Company is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. The Company has not submitted nor was required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, the Company. The Company has not received any written or, to the knowledge of the Company or the Owners, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where the Company has transported, transferred or disposed of other Wastes. The Company has not been required to nor has undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. The Company has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) The Company has no Aboveground Storage Tanks or Underground Storage Tanks, except as listed in Schedule 3.19(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which the Company or the Owners are aware undertaken by the Company or their agents, or by the Owners, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Owned Properties or the Leased Properties; (ii) the results of which the Company or the Owners are aware of any ground, water, soil, air or asbestos monitoring undertaken by the Company or its agents, or by the Owners, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Owned Properties or the Leased Properties; (iii) all written communications between the Company and any Governmental Authority arising under or related to Environmental, Laws; and (iv) all citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting the Company, or any of the Owned Properties or the Leased Properties. -13- 18 (j) Schedule 3.19(j) contains a list of the assets of the Company which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as set forth in Schedule 3.19(j), the Company has operated and continue to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as set forth in Schedule 3.19(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, or threatened against or directly affecting the Company or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with their assets and operations. (k) Any references in this Section 3.19 to the "Owned Properties" and "Leased Properties" are deemed to also refer to any properties previously owned or leases by the Company. 3.20 Intellectual Property. Except as set forth in Schedule 3.20, the Company owns, or is licensed or otherwise has the right to use all Intellectual Property that is necessary for the conduct of the business and operations of the Company as currently conducted. To the knowledge of the Company and the Owners, (a) the use of the Intellectual Property by the Company does not infringe on the rights of any Person, and (b) no Person is infringing on any right of the Company with respect to any Intellectual Property. No claims are pending or, to the knowledge of the Company and the Owners threatened that the Company is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Company and the Owners, no Person is infringing the rights of the Company with respect to any Intellectual Property. All of the Intellectual Property that is owned by the Company is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by the Company is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.21 Bank Accounts. Schedule 3.21 includes the names and locations of all banks in which the Company has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.22 Brokers. Except as disclosed in Schedule 3.22, no broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. 3.23 Disclosure. The Company has disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of the Company. No representation or warranty to Group 1 by the Owners contained in this Agreement, and no statement contained in the Schedules attached hereto, any certificate, list or other writing furnished to Group 1 by the Owners pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, -14- 19 and any certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of the Owners for all purposes of this Agreement. ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE OWNERS Each Owner hereby, severally and not jointly, represents and warrants to Group 1 that: 4.1 Capital Stock and Limited Partnership Interests. Such Owner is the beneficial and record owner of the number of shares of Common Stock of the General Partner and limited partnership interests in the Company as set forth in Exhibit A, free and clear of any lien, claim, pledge, encumbrance or other adverse claim. Except for such shares of Common Stock of the General Partner and limited partnership interests in the Company set forth in Exhibit A hereto, such Owner does not own, beneficially or of record, any capital stock or other security, including without limitation any option, warrant or right entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the General Partner or any partnership interest of the Company. 4.2 Authorization of Agreement. (a) Such Owner has full legal right, power, capacity and authority to execute, deliver and perform its obligations pursuant to this Agreement and to execute, deliver and perform its obligations under each instrument, document or agreement required hereby to be executed and delivered by such Owner at, or prior to, the Closing. (b) This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by such Owner at, or prior to, the Closing will then be, duly executed and delivered by such Owner, and this Agreement constitutes and, to the extent it purports to obligate such Owner, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of such Owner enforceable against it in accordance with its terms. 4.3 Approvals. Except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit such Owner to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. 4.4 Absence of Conflicts. Except to the extent set forth in Schedule 4.4, neither the execution and delivery by such Owner of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by such Owner of its obligations under this Agreement or any such instrument will (a) violate or -15- 20 breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of such Owner, if applicable, or (iv) any contract or agreement to which such Owner is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of such Owner, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 4.5 Investment Intent. Each Owner makes the following representations relating to its acquisition of shares of Group 1 Common Stock: (i) such Owner will be acquiring the shares of Group 1 Common Stock to be issued pursuant to the Acquisition to such Owner solely for such Owner's account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of any of those shares in connection with any distribution; (ii) such Owner is not a party to any agreement or other arrangement for the disposition of any shares of Group 1 Common Stock; (iii) such Owner is an "accredited investor" as defined in Securities Act Rule 501(a); (iv) such Owner (A) is able to bear the economic risk of an investment in the Group 1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a total loss of that investment, (C) has such knowledge and experience in financial and business matters, and such past participation in investments, that he or she is capable of evaluating the merits and risks of the proposed investment in the Group 1 Common Stock, (D) has received and reviewed the SEC Documents, (E) has had an adequate opportunity to ask questions and receive answers from the officers of Group 1 concerning any and all matters relating to the transactions contemplated hereby, including the background and experience of the current officers and directors of Group 1, the plans for the operations of the business of Group 1, the business, operations and financial condition of Group 1 and any plans of Group 1 for additional acquisitions, and (F) has asked all questions of the nature described in the preceding clause (E), and all those questions have been answered to his or her satisfaction; (v) such Owner acknowledges that the shares of Group 1 Common Stock to be delivered to such Owner pursuant to the Acquisition have not been and will not be registered under the Securities Act or qualified under applicable blue sky laws and therefore may not be resold by such Owner without compliance with Rule 144 of the Securities Act; (vi) such Owner acknowledges that he or she has agreed, pursuant to Section 10.6 herein, not to sell the shares of Group 1 Common Stock to be delivered to such Owner pursuant to the Acquisition for a period of one year from the Closing Date; (vii) such Owner, if a corporation, partnership, trust or other entity, acknowledges that it was not formed for the specific purpose of acquiring the Group 1 Common Stock; and (viii) without limiting any of the foregoing, such Owner agrees not to dispose of any portion of Group 1 Common Stock unless either (1) a registration statement under the Securities Act is in effect as to the applicable shares and the disposition is made in accordance with that registration statement, or (2) the Owner has notified Group 1 of the proposed disposition, such disposition is made through a national brokerage firm selected by Group 1 and the Owner to offer disposition services for Group 1 Common Stock subject to SEC Rule 144 and such disposition is made in compliance with any other requirements of the Securities Act. Additionally, for the three- year period following the Closing Date a disposition pursuant to (viii)(2) above may be made only if the Stockholder has notified Group 1 of the proposed disposition and the disposition is made through a national brokerage firm selected by Group 1 and the Stockholder to offer disposition services for Group 1 -16- 21 Common Stock (in the absence of agreement between Group 1 and the Stockholder seeking to make a disposition, Goldman, Sachs & Co., Inc. will be the firm to handle such disposition). ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 Group 1 hereby represents and warrants to the Owners that: 5.1 Corporate Organization. Group 1 and Acquisition Sub are corporations duly organized, validly existing and in good standing under the laws of the jurisdictions of their incorporation with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by them at the Closing. 5.2 Authorization. The execution and delivery by Group 1 and Acquisition Sub of this Agreement, the performance by Group 1 and Acquisition Sub of their obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Group 1 and Acquisition Sub at the Closing have been duly and validly authorized by all requisite corporate action on the part of Group 1 and Acquisition Sub. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Group 1 and Acquisition Sub at, or prior to, the Closing will then be, duly executed and delivered by Group 1 and Acquisition Sub. This Agreement constitutes, and, to the extent it purports to obligate Group 1 and Acquisition Sub, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Group 1 and Acquisition Sub, enforceable against them in accordance with its terms. 5.3 Approvals. Except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Group 1 and Acquisition Sub, to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by Group 1 and Acquisition Sub at or prior to the Closing. 5.4 Absence of Conflicts. Neither the execution and delivery by Group 1 and Acquisition Sub of this Agreement or any instrument required hereby to be executed by them at or prior to the Closing nor the performance by Group 1 and Acquisition Sub of their obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (ii) the organizational documents of Group 1 and Acquisition Sub or (iii) any contract or agreement to which Group 1 and Acquisition Sub are parties or by which they or any of their property is bound, or (b) result in the creation or imposition of any Liens on any of the properties or assets of Group 1 and Acquisition Sub (other than any Lien created by the Company), or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with -17- 22 the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Group 1 and its subsidiaries, taken as a whole. 5.5 Authorization For Group 1 Common Stock. All shares of Group 1 Common Stock issuable pursuant to the Acquisition are duly authorized and will, when issued, be validly issued, fully paid and nonassessable and not issued in violation of the preemptive rights of any Owner of Group 1. 5.6 SEC Documents. The SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1933 and 1934 and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Group 1 included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Group 1 and its consolidated subsidiaries as of the dates thereto and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information, for normal year-end adjustments). ARTICLE VI COVENANTS OF THE OWNERS 6.1 Acquisition Proposals. Prior to the Closing Date, neither the Company or the General Partner, any of their officers, directors, employees or agents nor any Owner shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion of the assets of, or a substantial equity interest in, the Company or the General Partner, other than the transactions with Group 1 contemplated by this Agreement. 6.2 Access. The Company shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all its properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Group 1 any information concerning its business, properties and personnel as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by the Owners pursuant to this Agreement. 6.3 Conduct of Business by the Company Pending the Acquisition. The Owners covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: -18- 23 (a) The business of the Company and the General Partner shall be conducted only in, and the Company and the General Partner shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that the Company may dealer trade vehicles for similar models, but the Company shall not liquidate or otherwise dispose of any of its new vehicles other than in the ordinary course of business to retail buyers. The Company shall maintain its advertising expenditures and activities commensurate with prior business practices. The Company shall not advertise a "Going Out of Business" sale; (b) The Company and the General Partner shall not, directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of the General Partner or partnership interests of the Company or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any assets of the Company, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of the General Partner or the limited partnership agreement of the Company, (iii) split, combine or reclassify any outstanding capital stock of the General Partner or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to the capital stock of the General Partner whether now or hereafter outstanding, (iv) redeem, purchase or acquire or offer to acquire any of the capital stock of the General Partner or any partnership interests of the Company, (v) create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business), or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) The Company shall use its best efforts (i) to preserve intact the business organization of the Company, (ii) to maintain in effect any franchises, authorizations or similar rights of the Company, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. (d) The Company shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $50,000; (e) The Company shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as the Company in good faith may dispute; -19- 24 (f) The Company shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of the Company other than normal, annual compensation increases consistent with the Company's past practices; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $5,000; (g) The Company shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Acquisition set forth in Article VIII not being satisfied; provided, however, that no such notification shall affect the representations or warranties or covenants or agreements of the parties or the conditions to the obligations of the parties hereunder; (h) The Company shall not (i) amend or terminate any Plan or Benefit Program or Agreement except as may be required by applicable law, (ii) increase or accelerate the payment or vesting of the amounts payable under any Plan or Benefit Program or Agreement, or (iii) adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, program, practice or understanding (other than the Plans and the Benefit Programs or Agreements); (i) The Company shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; and (j) The Owners shall be entitled to a distribution, in cash, in amounts required to cause the net book value of the Company at the end of the month prior to the Closing Date to equal the net book value as reflected on the May 31, 1997 manufacturer statements. 6.4 Confidentiality. The Company and the Owners shall, and the Company shall cause its officers, directors, employees, representatives and consultants, to hold in confidence, and not to disclose to others for any reason whatsoever, any non-public information received by them or their representatives in connection with the transactions contemplated hereby, including but not limited to all terms, conditions and agreements related to this transaction, except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of the Company as necessary in connection with the transactions contemplated hereby; and (iii) for information which becomes publicly available other than through the actions of the Company or an Owner. In the event the Acquisition is not consummated, the Company and the Owners will return all non-public documents and other material obtained from Group 1 or its representatives in connection with the transactions contemplated hereby or certify to Group 1 that all such information has been destroyed. -20- 25 6.5 Notification of Certain Matters. The Company shall give prompt notice to Group 1, orally and in writing, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing, (ii) any failure of the Company, or any officer, director, employee or agent thereof, or any Owner to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (iii) any litigation, or any claim or controversy or contingent liability of which the Company or any Owner has knowledge of that might reasonably be expected to become the subject of litigation, against the Company or affecting any of their assets, in each case in an amount in controversy in excess of $50,000, or that is seeking to prohibit or restrict the transactions contemplated hereby. 6.6 Consents. Subject to the terms and conditions of this Agreement, the Company shall (i) obtain all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on the Company or Group 1), authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 6.7 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, the Company and the Owners shall cooperate and use reasonable efforts to cooperate in the defense against and response thereto. Costs, including attorneys' fees, associated with any such defense will be borne by Group 1. 6.8 Owners' Agreements Not to Sell. Each of the Owners hereby covenants and agrees not to sell, pledge, transfer or dispose of or encumber any shares of Common Stock of the General Partner or limited partnership interests of the Company currently owned, either beneficially or of record, by such Owner. 6.9 Intellectual Property Matters. The Company shall use its best efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or domestic patent, trademark, service mark, trade name or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. 6.10 Removal of Related Party Guarantees. The Owners agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all Company guarantees (such guarantees shall be referred to herein as "Related Guarantees", as described in Schedule 6.10 pursuant to Section 3.9 of this Agreement) of indebtedness or other obligations of any of the Company's officers, directors, shareholders or employees or their affiliates. -21- 26 6.11 Termination of Related Party Agreements. The Owners agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.11 as agreements that shall not be subject to this Section 6.11. 6.12 Related Party Agreements. The Owners agree to cause the Company not to enter into any Related Party Agreements or engage in any transactions with the Owners or their affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.12 as agreements or transactions that shall not be subject to this Section 6.12. 6.13 Release. (a) AS OF THE CLOSING, EACH OF THE OWNERS DOES HEREBY FOR HIMSELF OR HIS HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE THE COMPANY AND THE GENERAL PARTNER OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH EACH OF SUCH OWNERS NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST THE COMPANY OR THE GENERAL PARTNER INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF THE COMPANY OR THE GENERAL PARTNER AND THEIR EMPLOYEES AND AGENTS, EXISTING AS OF THE CLOSING OR RELATING TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT; AND PROVIDED FURTHER ANY LIABILITIES UNDER PLANS OR BENEFIT PROGRAMS OR AGREEMENTS LISTED ON THE SCHEDULES HERETO SHALL NOT BE RELEASED. (b) EACH OF THE OWNERS REPRESENTS AND WARRANTS THAT HE HAS NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS RELEASED HEREIN. EACH OF THE OWNERS COVENANTS AND AGREES THAT HE WILL NOT ASSIGN OR TRANSFER TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS TO BE RELEASED HEREIN. EACH OF THE OWNERS REPRESENTS AND WARRANTS THAT HE HAS READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 6.13 AND THAT HE HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT. 6.14 Tax Valuation. The Owners agree to use the amounts reflected on Exhibit A hereto for purposes of preparation of their Tax Returns. With respect to the shares of Group 1 Common Stock received by the Owners, $14.00 per share will be used for purposes of determining the value of the stock portion of the purchase price. -22- 27 6.15 Employment Agreement. Thomas Nyle Maxwell, Jr. agrees to enter into, on or prior to the Closing Date, an employment agreement with Group 1 in form and substance substantially similar to Exhibit B attached hereto. ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence all, and not to disclose to others for any reason whatsoever, any non-public information received by it or its representatives in connection with the transactions contemplated hereby except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Group 1 as necessary in connection with the transactions contemplated hereby or as necessary to the operation of Group 1's business; and (iii) for information which becomes publicly available other than through the actions of Group 1. In the event the Acquisition is not consummated, Group 1 will return all non-public documents and other material obtained from the Company or its representatives in connection with the transactions contemplated hereby or certify to the Company that all such information has been destroyed. 7.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for issuance and shall issue, out of its authorized but unissued capital stock, such number of shares of Group 1 Common Stock as may be issuable upon consummation of the Acquisition. 7.3 Consents. Subject to the terms and conditions of this Agreement, Group 1 shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.4 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, Group 1 agrees to cooperate and use reasonable efforts to cooperate in the defense against and response thereto. Costs, including attorneys' fees, associated with any such defense will be borne by Group 1. 7.5 Tax Valuation. Group 1 agrees to use the amounts reflected on Exhibit A hereto for purposes of preparation of its Tax Returns. With respect to the shares of Group 1 Common Stock received by the Owners, $14.00 per share will be used for purposes of determining the value of the stock portion of the purchase price. -23- 28 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition. The respective obligations of each party to effect the Acquisition shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Acquisition; (b) There shall have been obtained any and all permits, approvals and consents of securities or "blue sky" commissions of each jurisdiction and of any other governmental agency or authority, with respect to the consummation of the Acquisition; (c) The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated. 8.2 Additional Conditions Precedent to Obligations of Group 1. The obligation of Group 1 to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of the Owners contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all of the terms, covenants and conditions of this Agreement to be complied with and performed by the Company and the Owners on or before the Closing Date shall have been duly complied with and performed in all respects, and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of the Company and each of the Owners shall have been delivered to Group 1. (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Acquisition and the transactions contemplated thereby will be in compliance with applicable laws. (c) Group 1 shall have received evidence, satisfactory to Group 1, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.10 and 6.11 hereto. (d) Group 1 shall have received executed representations from each Owner stating that such Owner (with respect to shares owned beneficially or of record by him or her) has no current plan or intention to sell or otherwise dispose of the Group 1 Common Stock to be received by him or her in the Acquisition, except in compliance with Rule 144. -24- 29 (e) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of the Company shall have occurred, and the Company shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of the Company and Group 1 shall have received a certificate signed by the chief executive officer of the Company and the Owners dated the Closing Date to such effect. (f) Receipt by Group 1 of Phase I Environmental Surveys, to be paid for by the Company and reimbursed by Group 1 upon execution of this Agreement, prepared by a firm approved in writing by Group 1, showing no environmental problems or recommended actions, which will be performed at the discretion of Group 1; (g) Receipt by Group 1, at Owners' expense, of a Policy of Title Insurance, issued by a title company, approved by Group 1, subject only to the exceptions described in Schedule 8.2(g) ("Permitted Title Exceptions"); (h) Receipt by Group 1 of an employment agreement executed by Thomas Nyle Maxwell, Jr., in form and substance substantially similar to Exhibit B hereto; (i) Receipt by Group 1 of the consent of Chrysler Corporation, as lessor to the Company under that certain lease agreement dated [ ], to this Agreement and the transactions contemplated hereby; and (j) Satisfaction or waiver of the conditions set forth in Article VIII of each of the Other Agreements. 8.3 Additional Conditions Precedent to Obligations of the Owners. The obligation of the Owners to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following condition: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects; and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to the Owners. ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Owners to indemnify. Each of the Owners agrees to severally indemnify, defend and hold Group 1 harmless (subject to the limitations set forth in Section 9.1(e) below) from and against the aggregate of all Indemnifiable Damages (as defined below). -25- 30 (a) For purposes of this Agreement, "Indemnifiable Damages" means, without duplication, the aggregate of all actual expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Group 1, on a pre-tax consolidated basis to the extent (i) resulting from any breach of a representation or warranty made by the Company or the Owners in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by the Company or the Owners pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate or environmental report delivered by the Company or any of the Owners pursuant to this Agreement. (b) Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Group 1 shall have the right to be put in the same pre-tax consolidated financial position as Group 1 would have been in had each of the representations and warranties of the Owners hereunder been true and correct and had the covenants and agreements of the Company and the Owners hereunder been performed in full. (c) Each of the representations and warranties made by the Owners in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date except the representations and warranties of the Owners contained in Section 3.11 which shall survive for the period of the statute of limitations, Section 3.19 which shall survive for a period of five years after the Closing Date and Sections 3.1, 3.2, 3.3, 3.4, 3.5, 4.1, 4.2, 4.3 and 4.4, which shall not terminate, but shall continue indefinitely. No claim for the recovery of Indemnifiable Damages may be asserted by Group 1 against the Owners after such representations and warranties shall expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) If Group 1 believes it is entitled to a claim for any Indemnifiable Damages hereunder, Group 1 shall promptly give written notice to the Owners of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If the Owners do not pay the amount of the claim for Indemnifiable Damages to Group 1 within 10 days, then Group 1 may exercise its respective rights under Section 9.4 and/or take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.1, the Owners' liability for Indemnifiable Damages shall be limited as follows: -26- 31 (1) Group 1 shall have no claim for Indemnifiable Damages unless and until all Indemnifiable Damages incurred by Group 1 exceed an aggregate of $110,000.00 (the "Basket Amount"), in which event the Stockholders shall be liable for only such Indemnifiable Damages in excess of the Basket Amount; provided, however, that the Basket Amount shall be reduced by any liabilities attributable to (i) any matter set forth in the Schedules or resulting from Group 1's general due diligence or (ii) any breach of representation or warranty arising from any matter set forth in the Schedules or resulting from Group 1's general due diligence. For example, and assuming all conditions in Sections 8.1 and 8.2 (except Section 8.2(a)) have been satisfied or waived by Group 1, (x) if the aggregate amount of such liabilities were $50,000, Group 1 would be obligated to close the Acquisition and the Basket Amount after Closing would be $60,000, and (y) if the aggregate amount of such liabilities were $150,000, Group 1 would not be obligated to close the Acquisition, but if it chooses to do so, the Basket Amount after Closing would be $0 and the Stockholders would have an indemnification obligation to Group 1 with respect to $40,000 of such liabilities; and (2) the total amount of Indemnifiable Damages for which each Owner shall be liable to Group 1 shall not exceed the value of the consideration by such Owner received in the Acquisition as provided on Exhibit A, of which the stock portion shall be valued at $14.00 per share. 9.2 Agreement by Group 1 to indemnify. Group 1 agrees to indemnify, defend and hold the Owners harmless from and against the aggregate of all Owners Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Owners Indemnifiable Damages" means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, reasonable related counsel and paralegal fees and expenses) incurred or suffered by the Owners, on a pre-tax consolidated basis, to the extent (i) resulting from any breach of a representation or warranty made by Group 1 in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by Group 1 in or pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by Group 1 pursuant to this Agreement. (b) Without limiting the generality of the foregoing, with respect to the measurement of Owners Indemnifiable Damages, the Owners have the right to be put in the same pre-tax consolidated financial position as he, she or it would have been in had each of the representations and warranties of Group 1 hereunder been true and correct and had the covenants and agreements of Group 1 hereunder been performed in full. -27- 32 (c) Each of the representations and warranties made by Group 1 in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date. No claim for the recovery of Owners Indemnifiable Damages may be asserted by the Owners against Group 1 after such representations and warranties shall thus expire, provided, however, that claims for Owners Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) In the event that the Owners believe they are entitled to a claim for any Owners Indemnifiable Damages hereunder, the Owners shall promptly give written notice to Group 1 of such claim and the amount or the estimated amount of such claim, and the basis for such claim. (e) Notwithstanding anything to the contrary contained in this Section 9.2, the Owners shall have no claim for Owners Indemnifiable Damages unless and until all Owners Indemnifiable Damages incurred by the Owners shall exceed an aggregate of $110,000.00, in which event Group 1 shall be liable for only such Owners Indemnifiable Damages in excess of $110,000.00. 9.3 Conditions of indemnification. The obligations and liabilities of the Owners and Group 1 hereunder with respect to their respective indemnities pursuant to this Article IX resulting from any claim or other assertion of liabilities by third parties (hereinafter called collectively "Claims"), shall be subject to the following terms and conditions: (a) the party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claim 10 business days after the Indemnified Party receives notice thereof (provided that failure to give notice within such 10 day period does not relieve the Indemnifying Party of his obligations to indemnify the Indemnified Party hereunder, except to the extent that such Indemnifying Party is harmed by the failure of the Indemnified Party to provide timely notice); (b) the Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claim; provided, however, if a Claim is made against Group 1, then Group 1 shall have the right to control the defense of the Claim; (c) if the Indemnifying Party shall elect not to undertake such defense, or within a reasonable time after notice of any such Claim from the Indemnified Party shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the -28- 33 Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claim at any time prior to settlement, compromise or final determination thereof); (d) anything in this Section 9.3 to the contrary notwithstanding, (A) the Indemnified Party shall have the right, at its own cost and expense, to have its own counsel to protect its own interests and participate in the defense, compromise or settlement of the Claim, (B) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claim or consent to entry of any judgement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim, and (C) the Indemnified Party, by counsel or other representatives of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claim, and the Indemnifying Party and the Indemnified Party and their respective counsel shall cooperate with respect to such Claim. ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. The Schedules to this Agreement, contain all disclosure required to be made by the Owners under the various terms and provisions of this Agreement. 10.2 Non-Competition Obligations. (a) As part of the consideration for the Acquisition, and as an additional incentive for Group 1 to enter into this Agreement, Thomas Nyle Maxwell, Jr. (the "Designated Owner") and Group 1 agree to the non- competition provisions of this Section 10.2. The Designated Owner agrees that during the period of the Designated Owner's non-competition obligations hereunder, the Designated Owner will not, directly or indirectly for the Designated Owner or for others, within twelve miles of, in the county of or in any manufacturers' designated primary market area adjacent to the location of the operations sold to Group 1 pursuant to this Agreement or operations subsequently managed by the Designated Owner as of the date in question or during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, including financing, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Group 1 or any of its subsidiaries or affiliates. -29- 34 These non-competition obligations shall apply until the later of (i) five years after the Closing or (ii) the period specified in any employment agreement entered into by such Designated Owner with Group 1 or its subsidiaries. During this non-competition period the Designated Owner will not engage in these restricted activities nor assist in the industry consolidation efforts on behalf of any publicly held entity in the automotive retailing industry (nor any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity), regardless of the geographic area or market. If Group 1 or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this non-competition covenant shall not apply to such former aspect of that business. (b) The Designated Owner understands that the foregoing restrictions may limit their ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that the Designated Owner will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. The Designated Owner acknowledges that money damages would not be sufficient remedy for any breach of this Section 10.2 by the Designated Owner, and Group 1 or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Section 10.2 by terminating any payments then owing to the Designated Owner under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Section 10.2, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Group 1 and the Designated Owner's agents involved in such breach. (c) It is expressly understood and agreed that Group 1 and the Designated Owner consider the restrictions contained in this Section 10.2 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 10.3 Termination. This Agreement may be terminated and the Acquisition and the other transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual consent of Group 1 and the Owners; (b) by either Group 1 or the Owners if the Acquisition has not been effected on or before February 28, 1998; -30- 35 (c) by Group 1 if the information disclosed on the Schedules or the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate under this Section 10.3(c) shall expire at midnight on January 31, 1998; (d) by either Group 1 or the Owners if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Acquisition or the other transactions contemplated hereby shall have been entered; (e) by Group 1 if (i) since the date of this Agreement there has been a material adverse change in the business operations or financial condition of the Company; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by the Company or the Owners which breach has not been cured within ten business days following receipt by the Company of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the pre-tax income expected for the Company, on which the purchase price of the acquisition was based; or (f) by the Owners if there has been a material breach of any representation or warranty set forth in this Agreement by Group 1 which breach has not been cured within ten business days following receipt by Group 1 of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice). 10.4 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.3, the Owners and Group 1 shall have no obligation or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1, 7.4 and 10.5 survive any such termination. 10.5 Expenses. Regardless of whether the Acquisition is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby incurred by Group 1 shall be paid by Group 1 and all such costs and expenses incurred by the Owners shall be paid by the Owners except as specifically provided in Sections 8.2. The Owners and Group 1 each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.6 Restrictions on Transfer of Group 1 Common Stock. (a) During the one-year period ending on the anniversary of the Closing Date (the "Restricted Period"), no Owner voluntarily will: (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of Group 1 Common Stock received by any Owner in the Acquisition or (B) any interest in (including any option to buy or sell) any of those shares of Group 1 Common Stock, in whole or in part, and Group 1 will have no obligation to, and shall not, treat any such attempted transfer as effective for any purpose; or (ii) engage in any transaction, whether or not with respect to any shares of Group 1 Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning the shares of Group 1 Common Stock acquired pursuant to this Agreement (including for -31- 36 example engaging in put, call, short-sale, straddle or similar market transactions). Notwithstanding the foregoing, each Owner may (i) pledge shares of Group 1 Common Stock, provided that the pledgee of such shares shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (ii) transfer shares to immediate family members or the estate of any such individual (including, without limitation, any transfer by such Owner to or among any family limited partnership, trust, custodial or other similar accounts, arrangements, transfers or funds that are for the benefit of his or her immediate family members), provided that such person or entity shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; and (iii) transfer shares by will or the laws of descent and distribution or otherwise by reason of such Owner's death. The certificates evidencing the Group 1 Common Stock delivered to each Owner pursuant to this Agreement will bear a legend substantially in the form set forth below and containing such other information as Group 1 may deem necessary or appropriate: EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. (b) Each Owner, severally and not jointly with any other Person, (i) acknowledges that the shares of Group 1 Common Stock to be delivered to that Owner pursuant to this Agreement have not been and, if applicable, will not be registered under the Securities Act and therefore may not be resold by that Owner without compliance with the Securities Act and (ii) covenants that none of the shares of Group 1 Common Stock issued to that Owner pursuant to this Agreement will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all the applicable provisions of the Securities Act and the rules and regulations of the Commission and applicable state securities laws and regulations. All certificates evidencing shares of Group 1 Common Stock issued pursuant to this Agreement will bear the following legend in addition to the legend prescribed by Section 10.6(a): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, -32- 37 OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." In addition, certificates evidencing shares of Group 1 Common Stock issued pursuant to the Acquisition to each Owner will bear any legend required by the securities or blue sky laws of the state in which that Owner resides. 10.7 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is, or whose Owners are, entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. 10.8 Public Statements. The Owners and Group 1 agree to consult with each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law. 10.9 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other parties hereto. 10.10 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: if to the Owners: Thomas Nyle Maxwell, Jr. ________________________ Austin, Texas 787__ Telecopy: (512) 219-3618 with a copy to: ________________________ ________________________ Telecopy: (___) ________ Attention: ____________ -33- 38 if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.10. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Delivery to the Owners' representative, if any, of any notice to Owners hereunder shall constitute delivery to all Owners and any notice given by such Owners' representative shall be deemed to be notice given by all Owners. 10.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.14 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10.15 Third Party Beneficiaries. Neither this agreement nor any document delivered in connection with this Agreement, confers upon any Person not a party hereto any rights or remedies hereunder. -34- 39 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ B.B. HOLLINGSWORTH, JR. ------------------------------------- Name: B.B. Hollingsworth, Jr. Title: Chairman, President and Chief Executive Officer [ACQUISITION SUB] By: /s/ B.B. HOLLINGSWORTH, JR. ------------------------------------- Name: B. B. Hollingsworth, Jr. Title: Chairman, President and Chief Executive Officer OWNERS /s/ THOMAS NYLE MAXWELL, JR. ----------------------------------------- THOMAS NYLE MAXWELL, JR. /s/ THOMAS NYLE MAXWELL, SR. ----------------------------------------- THOMAS NYLE MAXWELL, SR. /s/ CLARENCE J. KELLERMAN ----------------------------------------- CLARENCE J. KELLERMAN -35- 40 EXHIBIT A
CONSIDERATION SHARES OF ----------------------------------- COMMON STOCK LIMITED OF THE PARTNERSHIP GENERAL INTERESTS OF SHARES OF GROUP 1 OWNERS PARTNER THE COMPANY COMMON STOCK(1) CASH - ------------------------ ------------ ------------ ----------------- ---------- Thomas Nyle Maxwell, Jr. 49.50% 200,000 $3,020,966 Thomas Nyle Maxwell, Sr. 19.80% 48,000 $1,596,753 Clarence J. Kellerman 29.70% 72,000 $2,395,130
- ---------- (1) As may be appropriately adjusted for stock splits and/or stock dividends. -1- 41 ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Agreement shall have the meanings set forth below unless the context shall otherwise require: "Aboveground Storage Tanks" and "Underground Storage Tanks" shall have the meanings given them in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree, as in effect as of the Closing Date, governing Aboveground Storage Tanks or Underground Storage Tanks. "affiliate" shall mean, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. "Agreement" shall mean the Purchase Agreement made and entered into as of December ___, 1997 by and among Group 1, Acquisition Sub and the Owners, including any amendments thereto and each Annex (including this Annex A), Exhibit and schedule thereto (including the Schedules). "Assets" shall mean all of the properties and assets owned by the Company, other than the Owned Properties and the Leased Properties, whether personal or mixed, tangible or intangible, wherever located. "Benefit Program or Agreement" shall have the meaning set forth in Section 3.15. "Business Day" means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. "Closing" shall mean a meeting, which shall be held in accordance with Section 2.2, of representatives of the parties to the Agreement at which, among other things, all documents deemed necessary by the parties to the Agreement to evidence the fulfillment or waiver of all conditions precedent to the consummation of the transactions contemplated by the Agreement are executed and delivered. "Closing Date" shall mean the date of the Closing as determined pursuant to Section 2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Company" shall mean Prestige Chrysler Plymouth South, LTD, a Texas limited partnership, all predecessor entities of the Company and its successors from time to time. "Common Stock of the General Partner" shall mean the common stock, par value $___ per share, of the General Partner. -1- 42 "Company 1996 Balance Sheet" shall have the meaning set forth in Section 3.6 herein. "Company 1996 Financial Statements" shall have the meaning set forth in Section 3.6 herein. "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Designated Owner" shall have the meaning set forth in Section 10.2 herein. "Environmental Laws" shall mean all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, as in effect on the Closing Date, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the Regulations promulgated thereunder. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder. "Fixed Assets" shall mean all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures owned by the Company or set forth on the Interim Balance Sheet or acquired by the Company since the date of the Interim Balance Sheet. "GAAP" shall mean accounting principles generally accepted in the United States as in effect from time to time consistently applied by a specified Person. "General Partner" shall mean Prestige Chrysler Plymouth, Inc., a Texas corporation. "Governmental Authority" shall mean any governmental agency or authority (other than a Court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. -2- 43 "Guarantees" shall have the meaning set forth in Section 3.9 herein. "Hazardous Substance" shall mean any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, metals, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires remediation under any Environmental, Health and Safety Laws in effect on the Closing Date, including, without limitation, the United States Department of Transportation Table (49 CFR 172, 101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and any amendments thereto; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state statute or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnifiable Damages" shall have the meaning set forth in Section 9.1 herein. "Indemnified Party" shall have the meaning set forth in Section 9.3 herein. "Indemnifying Party" shall have the meaning set forth in Section 9.3 herein. "Intellectual Property" shall mean all patents, trademarks, copyrights and other proprietary rights. "IRS" shall mean the Internal Revenue Service. "Law" shall mean all laws, statutes, ordinances, rules and regulations of the United States, any foreign country, or any domestic or foreign state, and any political subdivision or agency thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Leased Property" and "Leased Properties" have the meaning set forth in Section 3.16 herein. -3- 44 "Licenses" shall mean all licenses, certificates, permits, approvals and registrations. "Lien" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Law of any jurisdiction. "Material Contract" has the meaning set forth in Section 3.9 herein. "Material Leases" shall have the meaning set forth in Section 3.9 herein. "Order" shall mean any judgment, order or decree of any Court or Governmental Authority, federal, foreign, state or local. "Owned Properties" shall have the meaning set forth in Section 3.16 herein. "Owners Indemnifiable Damages" shall have the meaning set forth in Section 9.2 herein. "Permitted Encumbrances" shall mean the following: (1) liens for taxes, assessments and other governmental charges not delinquent or which are currently being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (2) mechanics' and materialmen's liens not filed of record and similar charges not delinquent or which are filed of record but are being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (3) liens in respect of judgments or awards with respect to which the specified Person shall in good faith currently be prosecuting an appeal or other proceeding for review and with respect to which such Person shall have secured a stay of execution pending such appeal or such proceeding for review; provided that such Person shall have set aside on its books adequate reserves with respect thereto; (4) easements, leases, reservations or other rights of others in, or minor defects and irregularities in title to, property or assets of a specified Person; provided that such easements, leases, reservations, rights, defects or irregularities do not materially impair the use of such property or assets for the purposes for which they are held; and (5) any lien or privilege vested in any lessor, licensor or permittor for rent or other obligations of a specified Person thereunder so long as the payment of such rent or the performance of such obligations is not delinquent. -4- 45 "Person" shall mean an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Court or Governmental Authority. "Phase I Environmental Surveys" shall mean the Entrix reports dated October, 1997. "Plan" shall have the meaning set forth in Section 3.15. "Related Party Agreements" shall have the meaning set forth in Section 3.19 herein. "Release" and "Discharge" shall have the meanings given them in the Environmental, Health and Safety Laws "Reports" shall mean, with respect to a specified Person, all reports, registrations, filings and other documents and instruments required to be filed by the specified Person or any of its Subsidiaries with any Governmental Authority. "Restricted Period" shall have the meaning set forth in Section 10.6 herein. "SEC Documents" shall mean the Group 1 Prospectus dated October 29, 1997 and the Form 10-Q for the third quarter ended September 30, 1997. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. A "Subsidiary" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. "Tax Returns" shall mean all returns, reports and filings relating to Taxes. "Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, payroll and franchises imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof. "Terminated Benefit Plans" shall mean Benefit Plans that were sponsored, maintained, or contributed to by a specified Person or any of its Subsidiaries within six years prior to the date of the Agreement but which have been terminated prior to the date of the Agreement. -5- 46 "Waste" shall mean toxic agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash; provided, however, the term "Waste" shall not include scrap metal. -6- EX-10.48 19 PURCHASE AGREEMENT - ST MERGER CORP. 1 EXHIBIT 10.48 PURCHASE AGREEMENT AMONG GROUP 1 AUTOMOTIVE, INC., ST MERGER CORP., A WHOLLY-OWNED SUBSIDIARY OF GROUP 1 AUTOMOTIVE, INC., THE LIMITED PARTNERS OF MAXWELL CHRYSLER PLYMOUTH DODGE JEEP EAGLE, LTD. AND THE STOCKHOLDERS OF MAXWELL CHRYSLER PLYMOUTH DODGE, INC. DATED AS OF DECEMBER 18, 1997 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II THE ACQUISITION 2.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNERS 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.7 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.8 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.9 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.13 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.14 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.15 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.16 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.18 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.20 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.21 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.22 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-i- 3 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE OWNERS 4.1 Capital Stock and Limited Partnership Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.5 Authorization For Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VI COVENANTS OF THE OWNERS 6.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 19 6.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.8 Owners' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.10 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.11 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.12 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.13 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.14 Certain Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.17 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-ii- 4 ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.5 Tax Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 25 8.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 26 8.3 Additional Conditions Precedent to Obligations of the Owners. . . . . . . . . . . . . . . . . . . 27 ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Owners to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.2 Agreement by Group 1 to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.2 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.6 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.15 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-iii- 5 GROUP 1 AUTOMOTIVE, INC. PURCHASE AGREEMENT This Purchase Agreement (this "Agreement"), dated as of the 18th day of December, 1997, is among Group 1 Automotive, Inc., a Delaware corporation ("Group 1"), ST Merger Corp., a Texas corporation and a wholly-owned subsidiary of Group 1 ("Acquisition Sub"), the stockholders ("Stockholders") of Maxwell Chrysler Plymouth Dodge, Inc., a Texas corporation (the "General Partner"), and the limited partners ("Limited Partners") of Maxwell Chrysler Plymouth Dodge Jeep Eagle, LTD., a Texas limited partnership (the "Company"). The Stockholders and the Limited Partners are collectively referred to herein as the "Owners" and are listed on the signature pages hereof under the caption "Owners." RECITALS: WHEREAS, the Owners are the holders of all of the issued and outstanding capital stock of the General Partner; WHEREAS, the General Partner is the sole general partner of the Company; WHEREAS, the Owners are the holders of all of the limited partnership interests in the Company; WHEREAS, Acquisition Sub proposes to acquire all of the capital stock of the General Partner and all of the limited partnership interests in the Company from the Owners (the "Acquisition") on the terms and conditions set forth herein; WHEREAS, Group 1, through certain of its wholly owned subsidiaries, also proposes to acquire (i) the outstanding capital stock of Prestige Chrysler Plymouth, Inc. and the limited partnership interests of Prestige Chrysler Plymouth South, LTD. and (ii) the outstanding capital stock of MMK Interests, Inc. and the limited partnership interests of Prestige Chrysler Plymouth Northwest, LTD., pursuant to agreements (the "Other Agreements") that are similar to this Agreement; and WHEREAS, the parties hereto wish to set forth the representations, warranties, agreements and conditions under which Acquisition Sub shall purchase, and the Owners shall sell, all of the capital stock of the General Partner and all of the limited partnership interests in the Company. NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 6 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined has the meaning ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. ARTICLE II THE ACQUISITION 2.1 The Acquisition. At the Closing, each Owner shall sell to Acquisition Sub and Acquisition Sub shall purchase from each Owner that number of shares of Common Stock of the General Partner and the limited partnership interests in the Company as set forth opposite their respective names in Exhibit A hereto in exchange for the consideration set forth opposite their respective names in Exhibit A hereto. 2.2 Closing Date. The Closing of the Acquisition as contemplated by this Agreement shall take place at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002, as soon as practicable after the satisfaction or waiver of the conditions set forth in Article VIII or at such other time and place and on such other date as Group 1 and the Owners shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date," and shall be effective as of the first day of the month in which the Closing Date occurs. 2.3 Transfer of Shares. At the Closing, and subject to the satisfaction or waiver of the conditions set forth in Article VIII, the Owners will sell, transfer and deliver that number of shares of Common Stock of the General Partner and the limited partnership interests in the Company as set forth opposite their respective names in Exhibit A hereto to Acquisition Sub (in proper form and duly endorsed for transfer) and Acquisition Sub will purchase such shares of Common Stock of the General Partner and the limited partnership interests in the Company and will deliver to the Owners the consideration (in proper form) set forth opposite their respective names in Exhibit A hereto. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNERS The Owners hereby represent and warrant to Group 1 as follows: 3.1 Organization. (a) The Company is a limited partnership duly organized, validly existing and in good standing under the laws of the state of Texas with all requisite power and authority to own or -2- 7 lease its properties and conduct its business as now owned, leased or conducted. A true and complete copy of the limited partnership agreement, together with all amendments thereto, of the Company is included in Schedule 3.1. The minute books of the Company previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by its partners. (b) The General Partner is a corporation duly organized, validly existing and in good standing under the laws of the state of Texas with all requisite corporate power and authority to own or lease its properties and conduct its business as now owned, leased or conducted. The General Partner has conducted no business other than as General Partner of the Company, owns no property or assets other than its general partner interest in the Company and has no liabilities or obligations other than as related to its capacity as general partner of the Company. True and complete copies of the articles of incorporation and bylaws of the General Partner are included in Schedule 3.1. The minute books of the General Partner previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by its board of directors and stockholders in their capacities as such. 3.2 Qualification. Each of the Company and the General Partner is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary. Schedule 3.2 sets forth a list of the jurisdictions in which each of the Company and the General Partner is qualified to do business, if any. 3.3 Absence of Conflicts. Except to the extent set forth in the Schedule 3.3, neither the execution and delivery by the Owners of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by them at, or prior to, the Closing, nor the performance by the Owners of their obligations under this Agreement or any such instrument, document or agreement will (assuming receipt of all consents, approvals, authorizations, permits, certificates and orders disclosed as requisite in Schedule 3.3) (a) violate or breach the terms of or cause a default under (i) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority with respect to the Company or the General Partner, (ii) any applicable permits received from any Governmental Authority with respect to the Company or the General Partner, (iii) the limited partnership agreement of the Company or the articles of incorporation or bylaws of the General Partner or (iv) any contract or agreement to which the Company or the General Partner is a party or by which they, or any of their properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of the Company or the General Partner, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority with respect to the Company or the General Partner, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 3.4 Equity Investments. The General Partner owns no equity securities, interests or other investments other than its general partner interest in the Company. The Company owns no equity securities, interests or other investments in any Person. -3- 8 3.5 Capitalization. (a) The authorized capital stock of the General Partner consists of 100,000 shares of Common Stock, no par value, of which 100,000 shares are issued and outstanding (with no shares being held in treasury). Each outstanding share of the Common Stock of the General Partner has been duly authorized, is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights of any stockholder. Set forth in Schedule 3.5(a) are the names, social security or I.R.S. identification numbers and addresses (as reflected in the corporate records of the General Partner) of each record holder of the Common Stock of the General Partner, together with the number of shares held by each such Person. Except as set forth above, there are no shares of capital stock of, or other equity interests in, the General Partner authorized, issued or outstanding. There is not outstanding any ownership interest or other security, including without limitation any option, warrant or right, entitling the holder thereof to purchase or otherwise acquire any ownership interest of the General Partner. There are no contracts, agreements, commitments or arrangements obligating the General Partner (i) to issue, sell, pledge, dispose of or encumber any ownership interest of, or any options, warrants or rights of any kind to acquire, or any securities that are convertible into or exercisable or exchangeable for, any ownership interest of, any class of ownership interest of the General Partner or (ii) to redeem, purchase or acquire or offer to acquire any ownership interest of, or any outstanding option, warrant or right to acquire, or any securities that are convertible into or exercisable or exchangeable for, any ownership interest of, any class of ownership interest of the General Partner. (b) The limited partner interest of the Company consists of the limited partner interests described in Exhibit A attached hereto. Each outstanding limited partner interest of the Company has been duly authorized and validly issued in accordance with the limited partnership agreement of the Company. Set forth in Schedule 3.5(b) are the names and addresses of each limited partner of the Company together with the limited partner interest held by each limited partner. Except as set forth above and except for the general partner interest of the General Partner, there are no other partnership interests authorized or outstanding of the Company. There are no contracts, agreements, commitments, arrangements, rights or options of any kind to acquire any interest in the Company. 3.6 Financial Statements. Included in Schedule 3.6 are true and complete copies of the financial statements of the Company consisting of (i) an unaudited balance sheet of the Company as of November 30, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the eleven month period then ended (the "Company Interim Financial Statements") and (ii) an audited balance sheet of the Company as of December 31, 1996 (the "Company 1996 Balance Sheet") and the related audited statements of income, changes in stockholders' equity and cash flows for the year then ended (including the notes thereto) (the "Company 1996 Financial Statements") and (collectively with the Company Interim Financial Statements, the "Company Financial Statements"). The Company Financial Statements present fairly the financial position of the Company and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. The Company Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of the Company reflected in the Company Financial Statements and as incurred -4- 9 since November 30, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful accounts shown in the Company Interim Financial Statements) in the ordinary course of business and, except as set forth in Schedule 3.6, are not in dispute or subject to counterclaim, set-off or renegotiation. Schedule 3.6 contains an aged schedule of accounts receivable included in the Interim Balance Sheet. 3.7 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet or as set forth in Schedule 3.7, the Company does not have any liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP. 3.8 Certain Agreements. Except as set forth in Schedule 3.8, neither the Company nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a non-competition, territorial exclusivity or other provision covering such subject matter purportedly enforceable by a third party against the Company, or any of its officers or directors, the scope of the business or operations of the Company, or any of its officers or directors, geographically or otherwise. 3.9 Contracts and Commitments. Schedule 3.9 includes (i) a list of all contracts to which the Company is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of the Company ("Material Contracts"); (ii) a list of all real or personal property leases to which the Company is a party involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which the Company is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between the Company and any of their officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. 3.10 Absence of Changes. Except as set forth in Schedule 3.10, there has not been, since December 31, 1996, any adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of the Company. Except as set forth in Schedule 3.10, since November 30, 1997, the Company has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. Notwithstanding the preceding sentence, the Company makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since December 31, 1996, for any employee who after such increase would receive annual compensation of less than $50,000. -5- 10 3.11 Tax Matters. (a) Except as set forth in Schedule 3.11, (i) all Tax Returns which are required to be filed on or before the Closing Date by or with respect to the Company or the General Partner have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to the Company or the General Partner have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. (b) All Tax Returns of, or with respect to, the Company or the General Partner have been audited by the applicable governmental authority, or the applicable statute of limitations has expired, for all periods up to and including December 31, 1996 except as included on Schedule 3.11(b). (c) There is no claim against the Company for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to the Company or the General Partner, other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.11(c). (d) Except as set forth in Schedule 3.11(d), there is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company or the General Partner, or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to the Company or the General Partner. (e) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to the Company or the General Partner up to and through the periods covered thereby. (f) All Tax allocation or sharing agreements affecting the Company or the General Partner shall be terminated prior to the Closing Date and no payments shall be due or will become due by the Company or the General Partner on or after the Closing Date pursuant to any such agreement or arrangement. (g) Except as set forth in Schedule 3.11(g), the Company or the General Partner will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. -6- 11 (h) The General Partner has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (i) Except as set forth in Schedule 3.11(i), the General Partner has been a validly electing S corporation within the meaning of sections 1361 and 1362 of the Code at all times since its incorporation and the General Partner will be an S corporation up to and including the Closing Date. From the end of its most recent tax year through the Closing Date, each holder of the stock of the General Partner has been an individual resident of the United States or an estate or trust described in section 1361(c)(2) of the Code that is permitted to hold the stock of an S corporation. The General Partner will not be liable for any tax under section 1374 of the Code in connection with the deemed sale of the General Partner's assets caused by the Section 338(h)(10) Elections. In the past 10 years, the General Partner has not (a) acquired assets from another corporation in a transaction in which the General Partner's federal income tax basis in the acquired assets was determined, in whole or in part, by reference to the federal income tax basis of the acquired assets (or any other property) in the hands of the transferor or (b) acquired the stock of any corporation which is a qualified subchapter S subsidiary, as defined in section 1361(b)(3)(B) of the Code. (j) The Company has been a partnership within the meaning of section 7701(a)(2) of the Code, taxable under Subchapter K of the Code, at all times since its formation and the Company will be a partnership up to an including the Closing Date. 3.12 Litigation. (a) Except as set forth in Schedule 3.12(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of the Owners, threatened against or specifically affecting the Company or the General Partner before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent set forth in Schedule 3.12(b), each of the Company and the General Partner has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of the Owners, no event has occurred which, with the lapse of time or action by a third party could result in a default under any contract or other agreement to which the Company or the General Partner is a party or by which they or any of their properties is bound or under any applicable Order of any Court or Governmental Authority. 3.13 Compliance with Law. Except as set forth in Schedule 3.13, each of the Company and the General Partner in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. 3.14 Permits. Except as set forth in Schedule 3.14, the Company or the General Partner owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities necessary for the conduct of their business. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and each of -7- 12 the Company and the General Partner is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. 3.15 Employee Benefit Plans and Policies. (a) Schedule 3.15(a) provides a description of each of the following which is sponsored, maintained or contributed to by the Company for the benefit of its employees, or has been so sponsored, maintained or contributed to within six years prior to the Closing Date: (i) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA ("Plan"); and (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not described in Section 2.17(a)(i) ("Benefit Program or Agreement"). True and complete copies of each of the Plans, Benefit Programs or Agreements, related trusts, if applicable, and all amendments thereto, have been furnished to Group 1. (b) The Company does not contribute to or have an obligation to contribute to, and have not at any time contributed to or had an obligation to contribute to, a plan subject to Title IV of ERISA, including, without limitation, a multiemployer plan within the meaning of Section 3(37) of ERISA. (c) Except as otherwise set forth in Schedule 3.15(c), (i) Each Plan and each Benefit Program or Agreement has been administered, maintained and operated in accordance with the terms thereof and in compliance with its governing documents and applicable law (including, where applicable, ERISA and the Code); (ii) There is no matter pending with respect to any of the Plans before any governmental agency, and there are no actions, suits or claims pending (other than routine claims for benefits) or threatened against, or with respect to, any of the Plans or Benefit Programs or Agreements or their assets; (iii) No act, omission or transaction has occurred which would result in imposition on the Company of (A) breach of fiduciary duty liability damages under Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections (c), (i) or -8- 13 (l) of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (iv) Each of the Plans intended to be qualified under Section 401 of the Code satisfies the requirements of such Section, has received a favorable determination letter from the Internal Revenue Service regarding such qualified status and has not, since receipt of the most recent favorable determination letter, been amended or operated in a way which would adversely affect such qualified status; (v) As to any Plan intended to be qualified under Section 401 of the Code, there has been no termination or partial termination of the Plan within the meaning of Section 411(d)(3) of the Code; and (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (A) require the Company to make a larger contribution to, or pay greater benefits under, any Plan or Benefit Program or Agreement than it otherwise would or (B) create or give rise to any additional vested rights or service credits under any Plan or Benefit Program or Agreement. (d) There does not currently exist, and there has not at any time existed, any corporation, trade, business or entity under common control with the Company, within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA. (e) Termination of employment of any employee of the Company after consummation of the transactions contemplated by this Agreement would not result in payments under the Plans or Benefit Programs or Agreements which, in the aggregate, would result in imposition of the sanctions imposed under Sections 280G and 4999 of the Code. (f) Each Plan which is an "employee welfare benefit plan", as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued thereunder prior to such amendment or termination. (g) Schedule 3.15(g) sets forth by name and job description of the employees of the Company as of the date of this Agreement (the "Company Employees"). None of said employees are subject to union or collective bargaining agreements. The Company has not at any time had or been threatened with any work stoppages or other labor disputes or controversies with respect to its employees. 3.16 Properties. (a) The Company does not own any real property or any interest therein except as set forth in Schedule 3.16(a) (individually, an "Owned Property" and collectively, the "Owned Properties"), which sets forth the location and size of, principal improvements and buildings on, and Liens on the Owned Properties. True and correct copies of all Liens are attached to Schedule 3.16(a). Schedule 3.16(a) also sets forth the location and size of, -9- 14 principal improvements and buildings on all parcels of real estate leased by the Company (individually, a "Leased Property" and collectively, the "Leased Properties"). Except as set forth in Schedule 3.16(a), with respect to each Owned Property and Leased Property: (i) the Company has good and valid leasehold interests in each parcel of its Owned Property and Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of the Owners, threatened condemnation proceedings, suits or administrative actions relating to the Owned Properties or the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) except as set forth in Schedule 3.16(a), the legal descriptions for the parcels of Owned Property and Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the leasing or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Owned Property and Leased Property, except as set forth in Schedule 3.16(a); (vi) there are no outstanding options or rights of first refusal to purchase the parcels of Owned Property or Leased Property, or any portion thereof or interest therein; (vii) there are no parties (other than the Company) in possession of the parcels of Owned Property or Leased Property, other than tenants under any leases disclosed in Schedule 3.16(a) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Owned Property and Leased Property are supplied with utilities and other services necessary for the operation of such facilities; -10- 15 (ix) each parcel of Owned Property and Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Owned Property and Leased Property are in good repair and adequate for the use of such Owned Property and Leased Property in the manner in which presently used; and (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Owned Property or Leased Property, except as set forth in Schedule 3.16(a). (b) Except as set forth in Schedule 3.16(b), each of the Company has good and marketable title to all of its Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of the Company are in good operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.17 Insurance. Schedule 3.17 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Company (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. The Company is presently insured, and since the inception of operations by the Company has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. The Company has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as set forth in Schedule 3.17, no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. The Company has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. The execution of this Agreement and the consummation of the transactions contemplated hereby will not cause such insurance policies to lapse, terminate or be canceled and will not result in any party thereto having the right to terminate or cancel such insurance policies. 3.18 Affiliate Interests. Except as set forth in Schedule 3.18, no employee, officer or director, or former employee, officer or director, of the Company or the General Partner has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business information, trademarks, service marks or trade names, used in or pertaining to the business of the Company, except for the normal rights of employees, partners, and stockholders. 3.19 Environmental Matters. Except as set forth in Schedule 3.19, to the best of Owners' knowledge: (a) The Company is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, -11- 16 dumping, discharging, release or disposal of Hazardous Substances, or other Waste. The Company is currently not liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. The Company is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. (b) The Company has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of its business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.19(b), and the Company is in compliance with all the terms, conditions and requirements of such Licenses, and copies of such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or threatened by any Governmental Authority or third parties against the Company or its business, operations, properties, or assets, which question the validity or entitlement of the Company to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of the Company and the operation of its business. (c) The Company has not received or is aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving the Company or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of their business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) The Company is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Owned Properties or the Leased Properties. (e) The Company has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. The Company has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, -12- 17 treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. (f) The Company has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto. (g) The Company has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor has it allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified the Company that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Neither the Company nor the Owners have received notice or have knowledge of any facts which could give rise to any notice, that the Company is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. The Company has not submitted nor was required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, the Company. The Company has not received any written or, to the knowledge of the Owners, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where the Company has transported, transferred or disposed of other Wastes. The Company has not been required to nor has undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. The Company has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) The Company has no Aboveground Storage Tanks or Underground Storage Tanks, except as listed in Schedule 3.19(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which the Company or the Owners are aware undertaken by the Company or their agents, or by the Owners, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Owned Properties or the Leased Properties; (ii) the results of which the Company or the Owners are aware of any ground, water, soil, air or asbestos monitoring undertaken by the Company or its agents, or by the Owners, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Owned Properties or the Leased Properties; (iii) all written communications between the Company and any -13- 18 Governmental Authority arising under or related to Environmental, Laws; and (iv) all citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting the Company, or any of the Owned Properties or the Leased Properties. (j) Schedule 3.19(j) contains a list of the assets of the Company which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as set forth in Schedule 3.19(j), the Company has operated and continue to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as set forth in Schedule 3.19(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, or threatened against or directly affecting the Company or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with their assets and operations. (k) Any references in this Section 3.19 to the "Owned Properties" and the "Leased Properties" are deemed to also refer to any properties previously owned or leased by the Company. 3.20 Intellectual Property. Except as set forth in Schedule 3.20, the Company owns, or is licensed or otherwise has the right to use all Intellectual Property that is necessary for the conduct of the business and operations of the Company as currently conducted. To the knowledge of the Owners, (a) the use of the Intellectual Property by the Company does not infringe on the rights of any Person, and (b) no Person is infringing on any right of the Company with respect to any Intellectual Property. No claims are pending or, to the knowledge of the Owners threatened, that the Company is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Owners, no Person is infringing the rights of the Company with respect to any Intellectual Property. All of the Intellectual Property that is owned by the Company is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by the Company is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.21 Bank Accounts. Schedule 3.21 includes the names and locations of all banks in which the Company has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.22 Brokers. Except as disclosed in Schedule 3.22, no broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. 3.23 Disclosure. The Company has disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of the Company. No representation or warranty to Group 1 by the Owners -14- 19 contained in this Agreement, and no statement contained in the Schedules attached hereto, any certificate, list or other writing furnished to Group 1 by the Owners pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, and any certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of the Owners for all purposes of this Agreement. ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE OWNERS Each Owner hereby, severally and not jointly, represents and warrants to Group 1 that: 4.1 Capital Stock and Limited Partnership Interests. Such Owner is the beneficial and record owner of the number of shares of Common Stock of the General Partner and limited partnership interests in the Company as set forth in Exhibit A, free and clear of any lien, claim, pledge, encumbrance or other adverse claim. Except for such shares of Common Stock of the General Partner and limited partnership interests in the Company set forth in Exhibit A hereto, such Owner does not own, beneficially or of record, any capital stock or other security, including without limitation any option, warrant or right entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the General Partner or any partnership interest of the Company. 4.2 Authorization of Agreement. (a) Such Owner has full legal right, power, capacity and authority to execute, deliver and perform its obligations pursuant to this Agreement and to execute, deliver and perform its obligations under each instrument, document or agreement required hereby to be executed and delivered by such Owner at, or prior to, the Closing. (b) This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by such Owner at, or prior to, the Closing will then be, duly executed and delivered by such Owner, and this Agreement constitutes and, to the extent it purports to obligate such Owner, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of such Owner enforceable against it in accordance with its terms. 4.3 Approvals. Except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit such Owner to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. -15- 20 4.4 Absence of Conflicts. Except to the extent set forth in Schedule 4.4, neither the execution and delivery by such Owner of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by such Owner of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of such Owner, if applicable, or (iv) any contract or agreement to which such Owner is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of such Owner, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 4.5 Investment Intent. Each Owner makes the following representations relating to its acquisition of shares of Group 1 Common Stock: (i) such Owner will be acquiring the shares of Group 1 Common Stock to be issued pursuant to the Acquisition to such Owner solely for such Owner's account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of any of those shares in connection with any distribution; (ii) such Owner is not a party to any agreement or other arrangement for the disposition of any shares of Group 1 Common Stock; (iii) such Owner is an "accredited investor" as defined in Securities Act Rule 501(a); (iv) such Owner (A) is able to bear the economic risk of an investment in the Group 1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a total loss of that investment, (C) has such knowledge and experience in financial and business matters, and such past participation in investments, that he or she is capable of evaluating the merits and risks of the proposed investment in the Group 1 Common Stock, (D) has received and reviewed the SEC Documents, (E) has had an adequate opportunity to ask questions and receive answers from the officers of Group 1 concerning any and all matters relating to the transactions contemplated hereby, including the background and experience of the current officers and directors of Group 1, the plans for the operations of the business of Group 1, the business, operations and financial condition of Group 1 and any plans of Group 1 for additional acquisitions, and (F) has asked all questions of the nature described in the preceding clause (E), and all those questions have been answered to his or her satisfaction; (v) such Owner acknowledges that the shares of Group 1 Common Stock to be delivered to such Owner pursuant to the Acquisition have not been and will not be registered under the Securities Act or qualified under applicable blue sky laws and therefore may not be resold by such Owner without compliance with Rule 144 of the Securities Act; (vi) such Owner acknowledges that he or she has agreed, pursuant to Section 10.6 herein, not to sell the shares of Group 1 Common Stock to be delivered to such Owner pursuant to the Acquisition for a period of one year from the Closing Date; (vii) such Owner, if a corporation, partnership, trust or other entity, acknowledges that it was not formed for the specific purpose of acquiring the Group 1 Common Stock; and (viii) without limiting any of the foregoing, such Owner agrees not to dispose of any portion of Group 1 Common Stock unless either (1) a registration statement under the Securities Act is in effect as to the applicable shares and the disposition is made in accordance with that registration statement, or (2) the Owner has notified Group 1 of the proposed disposition, such disposition is made through a national brokerage firm selected by Group 1 and the Owner to offer disposition services for Group 1 Common Stock subject to SEC Rule 144 and such disposition is made in compliance with any -16- 21 other requirements of the Securities Act. Additionally, for the three-year period following the Closing Date a disposition pursuant to (viii)(2) above may be made only if the Owner has notified Group 1 of the proposed disposition and the disposition is made through a national brokerage firm selected by Group 1 and the Owner to offer disposition services for Group 1 Common Stock (in the absence of agreement between Group 1 and the Owner seeking to make a disposition, Goldman, Sachs & Co., Inc. will be the firm to handle such disposition). ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 Group 1 hereby represents and warrants to the Owners that: 5.1 Corporate Organization. Group 1 and Acquisition Sub are corporations duly organized, validly existing and in good standing under the laws of the jurisdictions of their incorporation with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by them at the Closing. 5.2 Authorization. The execution and delivery by Group 1 and Acquisition Sub of this Agreement, the performance by Group 1 and Acquisition Sub of their obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Group 1 and Acquisition Sub at the Closing have been duly and validly authorized by all requisite corporate action on the part of Group 1 and Acquisition Sub. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Group 1 and Acquisition Sub at, or prior to, the Closing will then be, duly executed and delivered by Group 1 and Acquisition Sub. This Agreement constitutes, and, to the extent it purports to obligate Group 1 and Acquisition Sub, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Group 1 and Acquisition Sub, enforceable against them in accordance with its terms. 5.3 Approvals. Except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Group 1 and Acquisition Sub, to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by Group 1 and Acquisition Sub at or prior to the Closing. 5.4 Absence of Conflicts. Neither the execution and delivery by Group 1 and Acquisition Sub of this Agreement or any instrument required hereby to be executed by them at or prior to the Closing nor the performance by Group 1 and Acquisition Sub of their obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (ii) the organizational documents of Group 1 and Acquisition Sub or (iii) any contract or agreement to which Group 1 and Acquisition Sub are parties or by which they or any of their property is bound, -17- 22 or (b) result in the creation or imposition of any Liens on any of the properties or assets of Group 1 and Acquisition Sub (other than any Lien created by the Company), or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Group 1 and its subsidiaries, taken as a whole. 5.5 Authorization For Group 1 Common Stock. All shares of Group 1 Common Stock issuable pursuant to the Acquisition are duly authorized and will, when issued, be validly issued, fully paid and nonassessable and not issued in violation of the preemptive rights of any stockholder of Group 1. 5.6 SEC Documents. The SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1933 and 1934 and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Group 1 included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Group 1 and its consolidated subsidiaries as of the dates thereto and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information, for normal year-end adjustments). ARTICLE VI COVENANTS OF THE OWNERS 6.1 Acquisition Proposals. Prior to the Closing Date, neither the Company or the General Partner, any of their officers, directors, employees or agents nor any Owner shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion of the assets of, or a substantial equity interest in, the Company or the General Partner, other than the transactions with Group 1 contemplated by this Agreement. 6.2 Access. The Company shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all its properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Group 1 any information concerning its business, properties and personnel as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by the Owners pursuant to this Agreement. -18- 23 6.3 Conduct of Business by the Company Pending the Acquisition. The Owners covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of the Company and the General Partner shall be conducted only in, and the Company and the General Partner shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that the Company may dealer trade vehicles for similar models, but the Company shall not liquidate or otherwise dispose of any of its new vehicles other than in the ordinary course of business to retail buyers. The Company shall maintain its advertising expenditures and activities commensurate with prior business practices. The Company shall not advertise a "Going Out of Business" sale; (b) The Company and the General Partner shall not, directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of the General Partner or partnership interests of the Company or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any assets of the Company, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of the General Partner or the limited partnership agreement of the Company, (iii) split, combine or reclassify any outstanding capital stock of the General Partner or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to the capital stock of the General Partner whether now or hereafter outstanding, (iv) redeem, purchase or acquire or offer to acquire any of the capital stock of the General Partner or any partnership interests of the Company, (v) create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business) after November 30,1997 in excess of the cash consideration to be paid to the Owners at Closing for their limited partnership interests as set forth in Exhibit A attached hereto, or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) The Company shall use its best efforts (i) to preserve intact the business organization of the Company, (ii) to maintain in effect any franchises, authorizations or similar rights of the Company, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. -19- 24 (d) The Company shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $50,000; (e) The Company shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as the Company in good faith may dispute; (f) The Company shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of the Company other than normal, annual compensation increases consistent with the Company's past practices; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $5,000; (g) The Company shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Acquisition set forth in Article VIII not being satisfied; provided, however, that no such notification shall affect the representations or warranties or covenants or agreements of the parties or the conditions to the obligations of the parties hereunder; (h) The Company shall not (i) amend or terminate any Plan or Benefit Program or Agreement except as may be required by applicable law, (ii) increase or accelerate the payment or vesting of the amounts payable under any Plan or Benefit Program or Agreement, or (iii) adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, program, practice or understanding (other than the Plans and the Benefit Programs or Agreements); (i) The Company shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; and (j) The Owners shall be entitled to a distribution, in cash, in amounts required to cause the net book values on a tax accounting basis of the Company and the General Partner at the end of the month prior to the Closing Date to equal zero. (k) The Owners will not revoke the Company's election to be taxed as an S corporation within the meaning of sections 1361 and 1362 of the Code. -20- 25 (l) Kellmax Investments Partnership will convey the Leased Properties to the Company at the Closing pursuant to the Earnest Money Contract attached hereto as Exhibit D. 6.4 Confidentiality. The Owners shall, and the Owners shall cause the Company's and the General Partner's officers, directors, employees, representatives and consultants, to hold in confidence, and not to disclose to others for any reason whatsoever, any non-public information received by them or their representatives in connection with the transactions contemplated hereby, including but not limited to all terms, conditions and agreements related to this transaction, except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of the Company and the General Partner as necessary in connection with the transactions contemplated hereby; and (iii) for information which becomes publicly available other than through the actions of the Company, the General Partner or an Owner. In the event the Acquisition is not consummated, the Company, the General Partner and the Owners will return all non-public documents and other material obtained from Group 1 or its representatives in connection with the transactions contemplated hereby or certify to Group 1 that all such information has been destroyed. 6.5 Notification of Certain Matters. The Owners shall give prompt notice to Group 1, orally and in writing, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing, (ii) any failure of the Company, or any officer, director, employee or agent thereof, or any Owner to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (iii) any litigation, or any claim or controversy or contingent liability of which the Company or any Owner has knowledge of that might reasonably be expected to become the subject of litigation, against the Company or the General Partner or affecting any of their assets, in each case in an amount in controversy in excess of $50,000, or that is seeking to prohibit or restrict the transactions contemplated hereby. 6.6 Consents. Subject to the terms and conditions of this Agreement, the Company and the General Partner shall (i) obtain all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on the Company, the General Partner or Group 1), authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 6.7 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, the Company and the Owners shall cooperate and use reasonable efforts to cooperate in the defense against and response thereto. Costs, including attorneys' fees, associated with any such defense will be borne by Group 1. -21- 26 6.8 Owners' Agreements Not to Sell. Each of the Owners hereby covenants and agrees not to sell, pledge, transfer or dispose of or encumber any shares of Common Stock of the General Partner or limited partnership interests of the Company currently owned, either beneficially or of record, by such Owner, except under this Agreement. 6.9 Intellectual Property Matters. The Company shall use its best efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or domestic patent, trademark, service mark, trade name or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. 6.10 Removal of Related Party Guarantees. The Owners agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all Company guarantees (such guarantees shall be referred to herein as "Related Guarantees", as described in Schedule 6.10 pursuant to Section 3.9 of this Agreement) of indebtedness or other obligations of any of the Company's or the General Partner's officers, directors, shareholders or employees or their affiliates. 6.11 Termination of Related Party Agreements. The Owners agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.11 as agreements that shall not be subject to this Section 6.11. 6.12 Related Party Agreements. The Owners agree to cause the Company and the General Partner not to enter into any Related Party Agreements or engage in any transactions with the Owners or their affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.12 as agreements or transactions that shall not be subject to this Section 6.12. 6.13 Release. (a) AS OF THE CLOSING, EACH OF THE OWNERS DOES HEREBY FOR HIMSELF OR HIS HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE THE COMPANY AND THE GENERAL PARTNER OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH EACH OF SUCH OWNERS NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST THE COMPANY OR THE GENERAL PARTNER INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF THE COMPANY OR THE GENERAL PARTNER AND THEIR EMPLOYEES AND AGENTS, EXISTING AS OF THE CLOSING OR RELATING TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER -22- 27 AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT; AND PROVIDED FURTHER ANY LIABILITIES UNDER PLANS OR BENEFIT PROGRAMS OR AGREEMENTS LISTED ON THE SCHEDULES HERETO SHALL NOT BE RELEASED. (b) EACH OF THE OWNERS REPRESENTS AND WARRANTS THAT HE HAS NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS RELEASED HEREIN. EACH OF THE OWNERS COVENANTS AND AGREES THAT HE WILL NOT ASSIGN OR TRANSFER TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS TO BE RELEASED HEREIN. EACH OF THE OWNERS REPRESENTS AND WARRANTS THAT HE HAS READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 6.13 AND THAT HE HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT. 6.14 Certain Tax Matters. (a) The Owners agree to use the amounts reflected on Exhibit A hereto for purposes of preparation of their Tax Returns. With respect to the shares of Group 1 Common Stock received by the Owners, $14.00 per share will be used for purposes of determining the value of the stock portion of the purchase price. (b) The Owners shall (i) file all required 1998 federal income tax returns relating to their ownership of the General Partner and the Company within seventy-five (75) days after the Closing Date; (ii) use an interim closing of the books of the General Partner and the Company effective as of the Closing Date for the purposes of preparing such returns; and (iii) deliver such returns to Group 1 for its review at least five (5) days prior to the filing of such returns. 6.15 Section 338(h)(10) Elections. (a) The Owners and Group 1 shall join in making a timely, irrevocable and effective election under section 338(h)(10) of the Code and a similar election under any applicable state income tax law (collectively the "Section 338(h)(10) Elections") with respect to Group 1's purchase of the Common Stock of the General Partner. To facilitate such election, at the Closing the Owners shall deliver to Group 1 an Internal Revenue Service Form 8023 and any similar forms under applicable state income tax law (the "Forms") with respect to Group 1's purchase of the Common Stock of the General Partner, which Forms shall have been duly executed by an authorized person for the Owners. Group 1 shall cause the Forms to be duly executed by an authorized person for Group 1, shall complete the schedules required to be attached thereto, shall provide a copy of the executed Form and schedules to the Owners, and shall duly and timely file the Forms as prescribed by Treasury Regulation 1.338(h)(10)-1 or the corresponding provisions of applicable state income Tax law. None of the Owners or Group 1 shall take any action to rescind, revoke or modify the Section 338(h)(10) Election without the prior written approval of the other party. Group 1 shall be responsible for any Texas franchise Tax on the deemed gain triggered by the Section 338(h)(10) Elections. -23- 28 (b) The Owners and Group 1 shall jointly determine the liabilities of the General Partner and allocate the purchase price, such liabilities, and other relevant items in accordance with the Code and the Treasury Regulations promulgated thereunder. The Owners and Group 1 shall jointly prepare all schedules required to be attached to the Forms (the "Form Schedules"). The Owners and Group 1 shall prepare all relevant Tax Returns in a manner consistent with the Form Schedules. With respect to any items included in the Form Schedules as to which Group 1 and the Owners are unable to jointly agree, the allocation proposed by Group 1 shall be reflected on the Form Schedules. The parties have previously reviewed and examined the tangible personal property and other assets of the Company, and agree that the fair market value of such assets at the Closing Date will be equal to each such asset's adjusted tax basis, net of depreciation for the Company's tax period ending on the Closing Date. The balance of the purchase price will be attributed to the goodwill of the Company. 6.16 Section 754 Election. If requested in writing to do so by Group 1, the Owners and the Company will elect under section 754 of the Code and Treasury Regulations Section 1.754-1(b)(1) to apply the provisions of section 734(b) of the Code and section 743(b) of the Code. 6.17 Employment Agreement. Thomas Nyle Maxwell, Jr. agrees to enter into, on or prior to the Closing Date, an employment agreement with Group 1 in form and substance substantially similar to Exhibit B attached hereto. 6.18 Consulting Agreements. Thomas Nyle Maxwell, Sr. and Clarence J.Kellerman agree to enter into, on or prior to the Closing Date, a consulting agreement with Group 1 in form and substance substantially similar to Exhibit C attached hereto. ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence all, and not to disclose to others for any reason whatsoever, any non-public information received by it or its representatives in connection with the transactions contemplated hereby except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Group 1 as necessary in connection with the transactions contemplated hereby or as necessary to the operation of Group 1's business; and (iii) for information which becomes publicly available other than through the actions of Group 1. In the event the Acquisition is not consummated, Group 1 will return all non-public documents and other material obtained from the Company or its representatives in connection with the transactions contemplated hereby or certify to the Company that all such information has been destroyed. -24- 29 7.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for issuance and shall issue, out of its authorized but unissued capital stock, such number of shares of Group 1 Common Stock as may be issuable upon consummation of the Acquisition. 7.3 Consents. Subject to the terms and conditions of this Agreement, Group 1 shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.4 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, Group 1 agrees to cooperate and use reasonable efforts to cooperate in the defense against and response thereto. Costs, including attorneys' fees, associated with any such defense will be borne by Group 1. 7.5 Tax Valuation. Group 1 agrees to use the amounts reflected on Exhibit A hereto for purposes of preparation of its Tax Returns. With respect to the shares of Group 1 Common Stock received by the Owners, $14.00 per share will be used for purposes of determining the value of the stock portion of the purchase price. 7.6 Guaranteed Price. If an Owner sells any of the Group 1 Common Stock received by such Owner pursuant to this Agreement for a per share price of less than fourteen dollars ($14.00), subject to adjustment for stock splits and stock dividends, Group 1 shall pay in cash the difference between the purchase price for shares sold and the price such Owner would have received if the shares were sold at $14.00 per share, subject to adjustment for stock splits and stock dividends; provided, that this Section 7.6 shall only apply to sales (i) occurring after the expiration of the Restricted Period and (ii) made in the public market; and provided, further that this Section 7.6 shall terminate on the date six years after the expiration of the Restricted Period. 7.7 Removal of Personal Guarantees. Group 1 will use commercially reasonable efforts to have all personal guarantees of any of the Company's or the General Partner's officers, directors, shareholders or partners of any obligation of the Company or the General Partner terminated, waived or released. 7.8 Provision of Certain Funds. Group 1 shall provide to the Company sufficient funds to enable the Company to purchase the Leased Properties pursuant to the Earnest Money Contract attached hereto as Exhibit D. -25- 30 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition. The respective obligations of each party to effect the Acquisition shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Acquisition; (b) There shall have been obtained any and all permits, approvals and consents of securities or "blue sky" commissions of each jurisdiction and of any other governmental agency or authority, with respect to the consummation of the Acquisition; (c) The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated; and (d) Chrysler Corporation shall have approved the Acquisition and the transactions contemplated thereby. 8.2 Additional Conditions Precedent to Obligations of Group 1. The obligation of Group 1 to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of the Owners contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all of the terms, covenants and conditions of this Agreement to be complied with and performed by the Company and the Owners on or before the Closing Date shall have been duly complied with and performed in all respects, and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of the Company and each of the Owners shall have been delivered to Group 1. (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Acquisition and the transactions contemplated thereby will be in compliance with applicable laws. (c) Group 1 shall have received evidence, satisfactory to Group 1, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.10 and 6.11 hereto. (d) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of the Company shall have -26- 31 occurred, and the Company shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of the Company and Group 1 shall have received a certificate signed by the chief executive officer of the Company and the Owners dated the Closing Date to such effect. (e) Receipt by Group 1 of an employment agreement executed by Thomas Nyle Maxwell, Jr., in form and substance substantially similar to Exhibit B hereto; (f) Satisfaction or waiver of the conditions set forth in Article VIII of each of the Other Agreements. (g) Receipt by Group 1 of consulting agreements executed by each of Thomas Nyle Maxwell, Sr. and Clarence J. Kellerman in form and substance substantially similar to Exhibit C hereto. (h) Kellmax Investments Partnership shall have conveyed the Leased Properties to the Company pursuant to the Earnest Money Contract attached hereto as Exhibit D. (i) Group 1 shall have received, at the Owners' expense, a Policy of Title Insurance issued by a title company approved by Group 1 with respect to the Leased Property to be conveyed to the Company by Kellmax Investments Partnership, subject only to the exceptions described in Schedule 3.16(a). (j) Group 1 shall have received, at Group 1's expense, a current survey of the Owned Properties and the Leased Properties showing the location of any improvements, prepared by a licensed surveyor approved by Group 1. 8.3 Additional Conditions Precedent to Obligations of the Owners. The obligation of the Owners to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following condition: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects; and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to the Owners. (b) Receipt by Thomas Nyle Maxwell, Jr. of an employment agreement executed by Group 1, in form and substance substantially similar to Exhibit B hereto. (c) Receipt by Thomas Nyle Maxwell, Sr. and Clarence J. Kellerman of consulting agreements executed by Group 1 in form and substance substantially similar to Exhibit C hereto. -27- 32 (d) Satisfaction or waiver of the conditions set forth in Article VIII of each of the Other Agreements. ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Owners to indemnify. Each of the Owners agrees to severally indemnify, defend and hold Group 1 harmless (subject to the limitations set forth in Section 9.1(e) below) from and against the aggregate of all Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Indemnifiable Damages" means, without duplication, the aggregate of all actual expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Group 1, on a pre-tax consolidated basis to the extent (i) resulting from any breach of a representation or warranty made by the Owners in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by the Owners pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by the Company or any of the Owners pursuant to this Agreement. (b) Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Group 1 shall have the right to be put in the same pre-tax consolidated financial position as Group 1 would have been in had each of the representations and warranties of the Owners hereunder been true and correct and had the covenants and agreements of the Company and the Owners hereunder been performed in full. (c) Each of the representations and warranties made by the Owners in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date except the representations and warranties of the Owners contained in Section 3.11 which shall survive for the period of the statute of limitations and Sections 3.1, 3.2, 3.3, 3.4, 3.5, 4.1, 4.2, 4.3 and 4.4, which shall not terminate, but shall continue indefinitely. No claim for the recovery of Indemnifiable Damages may be asserted by Group 1 against the Owners after such representations and warranties shall expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) If Group 1 believes it is entitled to a claim for any Indemnifiable Damages hereunder, Group 1 shall promptly give written notice to the Owners of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If the Owners do not pay the amount of the claim for Indemnifiable Damages to Group 1 within 10 days, then Group 1 may exercise its respective rights under Section 9.4 and/or take any action or -28- 33 exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.1, the Owners' liability for Indemnifiable Damages shall be limited as follows: (1) Group 1 shall have no claim for Indemnifiable Damages unless and until all Indemnifiable Damages incurred by Group 1 exceed an aggregate of $270,000.00 with respect to this Agreement and the Other Agreements (the "Basket Amount"), in which event the Owners shall be liable for only such Indemnifiable Damages in excess of the Basket Amount; and (2) the total amount of Indemnifiable Damages for which each Owner shall be liable to Group 1 shall not exceed the value of the consideration by such Owner received in the Acquisition as provided on Exhibit A, of which the stock portion shall be valued at $14.00 per share. The Owners acknowledge and agree that for purposes of the Basket Amount, Indemnifiable Damages under the Other Agreements will affect their obligation to indemnify Group 1 under this Agreement, even though the Owners may own differing percentages of the dealerships being acquired by Group 1 pursuant to the Other Agreements. For example, if claims for Indemnifiable Damages under one of the Other Agreements equal or exceed $270,000, then the Owners under this Agreement will be obligated to indemnify Group 1 for claims for all amounts without the benefit of any Basket Amount. 9.2 Agreement by Group 1 to indemnify. Group 1 agrees to indemnify, defend and hold the Owners harmless from and against the aggregate of all Owners Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Owners Indemnifiable Damages" means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, reasonable related counsel and paralegal fees and expenses) incurred or suffered by the Owners, on a pre-tax consolidated basis, to the extent (i) resulting from any breach of a representation or warranty made by Group 1 in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by Group 1 in or pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by Group 1 pursuant to this Agreement. (b) Without limiting the generality of the foregoing, with respect to the measurement of Owners Indemnifiable Damages, the Owners have the right to be put in the same pre-tax consolidated financial position as he, she or it would have been in had each of the representations and warranties of Group 1 hereunder been true and correct and had the covenants and agreements of Group 1 hereunder been performed in full. -29- 34 (c) Each of the representations and warranties made by Group 1 in this Agreement or pursuant hereto shall survive indefinitely after the Closing Date, except for the representation and warranty of Group 1 contained in Section 5.6 hereof which shall survive for a period of three years after the Closing Date, after which date it shall terminate. No claim for the recovery of Owners Indemnifiable Damages may be asserted by the Owners against Group 1 after such representations and warranties shall thus expire, provided, however, that claims for Owners Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) In the event that the Owners believe they are entitled to a claim for any Owners Indemnifiable Damages hereunder, the Owners shall promptly give written notice to Group 1 of such claim and the amount or the estimated amount of such claim, and the basis for such claim. 9.3 Conditions of Indemnification. The obligations and liabilities of the Owners and Group 1 hereunder with respect to their respective indemnities pursuant to this Article IX resulting from any claim or other assertion of liabilities by third parties (hereinafter called collectively "Claims"), shall be subject to the following terms and conditions: (a) the party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claim 10 business days after the Indemnified Party receives notice thereof (provided that failure to give notice within such 10 day period does not relieve the Indemnifying Party of his obligations to indemnify the Indemnified Party hereunder, except to the extent that such Indemnifying Party is harmed by the failure of the Indemnified Party to provide timely notice); (b) the Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claim; provided, however, if a Claim is made against Group 1, then Group 1 shall have the right to control the defense of the Claim; (c) if the Indemnifying Party shall elect not to undertake such defense, or within a reasonable time after notice of any such Claim from the Indemnified Party shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claim at any time prior to settlement, compromise or final determination thereof); -30- 35 (d) anything in this Section 9.3 to the contrary notwithstanding, (A) the Indemnified Party shall have the right, at its own cost and expense, to have its own counsel to protect its own interests and participate in the defense, compromise or settlement of the Claim, (B) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claim or consent to entry of any judgement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim, and (C) the Indemnified Party, by counsel or other representatives of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claim, and the Indemnifying Party and the Indemnified Party and their respective counsel shall cooperate with respect to such Claim. ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. The Schedules to this Agreement, contain all disclosure required to be made by the Owners under the various terms and provisions of this Agreement. 10.2 Non-Competition Obligations. (a) As part of the consideration for the Acquisition, and as an additional incentive for Group 1 to enter into this Agreement, Thomas Nyle Maxwell, Jr. (the "Designated Owner") and Group 1 agree to the non- competition provisions of this Section 10.2. The Designated Owner agrees that during the period of the Designated Owner's non-competition obligations hereunder, the Designated Owner will not, directly or indirectly for the Designated Owner or for others, within twelve miles of, in the county of or in any manufacturers' designated primary market area adjacent to the location of the operations sold to Group 1 pursuant to this Agreement or operations subsequently managed by the Designated Owner as of the date in question or during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, including financing, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Group 1 or any of its subsidiaries or affiliates. These non-competition obligations shall apply until the later of (i) five years after the Closing or (ii) the period specified in any employment agreement entered into by such Designated Owner with Group 1 or its subsidiaries. During this non-competition period the -31- 36 Designated Owner will not engage in these restricted activities as provided above, or with respect to the industry consolidation efforts of any publicly held entity in the automotive retailing industry (or any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity) assist in any such efforts, regardless of the geographic area or market. If Group 1 or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this non-competition covenant shall not apply to such former aspect of that business. (b) The Designated Owner understands that the foregoing restrictions may limit their ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that the Designated Owner will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. The Designated Owner acknowledges that money damages would not be sufficient remedy for any breach of this Section 10.2 by the Designated Owner, and Group 1 or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Section 10.2 by terminating any payments then owing to the Designated Owner under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Section 10.2, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Group 1 and the Designated Owner's agents involved in such breach. (c) It is expressly understood and agreed that Group 1 and the Designated Owner consider the restrictions contained in this Section 10.2 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 10.3 Termination. This Agreement may be terminated and the Acquisition and the other transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual consent of Group 1 and the Owners; (b) by either Group 1 or the Owners if the Acquisition has not been effected on or before February 28, 1998; (c) by Group 1 if the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate under this Section 10.3(c) shall expire at midnight on January 31, 1998; -32- 37 (d) by either Group 1 or the Owners if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Acquisition or the other transactions contemplated hereby shall have been entered; (e) by Group 1 if (i) since the date of this Agreement there has been a material adverse change in the business operations or financial condition of the Company; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by the Company or the Owners which breach has not been cured within ten business days following receipt by the Company of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the pre-tax income expected for the Company, on which the purchase price of the acquisition was based; or (f) by the Owners if there has been a material breach of any representation or warranty set forth in this Agreement by Group 1 which breach has not been cured within ten business days following receipt by Group 1 of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice). 10.4 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.3, the Owners and Group 1 shall have no obligation or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1, 7.4 and 10.5 survive any such termination. 10.5 Expenses. Regardless of whether the Acquisition is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby incurred by Group 1 shall be paid by Group 1 and all such costs and expenses incurred by the Owners shall be paid by the Owners except that all audit, appraisal and Phase I Environmental Surveys costs and expenses shall be reimbursed by Group 1 upon execution of this Agreement; provided, however,that the Owners shall reimburse Group 1 for the amount of audit fees and audit expenses reimbursed to them if the Acquisition is not completed and the audited financial statements or the audit workpapers created in the performance of the audits are used by the Owners, directly or indirectly, in any financing transaction, merger or acquisition involving the Company or any of the parties to the Other Agreements. The Owners and Group 1 each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.6 Restrictions on Transfer of Group 1 Common Stock. (a) During the one-year period ending on the anniversary of the Closing Date (the "Restricted Period"), no Owner voluntarily will: (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of Group 1 Common Stock received by any Owner in the Acquisition or (B) any interest in (including any option to buy or sell) any of those shares of Group 1 Common Stock, in whole or in part, and Group 1 will have no obligation to, and shall not, treat any such attempted transfer as effective for any purpose; or (ii) engage in any transaction, whether or not with respect to any shares of Group 1 Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning the shares of Group 1 Common Stock acquired pursuant to this Agreement (including for -33- 38 example engaging in put, call, short-sale, straddle or similar market transactions). Notwithstanding the foregoing, each Owner may (i) pledge shares of Group 1 Common Stock, provided that the pledgee of such shares shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (ii) transfer shares to immediate family members or the estate of any such individual (including, without limitation, any transfer by such Owner to or among any family limited partnership, trust, custodial or other similar accounts, arrangements, transfers or funds that are for the benefit of his or her immediate family members), provided that such person or entity shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; and (iii) transfer shares by will or the laws of descent and distribution or otherwise by reason of such Owner's death. The certificates evidencing the Group 1 Common Stock delivered to each Owner pursuant to this Agreement will bear a legend substantially in the form set forth below and containing such other information as Group 1 may deem necessary or appropriate: EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. (b) Each Owner, severally and not jointly with any other Person, (i) acknowledges that the shares of Group 1 Common Stock to be delivered to that Owner pursuant to this Agreement have not been and, if applicable, will not be registered under the Securities Act and therefore may not be resold by that Owner without compliance with the Securities Act and (ii) covenants that none of the shares of Group 1 Common Stock issued to that Owner pursuant to this Agreement will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all the applicable provisions of the Securities Act and the rules and regulations of the Commission and applicable state securities laws and regulations. All certificates evidencing shares of Group 1 Common Stock issued pursuant to this Agreement will bear the following legend in addition to the legend prescribed by Section 10.6(a): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, -34- 39 OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." In addition, certificates evidencing shares of Group 1 Common Stock issued pursuant to the Acquisition to each Owner will bear any legend required by the securities or blue sky laws of the state in which that Owner resides. 10.7 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is, or whose Owners are, entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. 10.8 Public Statements. The Owners and Group 1 agree to consult with each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law. 10.9 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other parties hereto; provided, however that Group 1 and Acquisition Sub may assign their rights and obligations hereunder to one or more of their affiliates (except that no such assignment shall relieve Group 1 or Acquisition Sub of its obligations hereunder and Group 1 and Acquisition Sub shall remain liable for the performance of their obligations hereunder. 10.10 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: if to the Owners: Thomas Nyle Maxwell, Jr. P.O. Box 203605 Austin, Texas 78720 Telecopy: (512) 219-3618 with a copy to: Porter & Hedges, L.L.P. 111 Congress, Suite 1055 Austin, Texas 78701 Telecopy: (512) 479-7504 Attention: James L. Montgomery -35- 40 if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.10. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Delivery to the Owners' representative, if any, of any notice to Owners hereunder shall constitute delivery to all Owners and any notice given by such Owners' representative shall be deemed to be notice given by all Owners. 10.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.14 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10.15 Third Party Beneficiaries. Neither this agreement nor any document delivered in connection with this Agreement, confers upon any Person not a party hereto any rights or remedies hereunder. -36- 41 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ JOHN T. TURNER ------------------------------------------- Name: John T. Turner Title: Senior Vice President ST MERGER CORP. By: /s/ JOHN T. TURNER ------------------------------------------- Name: John T. Turner Title: Senior Vice President OWNERS /s/ THOMAS NYLE MAXWELL, JR. ----------------------------------------------- THOMAS NYLE MAXWELL, JR. /s/ THOMAS NYLE MAXWELL, SR. ----------------------------------------------- THOMAS NYLE MAXWELL, SR. /s/ CLARENCE J. KELLERMAN ----------------------------------------------- CLARENCE J. KELLERMAN -37- 42 EXHIBIT A
Consideration for Stock of General Consideration for Limited Partner Partnership Interests ------------ ------------------------- Shares of Common Limited Stock of Partnership Shares of the Interests Group 1 General of the Common Owners Partner Cash Company Stock(1) Cash - ------------------------ ------- ------- ------- ------- ---------- Thomas Nyle Maxwell, Jr. 50,000 $47,297 49.50% 162,504 $2,407,302 Thomas Nyle Maxwell, Sr. 20,000 $18,434 19.80% 39,001 $1,278,962 Clarence J. Kellerman 30,000 $27,651 29.70% 58,502 $1,918,443
_____________ (1) As may be appropriately adjusted for stock splits and/or stock dividends. To the extent distributions made pursuant to Section 6.3(j) reduce the net book value of the Company and the General Partner at the end of the month prior to the Closing Date to amounts less than the net book values reflected on the May 31, 1997 manufacturer statements and the General Partner statement, the cash consideration for the limited partnership interests and General Partner stock set forth above shall be reduced proportionately. Group 1 shall provide at its expense at Closing an opinion of a nationally recognized firm, chosen by Group 1, that is experienced in valuation of entities and securities as to whether the shares of Group 1 Common Stock issued to the Owners at Closing have a value of more than $14.00 per share, and if the value is more than $14.00 per share, the value in excess of $14.00 per share. If the opinion values the Group 1 Common Stock received at Closing by the Owners in excess of $14.00 per share, Group 1 will pay to the Owners interest at the rate of 10% on the "Incremental Tax Liability" for a period of six months beginning April 15, 1999. "Incremental Tax Liability" means the amount by which the Owners' federal income tax liability with respect to the shares of Group 1 Common Stock received at Closing exceeds the amount of any such tax liability had the shares of Group 1 Common Stock been valued at $14.00 per share at Closing. -1- 43 ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Agreement shall have the meanings set forth below unless the context shall otherwise require: "Aboveground Storage Tanks" and "Underground Storage Tanks" shall have the meanings given them in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree, as in effect as of the Closing Date, governing Aboveground Storage Tanks or Underground Storage Tanks. "affiliate" shall mean, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. "Agreement" shall mean the Purchase Agreement made and entered into as of December ___, 1997 by and among Group 1, Acquisition Sub and the Owners, including any amendments thereto and each Annex (including this Annex A), Exhibit and schedule thereto (including the Schedules). "Assets" shall mean all of the properties and assets owned by the Company, other than the Owned Properties and the Leased Properties, whether personal or mixed, tangible or intangible, wherever located. "Benefit Program or Agreement" shall have the meaning set forth in Section 3.15. "Business Day" means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. "Closing" shall mean a meeting, which shall be held in accordance with Section 2.2, of representatives of the parties to the Agreement at which, among other things, all documents deemed necessary by the parties to the Agreement to evidence the fulfillment or waiver of all conditions precedent to the consummation of the transactions contemplated by the Agreement are executed and delivered. "Closing Date" shall mean the date of the Closing as determined pursuant to Section 2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Company" shall mean Maxwell Chrysler Plymouth Dodge Jeep Eagle, LTD, a Texas limited partnership, all predecessor entities of the Company and its successors from time to time. "Common Stock of the General Partner" shall mean the common stock, no par value, of the General Partner. -1- 44 "Company 1996 Balance Sheet" shall have the meaning set forth in Section 3.6 herein. "Company 1996 Financial Statements" shall have the meaning set forth in Section 3.6 herein. "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Designated Owner" shall have the meaning set forth in Section 10.2 herein. "Environmental Laws" shall mean all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, as in effect on the Closing Date, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the Regulations promulgated thereunder. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder. "Fixed Assets" shall mean all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures owned by the Company or set forth on the Interim Balance Sheet or acquired by the Company since the date of the Interim Balance Sheet. "Forms" shall have the meaning set forth in Section 6.15 herein. "Form Schedules" shall have the meaning set forth in Section 6.15 herein. "GAAP" shall mean accounting principles generally accepted in the United States as in effect from time to time consistently applied by a specified Person. "General Partner" shall mean Maxwell Chrysler Plymouth Dodge, Inc., a Texas corporation. -2- 45 "Governmental Authority" shall mean any governmental agency or authority (other than a Court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. "Guarantees" shall have the meaning set forth in Section 3.9 herein. "Hazardous Substance" shall mean any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, metals, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires remediation under any Environmental, Health and Safety Laws in effect on the Closing Date, including, without limitation, the United States Department of Transportation Table (49 CFR 172, 101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and any amendments thereto; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state statute or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnifiable Damages" shall have the meaning set forth in Section 9.1 herein. "Indemnified Party" shall have the meaning set forth in Section 9.3 herein. "Indemnifying Party" shall have the meaning set forth in Section 9.3 herein. "Intellectual Property" shall mean all patents, trademarks, copyrights and other proprietary rights. "IRS" shall mean the Internal Revenue Service. -3- 46 "Law" shall mean all laws, statutes, ordinances, rules and regulations of the United States, any foreign country, or any domestic or foreign state, and any political subdivision or agency thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Leased Property" and "Leased Properties" have the meaning set forth in Section 3.16 herein. "Licenses" shall mean all licenses, certificates, permits, approvals and registrations. "Lien" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Law of any jurisdiction. "Material Contract" has the meaning set forth in Section 3.9 herein. "Material Leases" shall have the meaning set forth in Section 3.9 herein. "Order" shall mean any judgment, order or decree of any Court or Governmental Authority, federal, foreign, state or local. "Owned Property" and "Owned Properties" have the meaning set forth in Section 3.16 herein. "Owners Indemnifiable Damages" shall have the meaning set forth in Section 9.2 herein. "Permitted Encumbrances" shall mean the following: (1) liens for taxes, assessments and other governmental charges not delinquent or which are currently being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (2) mechanics' and materialmen's liens not filed of record and similar charges not delinquent or which are filed of record but are being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (3) liens in respect of judgments or awards with respect to which the specified Person shall in good faith currently be prosecuting an appeal or other proceeding for review and with respect to which such Person shall have secured a stay of execution pending such appeal or such proceeding for review; provided that such Person shall have set aside on its books adequate reserves with respect thereto; (4) easements, leases, reservations or other rights of others in, or minor defects and irregularities in title to, property or assets of a specified Person; provided that such easements, leases, reservations, rights, defects or irregularities do not materially impair the use of such property or assets for the purposes for which they are held; and -4- 47 (5) any lien or privilege vested in any lessor, licensor or permittor for rent or other obligations of a specified Person thereunder so long as the payment of such rent or the performance of such obligations is not delinquent. "Person" shall mean an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Court or Governmental Authority. "Phase I Environmental Surveys" shall mean the Entrix reports dated October, 1997. "Plan" shall have the meaning set forth in Section 3.15. "Related Party Agreements" shall have the meaning set forth in Section 3.19 herein. "Release" and "Discharge" shall have the meanings given them in the Environmental, Health and Safety Laws "Reports" shall mean, with respect to a specified Person, all reports, registrations, filings and other documents and instruments required to be filed by the specified Person or any of its Subsidiaries with any Governmental Authority. "Restricted Period" shall have the meaning set forth in Section 10.6 herein. "SEC Documents" shall mean the Group 1 Prospectus dated October 29, 1997 and the Form 10-Q for the third quarter ended September 30, 1997. "Section 338(h)(10) Election" shall have the meaning set forth in Section 6.15 herein. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. A "Subsidiary" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. "Tax Returns" shall mean all returns, reports and filings relating to Taxes. "Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, payroll and franchises imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments -5- 48 or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof. "Terminated Benefit Plans" shall mean Benefit Plans that were sponsored, maintained, or contributed to by a specified Person or any of its Subsidiaries within six years prior to the date of the Agreement but which have been terminated prior to the date of the Agreement. "Waste" shall mean toxic agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash; provided, however, the term "Waste" shall not include scrap metal. -6- EX-10.49 20 PURCHASE AGREEMENT - RRN MERGER CORP. 1 EXHIBIT 10.49 PURCHASE AGREEMENT AMONG GROUP 1 AUTOMOTIVE, INC., RRN MERGER CORP., A WHOLLY-OWNED SUBSIDIARY OF GROUP 1 AUTOMOTIVE, INC., THE LIMITED PARTNERS OF PRESTIGE CHRYSLER PLYMOUTH NORTHWEST, LTD. AND THE STOCKHOLDERS OF MMK INTERESTS, INC. DATED AS OF DECEMBER 18, 1997 2 TABLE OF CONTENTS
ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II THE ACQUISITION 2.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNERS 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.7 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.8 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.9 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.13 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.14 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.15 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.16 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.18 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.20 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.21 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.22 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3
ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE OWNERS 4.1 Capital Stock and Limited Partnership Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.5 Authorization For Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VI COVENANTS OF THE OWNERS 6.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 19 6.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.8 Owners' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.10 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.11 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.12 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.13 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.14 Certain Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.17 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-ii- 4
ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.5 Tax Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 25 8.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 26 8.3 Additional Conditions Precedent to Obligations of the Owners. . . . . . . . . . . . . . . . . . . 27 ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Owners to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.2 Agreement by Group 1 to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.2 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.6 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.15 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-iii- 5 GROUP 1 AUTOMOTIVE, INC. PURCHASE AGREEMENT This Purchase Agreement (this "Agreement"), dated as of the 18th day of December, 1997, is among Group 1 Automotive, Inc., a Delaware corporation ("Group 1"), RRN Merger Corp., a Texas corporation and a wholly-owned subsidiary of Group 1 ("Acquisition Sub"), the stockholders ("Stockholders") of MMK Interests, Inc., a Texas corporation (the "General Partner"), and the limited partners ("Limited Partners") of Prestige Chrysler Plymouth Northwest, LTD., a Texas limited partnership (the "Company"). The Stockholders and the Limited Partners are collectively referred to herein as the "Owners" and are listed on the signature pages hereof under the caption "Owners." RECITALS: WHEREAS, the Owners are the holders of all of the issued and outstanding capital stock of the General Partner; WHEREAS, the General Partner is the sole general partner of the Company; WHEREAS, the Owners are the holders of all of the limited partnership interests in the Company; WHEREAS, Acquisition Sub proposes to acquire all of the capital stock of the General Partner and all of the limited partnership interests in the Company from the Owners (the "Acquisition") on the terms and conditions set forth herein; WHEREAS, Group 1, through certain of its wholly owned subsidiaries, also proposes to acquire (i) the outstanding capital stock of Maxwell Chrysler Plymouth Dodge, Inc. and the limited partnership interests of Maxwell Chrysler Plymouth Dodge Jeep Eagle LTD. and (ii) the outstanding capital stock of Prestige Chrysler Plymouth, Inc. and the limited partnership interests of Prestige Chrysler Plymouth South, LTD., pursuant to agreements (the "Other Agreements") that are similar to this Agreement; and WHEREAS, the parties hereto wish to set forth the representations, warranties, agreements and conditions under which Acquisition Sub shall purchase, and the Owners shall sell, all of the capital stock of the General Partner and all of the limited partnership interests in the Company. NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 6 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined has the meaning ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. ARTICLE II THE ACQUISITION 2.1 The Acquisition. At the Closing, each Owner shall sell to Acquisition Sub and Acquisition Sub shall purchase from each Owner that number of shares of Common Stock of the General Partner and the limited partnership interests in the Company as set forth opposite their respective names in Exhibit A hereto in exchange for the consideration set forth opposite their respective names in Exhibit A hereto. 2.2 Closing Date. The Closing of the Acquisition as contemplated by this Agreement shall take place at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002, as soon as practicable after the satisfaction or waiver of the conditions set forth in Article VIII or at such other time and place and on such other date as Group 1 and the Owners shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date," and shall be effective as of the first day of the month in which the Closing Date occurs. 2.3 Transfer of Shares. At the Closing, and subject to the satisfaction or waiver of the conditions set forth in Article VIII, the Owners will sell, transfer and deliver that number of shares of Common Stock of the General Partner and the limited partnership interests in the Company as set forth opposite their respective names in Exhibit A hereto to Acquisition Sub (in proper form and duly endorsed for transfer) and Acquisition Sub will purchase such shares of Common Stock of the General Partner and the limited partnership interests in the Company and will deliver to the Owners the consideration (in proper form) set forth opposite their respective names in Exhibit A hereto. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNERS The Owners hereby represent and warrant to Group 1 as follows: 3.1 Organization. (a) The Company is a limited partnership duly organized, validly existing and in good standing under the laws of the state of Texas with all requisite power and authority to own or -2- 7 lease its properties and conduct its business as now owned, leased or conducted. A true and complete copy of the limited partnership agreement, together with all amendments thereto, of the Company is included in Schedule 3.1. The minute books of the Company previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by its partners. (b) The General Partner is a corporation duly organized, validly existing and in good standing under the laws of the state of Texas with all requisite corporate power and authority to own or lease its properties and conduct its business as now owned, leased or conducted. The General Partner has conducted no business other than as General Partner of the Company, owns no property or assets other than its general partner interest in the Company and has no liabilities or obligations other than as related to its capacity as general partner of the Company. True and complete copies of the articles of incorporation and bylaws of the General Partner are included in Schedule 3.1. The minute books of the General Partner previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by its board of directors and stockholders in their capacities as such. 3.2 Qualification. Each of the Company and the General Partner is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary. Schedule 3.2 sets forth a list of the jurisdictions in which each of the Company and the General Partner is qualified to do business, if any. 3.3 Absence of Conflicts. Except to the extent set forth in the Schedule 3.3, neither the execution and delivery by the Owners of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by them at, or prior to, the Closing, nor the performance by the Owners of their obligations under this Agreement or any such instrument, document or agreement will (assuming receipt of all consents, approvals, authorizations, permits, certificates and orders disclosed as requisite in Schedule 3.3) (a) violate or breach the terms of or cause a default under (i) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority with respect to the Company or the General Partner, (ii) any applicable permits received from any Governmental Authority with respect to the Company or the General Partner, (iii) the limited partnership agreement of the Company or the articles of incorporation or bylaws of the General Partner or (iv) any contract or agreement to which the Company or the General Partner is a party or by which they, or any of their properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of the Company or the General Partner, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority with respect to the Company or the General Partner, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 3.4 Equity Investments. The General Partner owns no equity securities, interests or other investments other than its general partner interest in the Company. The Company owns no equity securities, interests or other investments in any Person. -3- 8 3.5 Capitalization. (a) The authorized capital stock of the General Partner consists of 100,000 shares of Common Stock, no par value, of which 10,000 shares are issued and outstanding (with no shares being held in treasury). Each outstanding share of the Common Stock of the General Partner has been duly authorized, is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights of any stockholder. Set forth in Schedule 3.5(a) are the names, social security or I.R.S. identification numbers and addresses (as reflected in the corporate records of the General Partner) of each record holder of the Common Stock of the General Partner, together with the number of shares held by each such Person. Except as set forth above, there are no shares of capital stock of, or other equity interests in, the General Partner authorized, issued or outstanding. There is not outstanding any ownership interest or other security, including without limitation any option, warrant or right, entitling the holder thereof to purchase or otherwise acquire any ownership interest of the General Partner. There are no contracts, agreements, commitments or arrangements obligating the General Partner (i) to issue, sell, pledge, dispose of or encumber any ownership interest of, or any options, warrants or rights of any kind to acquire, or any securities that are convertible into or exercisable or exchangeable for, any ownership interest of, any class of ownership interest of the General Partner or (ii) to redeem, purchase or acquire or offer to acquire any ownership interest of, or any outstanding option, warrant or right to acquire, or any securities that are convertible into or exercisable or exchangeable for, any ownership interest of, any class of ownership interest of the General Partner. (b) The limited partner interest of the Company consists of the limited partner interests described in Exhibit A attached hereto. Each outstanding limited partner interest of the Company has been duly authorized and validly issued in accordance with the limited partnership agreement of the Company. Set forth in Schedule 3.5(b) are the names and addresses of each limited partner of the Company together with the limited partner interest held by each limited partner. Except as set forth above and except for the general partner interest of the General Partner, there are no other partnership interests authorized or outstanding of the Company. There are no contracts, agreements, commitments, arrangements, rights or options of any kind to acquire any interest in the Company. 3.6 Financial Statements. Included in Schedule 3.6 are true and complete copies of the financial statements of the Company consisting of (i) an unaudited balance sheet of the Company as of November 30, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the eleven month period then ended (the "Company Interim Financial Statements") and (ii) an audited balance sheet of the Company as of December 31, 1996 (the "Company 1996 Balance Sheet") and the related audited statements of income, changes in stockholders' equity and cash flows for the year then ended (including the notes thereto) (the "Company 1996 Financial Statements") and (collectively with the Company Interim Financial Statements, the "Company Financial Statements"). The Company Financial Statements present fairly the financial position of the Company and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. The Company Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of the Company reflected in the Company Financial Statements and as incurred -4- 9 since November 30, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful accounts shown in the Company Interim Financial Statements) in the ordinary course of business and, except as set forth in Schedule 3.6, are not in dispute or subject to counterclaim, set-off or renegotiation. Schedule 3.6 contains an aged schedule of accounts receivable included in the Interim Balance Sheet. 3.7 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet or as set forth in Schedule 3.7, the Company does not have any liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP. 3.8 Certain Agreements. Except as set forth in Schedule 3.8, neither the Company nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a non-competition, territorial exclusivity or other provision covering such subject matter purportedly enforceable by a third party against the Company, or any of its officers or directors, the scope of the business or operations of the Company, or any of its officers or directors, geographically or otherwise. 3.9 Contracts and Commitments. Schedule 3.9 includes (i) a list of all contracts to which the Company is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of the Company ("Material Contracts"); (ii) a list of all real or personal property leases to which the Company is a party involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which the Company is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between the Company and any of their officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. 3.10 Absence of Changes. Except as set forth in Schedule 3.10, there has not been, since December 31, 1996, any adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of the Company. Except as set forth in Schedule 3.10, since November 30, 1997, the Company has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. Notwithstanding the preceding sentence, the Company makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since December 31, 1996, for any employee who after such increase would receive annual compensation of less than $50,000. -5- 10 3.11 Tax Matters. (a) Except as set forth in Schedule 3.11, (i) all Tax Returns which are required to be filed on or before the Closing Date by or with respect to the Company or the General Partner have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to the Company or the General Partner have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. (b) All Tax Returns of, or with respect to, the Company or the General Partner have been audited by the applicable governmental authority, or the applicable statute of limitations has expired, for all periods up to and including December 31, 1996 except as included on Schedule 3.11(b). (c) There is no claim against the Company for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to the Company or the General Partner, other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.11(c). (d) Except as set forth in Schedule 3.11(d), there is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company or the General Partner, or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to the Company or the General Partner. (e) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to the Company or the General Partner up to and through the periods covered thereby. (f) All Tax allocation or sharing agreements affecting the Company or the General Partner shall be terminated prior to the Closing Date and no payments shall be due or will become due by the Company or the General Partner on or after the Closing Date pursuant to any such agreement or arrangement. (g) Except as set forth in Schedule 3.11(g), the Company or the General Partner will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. -6- 11 (h) The General Partner has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (i) Except as set forth in Schedule 3.11(i), the General Partner has been a validly electing S corporation within the meaning of sections 1361 and 1362 of the Code at all times since its incorporation and the General Partner will be an S corporation up to and including the Closing Date. From the end of its most recent tax year through the Closing Date, each holder of the stock of the General Partner has been an individual resident of the United States or an estate or trust described in section 1361(c)(2) of the Code that is permitted to hold the stock of an S corporation. The General Partner will not be liable for any tax under section 1374 of the Code in connection with the deemed sale of the General Partner's assets caused by the Section 338(h)(10) Elections. In the past 10 years, the General Partner has not (a) acquired assets from another corporation in a transaction in which the General Partner's federal income tax basis in the acquired assets was determined, in whole or in part, by reference to the federal income tax basis of the acquired assets (or any other property) in the hands of the transferor or (b) acquired the stock of any corporation which is a qualified subchapter S subsidiary, as defined in section 1361(b)(3)(B) of the Code. (j) The Company has been a partnership within the meaning of section 7701(a)(2) of the Code, taxable under Subchapter K of the Code, at all times since its formation and the Company will be a partnership up to an including the Closing Date. 3.12 Litigation. (a) Except as set forth in Schedule 3.12(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of the Owners, threatened against or specifically affecting the Company or the General Partner before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent set forth in Schedule 3.12(b), each of the Company and the General Partner has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of the Owners, no event has occurred which, with the lapse of time or action by a third party could result in a default under any contract or other agreement to which the Company or the General Partner is a party or by which they or any of their properties is bound or under any applicable Order of any Court or Governmental Authority. 3.13 Compliance with Law. Except as set forth in Schedule 3.13, each of the Company and the General Partner in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. 3.14 Permits. Except as set forth in Schedule 3.14, the Company or the General Partner owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities necessary for the conduct of their business. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and each of -7- 12 the Company and the General Partner is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. 3.15 Employee Benefit Plans and Policies. (a) Schedule 3.15(a) provides a description of each of the following which is sponsored, maintained or contributed to by the Company for the benefit of its employees, or has been so sponsored, maintained or contributed to within six years prior to the Closing Date: (i) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA ("Plan"); and (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not described in Section 2.17(a)(i) ("Benefit Program or Agreement"). True and complete copies of each of the Plans, Benefit Programs or Agreements, related trusts, if applicable, and all amendments thereto, have been furnished to Group 1. (b) The Company does not contribute to or have an obligation to contribute to, and have not at any time contributed to or had an obligation to contribute to, a plan subject to Title IV of ERISA, including, without limitation, a multiemployer plan within the meaning of Section 3(37) of ERISA. (c) Except as otherwise set forth in Schedule 3.15(c), (i) Each Plan and each Benefit Program or Agreement has been administered, maintained and operated in accordance with the terms thereof and in compliance with its governing documents and applicable law (including, where applicable, ERISA and the Code); (ii) There is no matter pending with respect to any of the Plans before any governmental agency, and there are no actions, suits or claims pending (other than routine claims for benefits) or threatened against, or with respect to, any of the Plans or Benefit Programs or Agreements or their assets; (iii) No act, omission or transaction has occurred which would result in imposition on the Company of (A) breach of fiduciary duty liability damages under Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections (c), (i) or -8- 13 (l) of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (iv) Each of the Plans intended to be qualified under Section 401 of the Code satisfies the requirements of such Section, has received a favorable determination letter from the Internal Revenue Service regarding such qualified status and has not, since receipt of the most recent favorable determination letter, been amended or operated in a way which would adversely affect such qualified status; (v) As to any Plan intended to be qualified under Section 401 of the Code, there has been no termination or partial termination of the Plan within the meaning of Section 411(d)(3) of the Code; and (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (A) require the Company to make a larger contribution to, or pay greater benefits under, any Plan or Benefit Program or Agreement than it otherwise would or (B) create or give rise to any additional vested rights or service credits under any Plan or Benefit Program or Agreement. (d) There does not currently exist, and there has not at any time existed, any corporation, trade, business or entity under common control with the Company, within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA. (e) Termination of employment of any employee of the Company after consummation of the transactions contemplated by this Agreement would not result in payments under the Plans or Benefit Programs or Agreements which, in the aggregate, would result in imposition of the sanctions imposed under Sections 280G and 4999 of the Code. (f) Each Plan which is an "employee welfare benefit plan", as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without liability except as to benefits accrued thereunder prior to such amendment or termination. (g) Schedule 3.15(g) sets forth by name and job description of the employees of the Company as of the date of this Agreement (the "Company Employees"). None of said employees are subject to union or collective bargaining agreements. The Company has not at any time had or been threatened with any work stoppages or other labor disputes or controversies with respect to its employees. 3.16 Properties. (a) The Company does not own any real property or any interest therein except as set forth in Schedule 3.16(a) (individually, an "Owned Property" and collectively, the "Owned Properties"), which sets forth the location and size of, principal improvements and buildings on, and Liens on the Owned Properties. True and correct copies of all Liens are attached to Schedule 3.16(a). Schedule 3.16(a) also sets forth the location and size of, -9- 14 principal improvements and buildings on all parcels of real estate leased by the Company (individually, a "Leased Property" and collectively, the "Leased Properties"). Except as set forth in Schedule 3.16(a), with respect to each Owned Property and Leased Property: (i) the Company has good and valid leasehold interests in each parcel of its Owned Property and Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of the Owners, threatened condemnation proceedings, suits or administrative actions relating to the Owned Properties or the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) except as set forth in Schedule 3.16(a), to the knowledge of the Owners, the legal descriptions for the parcels of Owned Property and Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the leasing or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Owned Property and Leased Property, except as set forth in Schedule 3.16(a); (vi) there are no outstanding options or rights of first refusal to purchase the parcels of Owned Property or, to the knowledge of the Owners, the Leased Property, or any portion thereof or interest therein; (vii) there are no parties (other than the Company) in possession of the parcels of Owned Property or Leased Property, other than tenants under any leases disclosed in Schedule 3.16(a) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Owned Property and Leased Property are supplied with utilities and other services necessary for the operation of such facilities; -10- 15 (ix) each parcel of Owned Property and Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Owned Property and Leased Property are in good repair and adequate for the use of such Owned Property and Leased Property in the manner in which presently used; and (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Owned Property or Leased Property, except as set forth in Schedule 3.16(a). (b) Except as set forth in Schedule 3.16(b), each of the Company has good and marketable title to all of its Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of the Company are in good operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.17 Insurance. Schedule 3.17 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Company (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. The Company is presently insured, and since the inception of operations by the Company has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. The Company has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as set forth in Schedule 3.17, no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. The Company has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. The execution of this Agreement and the consummation of the transactions contemplated hereby will not cause such insurance policies to lapse, terminate or be canceled and will not result in any party thereto having the right to terminate or cancel such insurance policies. 3.18 Affiliate Interests. Except as set forth in Schedule 3.18, no employee, officer or director, or former employee, officer or director, of the Company or the General Partner has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business information, trademarks, service marks or trade names, used in or pertaining to the business of the Company, except for the normal rights of employees, partners, and stockholders. 3.19 Environmental Matters. Except as set forth in Schedule 3.19, to the best of Owners' knowledge: (a) The Company is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, -11- 16 dumping, discharging, release or disposal of Hazardous Substances, or other Waste. The Company is currently not liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. The Company is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. (b) The Company has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of its business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.19(b), and the Company is in compliance with all the terms, conditions and requirements of such Licenses, and copies of such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or threatened by any Governmental Authority or third parties against the Company or its business, operations, properties, or assets, which question the validity or entitlement of the Company to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of the Company and the operation of its business. (c) The Company has not received or is aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving the Company or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of their business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) The Company is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Owned Properties. (e) The Company has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. The Company has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous -12- 17 Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. (f) The Company has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Owned Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Owned Properties or to any properties adjacent thereto. (g) The Company has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor has it allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified the Company that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Neither the Company nor the Owners have received notice or have knowledge of any facts which could give rise to any notice, that the Company is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. The Company has not submitted nor was required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, the Company. The Company has not received any written or, to the knowledge of the Owners, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where the Company has transported, transferred or disposed of other Wastes. The Company has not been required to nor has undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. The Company has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) The Company has no Aboveground Storage Tanks or Underground Storage Tanks, except as listed in Schedule 3.19(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which the Company or the Owners are aware undertaken by the Company or their agents, or by the Owners, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Leased Properties; (ii) the results of which the Company or the Owners are aware of any ground, water, soil, air or asbestos monitoring undertaken by the Company or its agents, or by the Owners, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Owned Properties; (iii) all written communications between the Company and any Governmental Authority arising under or related to Environmental, Laws; and (iv) all citations issued under OSHA, or similar state or local -13- 18 statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting the Company, or any of the Owned Properties. (j) Schedule 3.19(j) contains a list of the assets of the Company which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as set forth in Schedule 3.19(j), the Company has operated and continue to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as set forth in Schedule 3.19(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, or threatened against or directly affecting the Company or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with their assets and operations. (k) Any references in this Section 3.19 to the "Owned Properties" are deemed to also refer to any properties previously owned by the Company. 3.20 Intellectual Property. Except as set forth in Schedule 3.20, the Company owns, or is licensed or otherwise has the right to use all Intellectual Property that is necessary for the conduct of the business and operations of the Company as currently conducted. To the knowledge of the Owners, (a) the use of the Intellectual Property by the Company does not infringe on the rights of any Person, and (b) no Person is infringing on any right of the Company with respect to any Intellectual Property. No claims are pending or, to the knowledge of the Owners threatened, that the Company is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Owners, no Person is infringing the rights of the Company with respect to any Intellectual Property. All of the Intellectual Property that is owned by the Company is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by the Company is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.21 Bank Accounts. Schedule 3.21 includes the names and locations of all banks in which the Company has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.22 Brokers. Except as disclosed in Schedule 3.22, no broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. 3.23 Disclosure. The Company has disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of the Company. No representation or warranty to Group 1 by the Owners contained in this Agreement, and no statement contained in the Schedules attached hereto, any certificate, list or other writing furnished to Group 1 by the Owners pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a -14- 19 material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, and any certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of the Owners for all purposes of this Agreement. ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE OWNERS Each Owner hereby, severally and not jointly, represents and warrants to Group 1 that: 4.1 Capital Stock and Limited Partnership Interests. Such Owner is the beneficial and record owner of the number of shares of Common Stock of the General Partner and limited partnership interests in the Company as set forth in Exhibit A, free and clear of any lien, claim, pledge, encumbrance or other adverse claim. Except for such shares of Common Stock of the General Partner and limited partnership interests in the Company set forth in Exhibit A hereto, such Owner does not own, beneficially or of record, any capital stock or other security, including without limitation any option, warrant or right entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the General Partner or any partnership interest of the Company. 4.2 Authorization of Agreement. (a) Such Owner has full legal right, power, capacity and authority to execute, deliver and perform its obligations pursuant to this Agreement and to execute, deliver and perform its obligations under each instrument, document or agreement required hereby to be executed and delivered by such Owner at, or prior to, the Closing. (b) This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by such Owner at, or prior to, the Closing will then be, duly executed and delivered by such Owner, and this Agreement constitutes and, to the extent it purports to obligate such Owner, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of such Owner enforceable against it in accordance with its terms. 4.3 Approvals. Except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit such Owner to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by it at the Closing. 4.4 Absence of Conflicts. Except to the extent set forth in Schedule 4.4, neither the execution and delivery by such Owner of this Agreement or any instrument, document or agreement -15- 20 required hereby to be executed and delivered by it at, or prior to, the Closing, nor the performance by such Owner of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of such Owner, if applicable, or (iv) any contract or agreement to which such Owner is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of such Owner, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 4.5 Investment Intent. Each Owner makes the following representations relating to its acquisition of shares of Group 1 Common Stock: (i) such Owner will be acquiring the shares of Group 1 Common Stock to be issued pursuant to the Acquisition to such Owner solely for such Owner's account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of any of those shares in connection with any distribution; (ii) such Owner is not a party to any agreement or other arrangement for the disposition of any shares of Group 1 Common Stock; (iii) such Owner is an "accredited investor" as defined in Securities Act Rule 501(a); (iv) such Owner (A) is able to bear the economic risk of an investment in the Group 1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a total loss of that investment, (C) has such knowledge and experience in financial and business matters, and such past participation in investments, that he or she is capable of evaluating the merits and risks of the proposed investment in the Group 1 Common Stock, (D) has received and reviewed the SEC Documents, (E) has had an adequate opportunity to ask questions and receive answers from the officers of Group 1 concerning any and all matters relating to the transactions contemplated hereby, including the background and experience of the current officers and directors of Group 1, the plans for the operations of the business of Group 1, the business, operations and financial condition of Group 1 and any plans of Group 1 for additional acquisitions, and (F) has asked all questions of the nature described in the preceding clause (E), and all those questions have been answered to his or her satisfaction; (v) such Owner acknowledges that the shares of Group 1 Common Stock to be delivered to such Owner pursuant to the Acquisition have not been and will not be registered under the Securities Act or qualified under applicable blue sky laws and therefore may not be resold by such Owner without compliance with Rule 144 of the Securities Act; (vi) such Owner acknowledges that he or she has agreed, pursuant to Section 10.6 herein, not to sell the shares of Group 1 Common Stock to be delivered to such Owner pursuant to the Acquisition for a period of one year from the Closing Date; (vii) such Owner, if a corporation, partnership, trust or other entity, acknowledges that it was not formed for the specific purpose of acquiring the Group 1 Common Stock; and (viii) without limiting any of the foregoing, such Owner agrees not to dispose of any portion of Group 1 Common Stock unless either (1) a registration statement under the Securities Act is in effect as to the applicable shares and the disposition is made in accordance with that registration statement, or (2) the Owner has notified Group 1 of the proposed disposition, such disposition is made through a national brokerage firm selected by Group 1 and the Owner to offer disposition services for Group 1 Common Stock subject to SEC Rule 144 and such disposition is made in compliance with any other requirements of the Securities Act. Additionally, for the three- year period following the Closing Date a disposition pursuant to (viii)(2) above may be made only if the Owner has notified -16- 21 Group 1 of the proposed disposition and the disposition is made through a national brokerage firm selected by Group 1 and the Owner to offer disposition services for Group 1 Common Stock (in the absence of agreement between Group 1 and the Owner seeking to make a disposition, Goldman, Sachs & Co., Inc. will be the firm to handle such disposition). ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 Group 1 hereby represents and warrants to the Owners that: 5.1 Corporate Organization. Group 1 and Acquisition Sub are corporations duly organized, validly existing and in good standing under the laws of the jurisdictions of their incorporation with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by them at the Closing. 5.2 Authorization. The execution and delivery by Group 1 and Acquisition Sub of this Agreement, the performance by Group 1 and Acquisition Sub of their obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Group 1 and Acquisition Sub at the Closing have been duly and validly authorized by all requisite corporate action on the part of Group 1 and Acquisition Sub. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Group 1 and Acquisition Sub at, or prior to, the Closing will then be, duly executed and delivered by Group 1 and Acquisition Sub. This Agreement constitutes, and, to the extent it purports to obligate Group 1 and Acquisition Sub, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Group 1 and Acquisition Sub, enforceable against them in accordance with its terms. 5.3 Approvals. Except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Group 1 and Acquisition Sub, to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by Group 1 and Acquisition Sub at or prior to the Closing. 5.4 Absence of Conflicts. Neither the execution and delivery by Group 1 and Acquisition Sub of this Agreement or any instrument required hereby to be executed by them at or prior to the Closing nor the performance by Group 1 and Acquisition Sub of their obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (ii) the organizational documents of Group 1 and Acquisition Sub or (iii) any contract or agreement to which Group 1 and Acquisition Sub are parties or by which they or any of their property is bound, or (b) result in the creation or imposition of any Liens on any of the properties or assets of Group 1 and Acquisition Sub (other than any Lien created by the Company), or (c) result in the cancellation, -17- 22 forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Group 1 and its subsidiaries, taken as a whole. 5.5 Authorization For Group 1 Common Stock. All shares of Group 1 Common Stock issuable pursuant to the Acquisition are duly authorized and will, when issued, be validly issued, fully paid and nonassessable and not issued in violation of the preemptive rights of any stockholder of Group 1. 5.6 SEC Documents. The SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1933 and 1934 and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Group 1 included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Group 1 and its consolidated subsidiaries as of the dates thereto and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information, for normal year-end adjustments). ARTICLE VI COVENANTS OF THE OWNERS 6.1 Acquisition Proposals. Prior to the Closing Date, neither the Company or the General Partner, any of their officers, directors, employees or agents nor any Owner shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion of the assets of, or a substantial equity interest in, the Company or the General Partner, other than the transactions with Group 1 contemplated by this Agreement. 6.2 Access. The Company shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all its properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Group 1 any information concerning its business, properties and personnel as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by the Owners pursuant to this Agreement. -18- 23 6.3 Conduct of Business by the Company Pending the Acquisition. The Owners covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of the Company and the General Partner shall be conducted only in, and the Company and the General Partner shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that the Company may dealer trade vehicles for similar models, but the Company shall not liquidate or otherwise dispose of any of its new vehicles other than in the ordinary course of business to retail buyers. The Company shall maintain its advertising expenditures and activities commensurate with prior business practices. The Company shall not advertise a "Going Out of Business" sale; (b) The Company and the General Partner shall not, directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of the General Partner or partnership interests of the Company or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any assets of the Company, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of the General Partner or the limited partnership agreement of the Company, (iii) split, combine or reclassify any outstanding capital stock of the General Partner or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to the capital stock of the General Partner whether now or hereafter outstanding, (iv) redeem, purchase or acquire or offer to acquire any of the capital stock of the General Partner or any partnership interests of the Company, (v) create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business) after November 30,1997 in excess of the cash consideration to be paid to the Owners at Closing for their limited partnership interests as set forth in Exhibit A attached hereto, or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) The Company shall use its best efforts (i) to preserve intact the business organization of the Company, (ii) to maintain in effect any franchises, authorizations or similar rights of the Company, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. -19- 24 (d) The Company shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $50,000; (e) The Company shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as the Company in good faith may dispute; (f) The Company shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of the Company other than normal, annual compensation increases consistent with the Company's past practices; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $5,000; (g) The Company shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Acquisition set forth in Article VIII not being satisfied; provided, however, that no such notification shall affect the representations or warranties or covenants or agreements of the parties or the conditions to the obligations of the parties hereunder; (h) The Company shall not (i) amend or terminate any Plan or Benefit Program or Agreement except as may be required by applicable law, (ii) increase or accelerate the payment or vesting of the amounts payable under any Plan or Benefit Program or Agreement, or (iii) adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, program, practice or understanding (other than the Plans and the Benefit Programs or Agreements); (i) The Company shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; and (j) The Owners shall be entitled to a distribution, in cash, in amounts required to cause the net book values on a tax accounting basis of the Company and the General Partner at the end of the month prior to the Closing Date to equal zero. (k) The Owners will not revoke the Company's election to be taxed as an S corporation within the meaning of sections 1361 and 1362 of the Code. 6.4 Confidentiality. The Owners shall, and the Owners shall cause the Company's and the General Partner's officers, directors, employees, representatives and consultants, to hold in confidence, and not to disclose to others for any reason whatsoever, any non-public information -20- 25 received by them or their representatives in connection with the transactions contemplated hereby, including but not limited to all terms, conditions and agreements related to this transaction, except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of the Company and the General Partner as necessary in connection with the transactions contemplated hereby; and (iii) for information which becomes publicly available other than through the actions of the Company, the General Partner or an Owner. In the event the Acquisition is not consummated, the Company, the General Partner and the Owners will return all non-public documents and other material obtained from Group 1 or its representatives in connection with the transactions contemplated hereby or certify to Group 1 that all such information has been destroyed. 6.5 Notification of Certain Matters. The Owners shall give prompt notice to Group 1, orally and in writing, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing, (ii) any failure of the Company, or any officer, director, employee or agent thereof, or any Owner to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (iii) any litigation, or any claim or controversy or contingent liability of which the Company or any Owner has knowledge of that might reasonably be expected to become the subject of litigation, against the Company or the General Partner or affecting any of their assets, in each case in an amount in controversy in excess of $50,000, or that is seeking to prohibit or restrict the transactions contemplated hereby. 6.6 Consents. Subject to the terms and conditions of this Agreement, the Company and the General Partner shall (i) obtain all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on the Company, the General Partner or Group 1), authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 6.7 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, the Company and the Owners shall cooperate and use reasonable efforts to cooperate in the defense against and response thereto. Costs, including attorneys' fees, associated with any such defense will be borne by Group 1. 6.8 Owners' Agreements Not to Sell. Each of the Owners hereby covenants and agrees not to sell, pledge, transfer or dispose of or encumber any shares of Common Stock of the General Partner or limited partnership interests of the Company currently owned, either beneficially or of record, by such Owner, except under this Agreement. 6.9 Intellectual Property Matters. The Company shall use its best efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or -21- 26 domestic patent, trademark, service mark, trade name or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. 6.10 Removal of Related Party Guarantees. The Owners agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all Company guarantees (such guarantees shall be referred to herein as "Related Guarantees", as described in Schedule 6.10 pursuant to Section 3.9 of this Agreement) of indebtedness or other obligations of any of the Company's or the General Partner's officers, directors, shareholders or employees or their affiliates. 6.11 Termination of Related Party Agreements. The Owners agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.11 as agreements that shall not be subject to this Section 6.11. 6.12 Related Party Agreements. The Owners agree to cause the Company and the General Partner not to enter into any Related Party Agreements or engage in any transactions with the Owners or their affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.12 as agreements or transactions that shall not be subject to this Section 6.12. 6.13 Release. (a) AS OF THE CLOSING, EACH OF THE OWNERS DOES HEREBY FOR HIMSELF OR HIS HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE THE COMPANY AND THE GENERAL PARTNER OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH EACH OF SUCH OWNERS NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST THE COMPANY OR THE GENERAL PARTNER INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF THE COMPANY OR THE GENERAL PARTNER AND THEIR EMPLOYEES AND AGENTS, EXISTING AS OF THE CLOSING OR RELATING TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT; AND PROVIDED FURTHER ANY LIABILITIES UNDER PLANS OR BENEFIT PROGRAMS OR AGREEMENTS LISTED ON THE SCHEDULES HERETO SHALL NOT BE RELEASED. (b) EACH OF THE OWNERS REPRESENTS AND WARRANTS THAT HE HAS NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS RELEASED HEREIN. EACH OF THE OWNERS COVENANTS AND AGREES THAT HE WILL NOT ASSIGN -22- 27 OR TRANSFER TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS TO BE RELEASED HEREIN. EACH OF THE OWNERS REPRESENTS AND WARRANTS THAT HE HAS READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 6.13 AND THAT HE HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT. 6.14 Certain Tax Matters. (a) The Owners agree to use the amounts reflected on Exhibit A hereto for purposes of preparation of their Tax Returns. With respect to the shares of Group 1 Common Stock received by the Owners, $14.00 per share will be used for purposes of determining the value of the stock portion of the purchase price. (b) The Owners shall (i) file all required 1998 federal income tax returns relating to their ownership of the General Partner and the Company within seventy-five (75) days after the Closing Date; (ii) use an interim closing of the books of the General Partner and the Company effective as of the Closing Date for the purposes of preparing such returns; and (iii) deliver such returns to Group 1 for its review at least five (5) days prior to the filing of such returns. 6.15 Section 338(h)(10) Elections. (a) The Owners and Group 1 shall join in making a timely, irrevocable and effective election under section 338(h)(10) of the Code and a similar election under any applicable state income tax law (collectively the "Section 338(h)(10) Elections") with respect to Group 1's purchase of the Common Stock of the General Partner. To facilitate such election, at the Closing the Owners shall deliver to Group 1 an Internal Revenue Service Form 8023 and any similar forms under applicable state income tax law (the "Forms") with respect to Group 1's purchase of the Common Stock of the General Partner, which Forms shall have been duly executed by an authorized person for the Owners. Group 1 shall cause the Forms to be duly executed by an authorized person for Group 1, shall complete the schedules required to be attached thereto, shall provide a copy of the executed Form and schedules to the Owners, and shall duly and timely file the Forms as prescribed by Treasury Regulation 1.338(h)(10)-1 or the corresponding provisions of applicable state income Tax law. None of the Owners or Group 1 shall take any action to rescind, revoke or modify the Section 338(h)(10) Election without the prior written approval of the other party. Group 1 shall be responsible for any Texas franchise Tax on the deemed gain triggered by the Section 338(h)(10) Elections. (b) The Owners and Group 1 shall jointly determine the liabilities of the General Partner and allocate the purchase price, such liabilities, and other relevant items in accordance with the Code and the Treasury Regulations promulgated thereunder. The Owners and Group 1 shall jointly prepare all schedules required to be attached to the Forms (the "Form Schedules"). The Owners and Group 1 shall prepare all relevant Tax Returns in a manner consistent with the Form Schedules. With respect to any items included in the Form Schedules as to which Group 1 and the Owners are unable to jointly agree, the -23- 28 allocation proposed by Group 1 shall be reflected on the Form Schedules. The parties have previously reviewed and examined the tangible personal property and other assets of the Company, and agree that the fair market value of such assets at the Closing Date will be equal to each such asset's adjusted tax basis, net of depreciation for the Company's tax period ending on the Closing Date. The balance of the purchase price will be attributed to the goodwill of the Company. 6.16 Section 754 Election. If requested in writing to do so by Group 1, the Owners and the Company will elect under section 754 of the Code and Treasury Regulations Section 1.754-1(b)(1) to apply the provisions of section 734(b) of the Code and section 743(b) of the Code. 6.17 Employment Agreement. Thomas Nyle Maxwell, Jr. agrees to enter into, on or prior to the Closing Date, an employment agreement with Group 1 in form and substance substantially similar to Exhibit B attached hereto. 6.18 Consulting Agreements. Thomas Nyle Maxwell, Sr. and Clarence J.Kellerman agree to enter into, on or prior to the Closing Date, a consulting agreement with Group 1 in form and substance substantially similar to Exhibit C attached hereto. ARTICLE VII COVENANTS OF GROUP 1 7.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence all, and not to disclose to others for any reason whatsoever, any non-public information received by it or its representatives in connection with the transactions contemplated hereby except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Group 1 as necessary in connection with the transactions contemplated hereby or as necessary to the operation of Group 1's business; and (iii) for information which becomes publicly available other than through the actions of Group 1. In the event the Acquisition is not consummated, Group 1 will return all non-public documents and other material obtained from the Company or its representatives in connection with the transactions contemplated hereby or certify to the Company that all such information has been destroyed. 7.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for issuance and shall issue, out of its authorized but unissued capital stock, such number of shares of Group 1 Common Stock as may be issuable upon consummation of the Acquisition. 7.3 Consents. Subject to the terms and conditions of this Agreement, Group 1 shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. -24- 29 7.4 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, Group 1 agrees to cooperate and use reasonable efforts to cooperate in the defense against and response thereto. Costs, including attorneys' fees, associated with any such defense will be borne by Group 1. 7.5 Tax Valuation. Group 1 agrees to use the amounts reflected on Exhibit A hereto for purposes of preparation of its Tax Returns. With respect to the shares of Group 1 Common Stock received by the Owners, $14.00 per share will be used for purposes of determining the value of the stock portion of the purchase price. 7.6 Guaranteed Price. If an Owner sells any of the Group 1 Common Stock received by such Owner pursuant to this Agreement for a per share price of less than fourteen dollars ($14.00), subject to adjustment for stock splits and stock dividends, Group 1 shall pay in cash the difference between the purchase price for shares sold and the price such Owner would have received if the shares were sold at $14.00 per share, subject to adjustment for stock splits and stock dividends; provided, that this Section 7.6 shall only apply to sales (i) occurring after the expiration of the Restricted Period and (ii) made in the public market; and provided, further that this Section 7.6 shall terminate on the date six years after the expiration of the Restricted Period. 7.7 Removal of Personal Guarantees. Group 1 will use commercially reasonable efforts to have all personal guarantees of any of the Company's or the General Partner's officers, directors, shareholders or partners of any obligation of the Company or the General Partner terminated, waived or released. ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition. The respective obligations of each party to effect the Acquisition shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Acquisition; (b) There shall have been obtained any and all permits, approvals and consents of securities or "blue sky" commissions of each jurisdiction and of any other governmental agency or authority, with respect to the consummation of the Acquisition; (c) The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated; and -25- 30 (d) Chrysler Corporation shall have approved the Acquisition and the transactions contemplated thereby. 8.2 Additional Conditions Precedent to Obligations of Group 1. The obligation of Group 1 to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of the Owners contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all of the terms, covenants and conditions of this Agreement to be complied with and performed by the Company and the Owners on or before the Closing Date shall have been duly complied with and performed in all respects, and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of the Company and each of the Owners shall have been delivered to Group 1. (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Acquisition and the transactions contemplated thereby will be in compliance with applicable laws. (c) Group 1 shall have received evidence, satisfactory to Group 1, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.10 and 6.11 hereto. (d) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of the Company shall have occurred, and the Company shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of the Company and Group 1 shall have received a certificate signed by the chief executive officer of the Company and the Owners dated the Closing Date to such effect. (e) Receipt by Group 1 of an employment agreement executed by Thomas Nyle Maxwell, Jr., in form and substance substantially similar to Exhibit B hereto; (f) Satisfaction or waiver of the conditions set forth in Article VIII of each of the Other Agreements. (g) Receipt by Group 1 of consulting agreements executed by each of Thomas Nyle Maxwell, Sr. and Clarence J. Kellerman in form and substance substantially similar to Exhibit C hereto. (i) Group 1 shall have received, at Group 1's expense, a current survey of the Owned Properties showing the location of any improvements, prepared by a licensed surveyor approved by Group 1. -26- 31 (j) Receipt by Group 1 of the consent of Chrysler Realty Corporation, as lessor to the Company, under that certain Dealer Lease Agreement dated August 19, 1993, to this Agreement and the transactions contemplated hereby; and 8.3 Additional Conditions Precedent to Obligations of the Owners. The obligation of the Owners to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following condition: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects; and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to the Owners. (b) Receipt by Thomas Nyle Maxwell, Jr. of an employment agreement executed by Group 1, in form and substance substantially similar to Exhibit B hereto. (c) Receipt by Thomas Nyle Maxwell, Sr. and Clarence J. Kellerman of consulting agreements executed by Group 1 in form and substance substantially similar to Exhibit C hereto. (d) Satisfaction or waiver of the conditions set forth in Article VIII of each of the Other Agreements. ARTICLE IX INDEMNIFICATION 9.1 Agreement by the Owners to indemnify. Each of the Owners agrees to severally indemnify, defend and hold Group 1 harmless (subject to the limitations set forth in Section 9.1(e) below) from and against the aggregate of all Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Indemnifiable Damages" means, without duplication, the aggregate of all actual expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, related counsel and paralegal fees and expenses) incurred or suffered by Group 1, on a pre-tax consolidated basis to the extent (i) resulting from any breach of a representation or warranty made by the Owners in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by the Owners pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by the Company or any of the Owners pursuant to this Agreement. (b) Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Group 1 shall have the right to be put in the same pre-tax consolidated financial position as Group 1 would have been in had each of the -27- 32 representations and warranties of the Owners hereunder been true and correct and had the covenants and agreements of the Company and the Owners hereunder been performed in full. (c) Each of the representations and warranties made by the Owners in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date except the representations and warranties of the Owners contained in Section 3.11 which shall survive for the period of the statute of limitations and Sections 3.1, 3.2, 3.3, 3.4, 3.5, 4.1, 4.2, 4.3 and 4.4, which shall not terminate, but shall continue indefinitely. No claim for the recovery of Indemnifiable Damages may be asserted by Group 1 against the Owners after such representations and warranties shall expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) If Group 1 believes it is entitled to a claim for any Indemnifiable Damages hereunder, Group 1 shall promptly give written notice to the Owners of such claim and the amount or the estimated amount of such claim, and the basis for such claim. If the Owners do not pay the amount of the claim for Indemnifiable Damages to Group 1 within 10 days, then Group 1 may exercise its respective rights under Section 9.4 and/or take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.1, the Owners' liability for Indemnifiable Damages shall be limited as follows: (1) Group 1 shall have no claim for Indemnifiable Damages unless and until all Indemnifiable Damages incurred by Group 1 exceed an aggregate of $270,000.00 with respect to this Agreement and the Other Agreements (the "Basket Amount"), in which event the Owners shall be liable for only such Indemnifiable Damages in excess of the Basket Amount; and (2) the total amount of Indemnifiable Damages for which each Owner shall be liable to Group 1 shall not exceed the value of the consideration by such Owner received in the Acquisition as provided on Exhibit A, of which the stock portion shall be valued at $14.00 per share. The Owners acknowledge and agree that for purposes of the Basket Amount, Indemnifiable Damages under the Other Agreements will affect their obligation to indemnify Group 1 under this Agreement, even though the Owners may own differing percentages of the dealerships being acquired by Group 1 pursuant to the Other Agreements. For example, -28- 33 if claims for Indemnifiable Damages under one of the Other Agreements equal or exceed $270,000, then the Owners under this Agreement will be obligated to indemnify Group 1 for claims for all amounts without the benefit of any Basket Amount. 9.2 Agreement by Group 1 to indemnify. Group 1 agrees to indemnify, defend and hold the Owners harmless from and against the aggregate of all Owners Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Owners Indemnifiable Damages" means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including, without limitation, reasonable related counsel and paralegal fees and expenses) incurred or suffered by the Owners, on a pre-tax consolidated basis, to the extent (i) resulting from any breach of a representation or warranty made by Group 1 in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by Group 1 in or pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by Group 1 pursuant to this Agreement. (b) Without limiting the generality of the foregoing, with respect to the measurement of Owners Indemnifiable Damages, the Owners have the right to be put in the same pre-tax consolidated financial position as he, she or it would have been in had each of the representations and warranties of Group 1 hereunder been true and correct and had the covenants and agreements of Group 1 hereunder been performed in full. (c) Each of the representations and warranties made by Group 1 in this Agreement or pursuant hereto shall survive indefinitely after the Closing Date, except for the representation and warranty of Group 1 contained in Section 5.6 hereof which shall survive for a period of three years after the Closing Date, after which date it shall terminate. No claim for the recovery of Owners Indemnifiable Damages may be asserted by the Owners against Group 1 after such representations and warranties shall thus expire, provided, however, that claims for Owners Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation, each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) In the event that the Owners believe they are entitled to a claim for any Owners Indemnifiable Damages hereunder, the Owners shall promptly give written notice to Group 1 of such claim and the amount or the estimated amount of such claim, and the basis for such claim. 9.3 Conditions of Indemnification. The obligations and liabilities of the Owners and Group 1 hereunder with respect to their respective indemnities pursuant to this Article IX resulting from any claim or other assertion of liabilities by third parties (hereinafter called collectively "Claims"), shall be subject to the following terms and conditions: -29- 34 (a) the party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claim 10 business days after the Indemnified Party receives notice thereof (provided that failure to give notice within such 10 day period does not relieve the Indemnifying Party of his obligations to indemnify the Indemnified Party hereunder, except to the extent that such Indemnifying Party is harmed by the failure of the Indemnified Party to provide timely notice); (b) the Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claim; provided, however, if a Claim is made against Group 1, then Group 1 shall have the right to control the defense of the Claim; (c) if the Indemnifying Party shall elect not to undertake such defense, or within a reasonable time after notice of any such Claim from the Indemnified Party shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claim at any time prior to settlement, compromise or final determination thereof); (d) anything in this Section 9.3 to the contrary notwithstanding, (A) the Indemnified Party shall have the right, at its own cost and expense, to have its own counsel to protect its own interests and participate in the defense, compromise or settlement of the Claim, (B) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claim or consent to entry of any judgement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim, and (C) the Indemnified Party, by counsel or other representatives of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claim, and the Indemnifying Party and the Indemnified Party and their respective counsel shall cooperate with respect to such Claim. ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. The Schedules to this Agreement, contain all disclosure required to be made by the Owners under the various terms and provisions of this Agreement. 10.2 Non-Competition Obligations. (a) As part of the consideration for the Acquisition, and as an additional incentive for Group 1 to enter into this Agreement, Thomas Nyle Maxwell, Jr. (the "Designated Owner") and Group 1 agree to the non- competition provisions of this Section 10.2. The Designated Owner agrees that during the period of the Designated Owner's non-competition obligations hereunder, the Designated Owner will not, directly or indirectly for the -30- 35 Designated Owner or for others, within twelve miles of, in the county of or in any manufacturers' designated primary market area adjacent to the location of the operations sold to Group 1 pursuant to this Agreement or operations subsequently managed by the Designated Owner as of the date in question or during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, including financing, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Group 1 or any of its subsidiaries or affiliates. These non-competition obligations shall apply until the later of (i) five years after the Closing or (ii) the period specified in any employment agreement entered into by such Designated Owner with Group 1 or its subsidiaries. During this non-competition period the Designated Owner will not engage in these restricted activities as provided above, or with respect to the industry consolidation efforts of any publicly held entity in the automotive retailing industry (or any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity) assist in any such efforts, regardless of the geographic area or market. If Group 1 or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this non-competition covenant shall not apply to such former aspect of that business. (b) The Designated Owner understands that the foregoing restrictions may limit their ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that the Designated Owner will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. The Designated Owner acknowledges that money damages would not be sufficient remedy for any breach of this Section 10.2 by the Designated Owner, and Group 1 or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Section 10.2 by terminating any payments then owing to the Designated Owner under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Section 10.2, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Group 1 and the Designated Owner's agents involved in such breach. -31- 36 (c) It is expressly understood and agreed that Group 1 and the Designated Owner consider the restrictions contained in this Section 10.2 to be reasonable and necessary to protect the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 10.3 Termination. This Agreement may be terminated and the Acquisition and the other transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual consent of Group 1 and the Owners; (b) by either Group 1 or the Owners if the Acquisition has not been effected on or before February 28, 1998; (c) by Group 1 if the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate under this Section 10.3(c) shall expire at midnight on January 31, 1998; (d) by either Group 1 or the Owners if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Acquisition or the other transactions contemplated hereby shall have been entered; (e) by Group 1 if (i) since the date of this Agreement there has been a material adverse change in the business operations or financial condition of the Company; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by the Company or the Owners which breach has not been cured within ten business days following receipt by the Company of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the pre-tax income expected for the Company, on which the purchase price of the acquisition was based; or (f) by the Owners if there has been a material breach of any representation or warranty set forth in this Agreement by Group 1 which breach has not been cured within ten business days following receipt by Group 1 of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice). 10.4 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.3, the Owners and Group 1 shall have no obligation or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1, 7.4 and 10.5 survive any such termination. -32- 37 10.5 Expenses. Regardless of whether the Acquisition is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby incurred by Group 1 shall be paid by Group 1 and all such costs and expenses incurred by the Owners shall be paid by the Owners except that all audit, appraisal and Phase I Environmental Surveys costs and expenses shall be reimbursed by Group 1 upon execution of this Agreement; provided, however,that the Owners shall reimburse Group 1 for the amount of audit fees and audit expenses reimbursed to them if the Acquisition is not completed and the audited financial statements or the audit workpapers created in the performance of the audits are used by the Owners, directly or indirectly, in any financing transaction, merger or acquisition involving the Company or any of the parties to the Other Agreements. The Owners and Group 1 each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.6 Restrictions on Transfer of Group 1 Common Stock. (a) During the one-year period ending on the anniversary of the Closing Date (the "Restricted Period"), no Owner voluntarily will: (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of Group 1 Common Stock received by any Owner in the Acquisition or (B) any interest in (including any option to buy or sell) any of those shares of Group 1 Common Stock, in whole or in part, and Group 1 will have no obligation to, and shall not, treat any such attempted transfer as effective for any purpose; or (ii) engage in any transaction, whether or not with respect to any shares of Group 1 Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning the shares of Group 1 Common Stock acquired pursuant to this Agreement (including for example engaging in put, call, short-sale, straddle or similar market transactions). Notwithstanding the foregoing, each Owner may (i) pledge shares of Group 1 Common Stock, provided that the pledgee of such shares shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (ii) transfer shares to immediate family members or the estate of any such individual (including, without limitation, any transfer by such Owner to or among any family limited partnership, trust, custodial or other similar accounts, arrangements, transfers or funds that are for the benefit of his or her immediate family members), provided that such person or entity shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; and (iii) transfer shares by will or the laws of descent and distribution or otherwise by reason of such Owner's death. The certificates evidencing the Group 1 Common Stock delivered to each Owner pursuant to this Agreement will bear a legend substantially in the form set forth below and containing such other information as Group 1 may deem necessary or appropriate: EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF -33- 38 THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. (b) Each Owner, severally and not jointly with any other Person, (i) acknowledges that the shares of Group 1 Common Stock to be delivered to that Owner pursuant to this Agreement have not been and, if applicable, will not be registered under the Securities Act and therefore may not be resold by that Owner without compliance with the Securities Act and (ii) covenants that none of the shares of Group 1 Common Stock issued to that Owner pursuant to this Agreement will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all the applicable provisions of the Securities Act and the rules and regulations of the Commission and applicable state securities laws and regulations. All certificates evidencing shares of Group 1 Common Stock issued pursuant to this Agreement will bear the following legend in addition to the legend prescribed by Section 10.6(a): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." In addition, certificates evidencing shares of Group 1 Common Stock issued pursuant to the Acquisition to each Owner will bear any legend required by the securities or blue sky laws of the state in which that Owner resides. 10.7 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is, or whose Owners are, entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. 10.8 Public Statements. The Owners and Group 1 agree to consult with each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law. 10.9 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other -34- 39 parties hereto; provided, however that Group 1 and Acquisition Sub may assign their rights and obligations hereunder to one or more of their affiliates (except that no such assignment shall relieve Group 1 or Acquisition Sub of its obligations hereunder and Group 1 and Acquisition Sub shall remain liable for the performance of their obligations hereunder. 10.10 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: if to the Owners: Thomas Nyle Maxwell, Jr. P.O. Box 203605 Austin, Texas 78720 Telecopy: (512) 219-3618 with a copy to: Porter & Hedges, L.L.P. 111 Congress, Suite 1055 Austin, Texas 78701 Telecopy: (512) 479-7504 Attention: James L. Montgomery if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.10. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Delivery to the Owners' representative, if any, of any notice to Owners hereunder shall constitute delivery to all Owners and any notice given by such Owners' representative shall be deemed to be notice given by all Owners. -35- 40 10.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.14 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10.15 Third Party Beneficiaries. Neither this agreement nor any document delivered in connection with this Agreement, confers upon any Person not a party hereto any rights or remedies hereunder. -36- 41 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ JOHN T. TURNER ---------------------------------------- Name: John T. Turner Title: Senior Vice President RRN MERGER CORP. By: /s/ JOHN T. TURNER ---------------------------------------- Name: John T. Turner Title: Senior Vice President OWNERS /s/ THOMAS NYLE MAXWELL, JR. -------------------------------------------- THOMAS NYLE MAXWELL, JR. /s/ THOMAS NYLE MAXWELL, SR. -------------------------------------------- THOMAS NYLE MAXWELL, SR. /s/ CLARENCE J. KELLERMAN, TRUSTEE -------------------------------------------- CLARENCE J. AND BERNADETTE M. KELLERMAN TRUST /s/ ALBERT G. MAXWELL -------------------------------------------- ALBERT G. MAXWELL -37- 42 EXHIBIT A
Consideration for Stock of General Consideration for Limited Partner Partnership Interests ----------------- -------------------------- Shares of Common Limited Shares of Stock of the Partnership Group 1 General Interests of the Common Owners Partner Cash Company Stock(1) Cash - ------------------------- --------- ---------- --------------- --------- ----------- Thomas Nyle Maxwell, Jr. 5,000 $25,070 39.60% 86,137 $1,276,020 Thomas Nyle Maxwell, Sr. 2,500 $12,214 19.80% 25,841 $ 847,411 Clarence J. & Bernadette M. Kellerman Trust 2,500 $12,214 19.80% 25,841 $ 847,411 Albert G. Maxwell -0- -0- 19.80% 42,532 $ 642,433
______________ (1) As may be appropriately adjusted for stock splits and/or stock dividends. To the extent distributions made pursuant to Section 6.3(j) reduce the net book value of the Company and the General Partner at the end of the month prior to the Closing Date to amounts less than the net book values reflected on the May 31, 1997 manufacturer statements and the General Partner statement, the cash consideration for the limited partnership interests and General Partner stock set forth above shall be reduced proportionately. Group 1 shall provide at its expense at Closing an opinion of a nationally recognized firm, chosen by Group 1, that is experienced in valuation of entities and securities as to whether the shares of Group 1 Common Stock issued to the Owners at Closing have a value of more than $14.00 per share, and if the value is more than $14.00 per share, the value in excess of $14.00 per share. If the opinion values the Group 1 Common Stock received at Closing by the Owners in excess of $14.00 per share, Group 1 will pay to the Owners interest at the rate of 10% on the "Incremental Tax Liability" for a period of six months beginning April 15, 1999. "Incremental Tax Liability" means the amount by which the Owners' federal income tax liability with respect to the shares of Group 1 Common Stock received at Closing exceeds the amount of any such tax liability had the shares of Group 1 Common Stock been valued at $14.00 per share at Closing. -1- 43 ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Agreement shall have the meanings set forth below unless the context shall otherwise require: "Aboveground Storage Tanks" and "Underground Storage Tanks" shall have the meanings given them in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree, as in effect as of the Closing Date, governing Aboveground Storage Tanks or Underground Storage Tanks. "affiliate" shall mean, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. "Agreement" shall mean the Purchase Agreement made and entered into as of December ___, 1997 by and among Group 1, Acquisition Sub and the Owners, including any amendments thereto and each Annex (including this Annex A), Exhibit and schedule thereto (including the Schedules). "Assets" shall mean all of the properties and assets owned by the Company, other than the Owned Properties, whether personal or mixed, tangible or intangible, wherever located. "Benefit Program or Agreement" shall have the meaning set forth in Section 3.15. "Business Day" means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. "Closing" shall mean a meeting, which shall be held in accordance with Section 2.2, of representatives of the parties to the Agreement at which, among other things, all documents deemed necessary by the parties to the Agreement to evidence the fulfillment or waiver of all conditions precedent to the consummation of the transactions contemplated by the Agreement are executed and delivered. "Closing Date" shall mean the date of the Closing as determined pursuant to Section 2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Company" shall mean Prestige Chrysler Plymouth Northwest, LTD, a Texas limited partnership, all predecessor entities of the Company and its successors from time to time. "Common Stock of the General Partner" shall mean the common stock, no par value, of the General Partner. -1- 44 "Company 1996 Balance Sheet" shall have the meaning set forth in Section 3.6 herein. "Company 1996 Financial Statements" shall have the meaning set forth in Section 3.6 herein. "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Designated Owner" shall have the meaning set forth in Section 10.2 herein. "Environmental Laws" shall mean all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, as in effect on the Closing Date, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the Regulations promulgated thereunder. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder. "Fixed Assets" shall mean all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures owned by the Company or set forth on the Interim Balance Sheet or acquired by the Company since the date of the Interim Balance Sheet. "Forms" shall have the meaning set forth in Section 6.15 herein. "Form Schedules" shall have the meaning set forth in Section 6.15 herein. "GAAP" shall mean accounting principles generally accepted in the United States as in effect from time to time consistently applied by a specified Person. "General Partner" shall mean MMK Interests, Inc., a Texas corporation. -2- 45 "Governmental Authority" shall mean any governmental agency or authority (other than a Court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. "Guarantees" shall have the meaning set forth in Section 3.9 herein. "Hazardous Substance" shall mean any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, metals, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires remediation under any Environmental, Health and Safety Laws in effect on the Closing Date, including, without limitation, the United States Department of Transportation Table (49 CFR 172, 101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and any amendments thereto; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state statute or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnifiable Damages" shall have the meaning set forth in Section 9.1 herein. "Indemnified Party" shall have the meaning set forth in Section 9.3 herein. "Indemnifying Party" shall have the meaning set forth in Section 9.3 herein. "Intellectual Property" shall mean all patents, trademarks, copyrights and other proprietary rights. "IRS" shall mean the Internal Revenue Service. -3- 46 "Law" shall mean all laws, statutes, ordinances, rules and regulations of the United States, any foreign country, or any domestic or foreign state, and any political subdivision or agency thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Leased Property" and "Leased Properties" have the meaning set forth in Section 3.16 herein. "Licenses" shall mean all licenses, certificates, permits, approvals and registrations. "Lien" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Law of any jurisdiction. "Material Contract" has the meaning set forth in Section 3.9 herein. "Material Leases" shall have the meaning set forth in Section 3.9 herein. "Order" shall mean any judgment, order or decree of any Court or Governmental Authority, federal, foreign, state or local. "Owned Property" and "Owned Properties" have the meaning set forth in Section 3.16 herein. "Owners Indemnifiable Damages" shall have the meaning set forth in Section 9.2 herein. "Permitted Encumbrances" shall mean the following: (1) liens for taxes, assessments and other governmental charges not delinquent or which are currently being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (2) mechanics' and materialmen's liens not filed of record and similar charges not delinquent or which are filed of record but are being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (3) liens in respect of judgments or awards with respect to which the specified Person shall in good faith currently be prosecuting an appeal or other proceeding for review and with respect to which such Person shall have secured a stay of execution pending such appeal or such proceeding for review; provided that such Person shall have set aside on its books adequate reserves with respect thereto; (4) easements, leases, reservations or other rights of others in, or minor defects and irregularities in title to, property or assets of a specified Person; provided that such easements, leases, reservations, rights, defects or irregularities do not materially impair the use of such property or assets for the purposes for which they are held; and -4- 47 (5) any lien or privilege vested in any lessor, licensor or permittor for rent or other obligations of a specified Person thereunder so long as the payment of such rent or the performance of such obligations is not delinquent. "Person" shall mean an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Court or Governmental Authority. "Phase I Environmental Surveys" shall mean the Entrix reports dated October, 1997. "Plan" shall have the meaning set forth in Section 3.15. "Related Party Agreements" shall have the meaning set forth in Section 3.19 herein. "Release" and "Discharge" shall have the meanings given them in the Environmental, Health and Safety Laws "Reports" shall mean, with respect to a specified Person, all reports, registrations, filings and other documents and instruments required to be filed by the specified Person or any of its Subsidiaries with any Governmental Authority. "Restricted Period" shall have the meaning set forth in Section 10.6 herein. "SEC Documents" shall mean the Group 1 Prospectus dated October 29, 1997 and the Form 10-Q for the third quarter ended September 30, 1997. "Section 338(h)(10) Election" shall have the meaning set forth in Section 6.15 herein. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. A "Subsidiary" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. "Tax Returns" shall mean all returns, reports and filings relating to Taxes. "Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, payroll and franchises imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments -5- 48 or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof. "Terminated Benefit Plans" shall mean Benefit Plans that were sponsored, maintained, or contributed to by a specified Person or any of its Subsidiaries within six years prior to the date of the Agreement but which have been terminated prior to the date of the Agreement. "Waste" shall mean toxic agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash; provided, however, the term "Waste" shall not include scrap metal. -6- EX-10.50 21 ASSET PURCHASE AGREEMENT - CASA CHEVROLET 1 EXHIBIT 10.50 ASSET PURCHASE AGREEMENT AMONG GROUP 1 AUTOMOTIVE, INC., CASA CHEVROLET INC., A WHOLLY OWNED SUBSIDIARY OF GROUP 1 AUTOMOTIVE, INC., UNITED MANAGEMENT, INC., AND THE STOCKHOLDERS OF UNITED MANAGEMENT, INC. DATED AS OF February 25, 1998 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II THE ACQUISITION 2.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Working Capital Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Group 1 Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.4 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.5 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS 3.1 Approval and Authority; Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2 Authorization of Agreement - No Violation - No Consents . . . . . . . . . . . . . . . . . . . . . . . 7 3.3 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.5 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.6 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.7 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.8 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.11 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.12 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.13 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.14 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.15 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.16 Affiliate Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.17 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.18 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.19 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.20 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.21 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.22 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.23 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.24 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-i- 3 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS 4.1 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.5 Authorization For Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VI COVENANTS OF THE SELLER AND THE STOCKHOLDERS 6.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.3 Conduct of Business by Seller Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . . . 19 6.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.5 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.10 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.11 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.12 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.13 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.15 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.16 Audit of Seller Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.17 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.18 Record Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-ii- 4 ARTICLE VII COVENANTS OF PURCHASER 7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.5 New Limited Partnership Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.6 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.8 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.9 Security for Newco Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 26 8.2 Additional Conditions Precedent to Obligations of Purchaser . . . . . . . . . . . . . . . . . . . . 26 8.3 Additional Conditions Precedent to Obligations of Seller and the Stockholders . . . . . . . . . . . 27 ARTICLE IX INDEMNIFICATION 9.1 Agreement by Seller and the Stockholders to Indemnify . . . . . . . . . . . . . . . . . . . . . . . 28 9.2 Agreement by Purchaser to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 9.4 Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 9.5 Statutory Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.2 Certain Post-Closing Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.3 Certain Repurchase Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.4 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.6 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.8 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.9 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.10 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.16 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-iii- 5 GROUP 1 AUTOMOTIVE, INC. ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this "Agreement"), dated as of the 25th day of February, 1998, is among GROUP 1 AUTOMOTIVE, INC., a Delaware corporation ("Group 1"), CASA CHEVROLET INC. a New Mexico corporation and a wholly owned subsidiary of Group 1 ("Newco," and together with Group 1, "Purchaser"), UNITED MANAGEMENT, INC., a New Mexico corporation ("Seller"), and THE STOCKHOLDERS OF SELLER (each a "Stockholder" and collectively the "Stockholders") set forth on the signature page hereof. RECITALS: WHEREAS, Seller is presently a party to a Sales and Service Agreement with General Motors Corporation (the "Manufacturer"), which provides for the sale and service of Chevrolet vehicles ("Acquired Dealership") at 7201 Lomas NE, Albuquerque, New Mexico (the "Acquired Dealership Location"); WHEREAS, Purchaser wishes to acquire the Assets (as hereinafter defined) of the Acquired Dealership for the purpose of succeeding Seller as the authorized Chevrolet dealer at the Acquired Dealership Location (the "Acquisition"); WHEREAS, Group 1 has formed Newco to acquire the Assets; WHEREAS, the parties hereto have executed an agreement substantially similar to this Agreement (the "Other Agreement") dated as of the date hereof by and among Group 1, Casa Chrysler Plymouth Jeep Inc., a wholly-owned subsidiary of Group 1 ("Other Newco"), Seller and the Stockholders providing for Group 1's acquisition (the "Other Acquisition") of all assets related to Seller's sale and service of Chrysler, Plymouth and Jeep vehicles (the "Other Dealership") at 9733 Coors Blvd. NW, Albuquerque, New Mexico. For the purposes of this Agreement, the Acquired Dealership and the Other Dealership shall be referred to collectively as the "Acquired Dealerships." WHEREAS, the parties hereto wish to set forth the representations, warranties, agreements and conditions under which Purchaser shall purchase, and Seller shall sell, all of the Assets; and NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex I hereto and are used herein with the meanings ascribed to them therein. 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined has the meaning -1- 6 ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. ARTICLE II THE ACQUISITION 2.1 The Acquisition. (a) Assets to be Sold. (i) Subject to the terms and conditions of this Agreement, at the closing provided for in Section 2.5 hereof (the "Closing"), Seller will, sell, convey, assign, transfer and deliver to Newco all of Seller's right, title and interest at the time of the Closing in and to the Assets free and clear of any mortgage, pledge, lien, charge, encumbrance or other adverse claim (whether absolute, accrued, contingent or otherwise), except as otherwise disclosed in Schedule 3.1. (ii) Such sale, conveyance, assignment, transfer and delivery will be effected by delivery by Seller to Newco of (A) a duly executed bill of sale ("Bill of Sale") in the form of Exhibit A annexed hereto, (B) instruments of assignment (collectively the "Instruments of Assignment"), and (C) such other good and sufficient instruments of conveyance and transfer as shall be necessary to vest in Newco (subject to the terms of this Agreement) good and marketable title to the Assets (collectively the "Other Instruments"), free and clear of all mortgages, pledges, liens, charges, encumbrances and other adverse claims (whether absolute, accrued, contingent or otherwise), except as otherwise disclosed in Schedule 3.1. (b) Closing Payment. At the Closing, Seller will sell, transfer, convey and deliver to Newco the Assets, in exchange for (a) (i) $8,830,250 in cash, by a certified or bank cashier's check, subject to adjustment as set forth in Section 2.2, and (ii) 481,250 shares of common stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") as set forth in Section 2.3, (clauses (i) and (ii) are collectively referred to as the "Closing Payment") and (b) the assumption or discharge by Newco of the Assumed Liabilities, all of which are listed on Annex IV attached hereto. Except for the Assumed Liabilities, Purchaser shall not assume or otherwise be liable for, and shall be indemnified with respect to, in accordance with the provisions of Section 9.1 hereof, all other liabilities and obligations of Seller. (c) Assumption of Liabilities. Newco shall at Closing execute and deliver to Seller an undertaking, in the form attached hereto as Exhibit B (the "Undertaking"), whereby Newco will, as specified therein, assume and agree to pay and discharge the Assumed Liabilities of Seller. -2- 7 2.2 Working Capital Adjustment. (a) Adjustment. The cash portion of the Closing Payment set forth in Section 2.1(a)(i) shall be adjusted based on the product of (i) the difference of (x) the amount of Working Capital (as defined below) on the Closing Date, less (y) $5,163,000, times (ii) 0.55 (the "Working Capital Adjustment"). If the Working Capital Adjustment is positive, then the cash portion of the Closing Payment shall be increased by the amount of the Working Capital Adjustment. If the Working Capital Adjustment is negative, then the cash portion of the Closing Payment shall be reduced by the amount of the Working Capital Adjustment. (b) Procedure. As promptly as possible, but in any event within sixty (60) days after the Closing, Purchaser will deliver to Seller a schedule setting forth the calculation of the Working Capital Adjustment (the "Adjustment Schedule"). Seller and its independent certified public accountant shall have the right to observe and comment upon the preparation of such schedule, including the taking of a physical inventory of the new and used automobiles of the Acquired Dealership, which physical inventory shall be taken at Purchaser's expense on the Closing Date. Within thirty (30) days after receipt of the Adjustment Schedule by Seller, Seller may notify Purchaser in writing that such schedule does not fairly state the Working Capital Adjustment in accordance with the provisions of this Agreement, setting forth in full the respects in which it fails to do so and the reasons for reaching that conclusion. In the event that Purchaser and Seller are unable to resolve any dispute so raised within sixty (60) days after receipt of the Adjustment Schedule by Seller, they shall appoint an independent, nationwide accounting firm acceptable to both of them, whose expenses will be shared equally by Seller, on the one hand, and Purchaser, on the other hand. Such accounting firm shall as promptly as possible determine whether the Adjustment Schedule fairly states, in accordance with the provisions of this Agreement, the values of the items as to which Seller has taken issue and, if such firm concludes that it does not do so with respect to any of such items, the value which in such firm's opinion does so shall be final and dispositive. The determination of the Working Capital Adjustment by such independent firm shall be conclusive and binding on the parties hereto. (c) Payment. Within five (5) days after receipt of the report by such accounting firm or the settlement of any dispute, or within thirty-five (35) days following receipt of the Adjustment Schedule by Seller if no dispute exists, payment shall be made of the Working Capital Adjustment, if any. If the Working Capital Adjustment is positive, such amount shall be paid in cash by a certified or bank cashier's check by Purchaser to Seller. If the Working Capital Adjustment is negative, such amount shall be paid in cash by a certified or bank cashier's check by Seller to Purchaser. (d) Working Capital. For purposes of calculating the Working Capital Adjustment, the term "Working Capital" shall mean, as of the Closing Date, the Seller's current assets less current liabilities as of such date with respect to the Acquired Dealerships, all calculated in accordance with GAAP, on a basis consistent with the preparation of the Seller 1997 Balance Sheet, with inventory being valued at the lower of cost, determined by the first-in, first-out method ("FIFO"), or market; provided, however, that Seller's current assets or liabilities with respect to the Acquired Dealership for the purposes of this calculation shall not give effect to (i) any charge-back reserve resulting from the audit of the Seller 1997 Balance Sheet, and (ii) any expenditures of working capital, made in accordance with Section 6.3 hereof, to acquire equipment and other Fixed Assets sold to Purchaser pursuant to this Agreement. -3- 8 2.3 Group 1 Common Stock. The number of shares of Group 1 Common Stock to be issued to Seller at Closing shall be appropriately adjusted to give effect to any stock split or stock dividend of Group 1 Common Stock effected prior to the Closing Date. The "Designated Value of Group 1 Common Stock" shall mean the average closing price of Group 1 Common Stock on the New York Stock Exchange for the five full trading days immediately preceding the date specified. No fractional shares of Group 1 Common Stock shall be issued, but in lieu thereof, Seller shall receive cash for any fractional shares at the Designated Value of Group 1 Common Stock. 2.4 Employees. (a) Continued Employment. Except as Newco has otherwise heretofore disclosed to Seller, Newco will offer to employ, beginning on the Closing Date, all of those persons who are employed by Seller on a full-time basis with respect to the Acquired Dealership on the Closing Date, upon total compensation and benefit terms substantially commensurate with the total compensation and benefit terms of the employee's employment with Seller. Newco further agrees that with respect to any such employee who presently is employed by Seller pursuant to a written employment contract, Newco's offer of employment to such employee shall be expressly conditioned upon the execution and delivery by such employee of a written release relieving and discharging Seller from any obligation or liability following the Closing Date under such employment contract and Newco shall deliver a written copy of any such offer to Seller. Seller agrees to cooperate with Newco by permitting Newco throughout the period prior to the Closing Date (i) to inspect such employees' medical and other employment records maintained by Seller, (ii) to meet with the employees of Seller at such times as shall be approved by a representative of Seller (which approval will not be unreasonably withheld) and (iii) to distribute to such employees such forms and other documents relating to employment by Newco after the Closing as Newco shall reasonably request. (b) Benefits, Workers' Compensation. Seller agrees that, with respect to claims for workers' compensation and all claims under Seller's employee benefit programs by persons working for Seller with respect to the Acquired Dealership arising out of events occurring prior to the Closing Date, whether insured or otherwise (including, but not limited to, workers' compensation, life insurance, medical and disability programs), Seller will, at its own expense, honor or cause its insurance carriers to honor such claims in accordance with the terms and conditions of such programs or applicable workers' compensation statutes without interruption as a result of the employment by Newco of any such employees on or after the Closing Date. (c) 401(k) Matters. Newco shall assume at Closing the Ken and Cindy Johns Automotive Group 401(k) Profit Sharing Plan (the "Seller's 401(k) Plan"). (d) Vacation Pay. Seller shall accrue in the Seller 1997 Balance Sheet a liability for the amount due for vacation pay with respect to employees of Seller for vacation due but not taken. Newco will thereafter assume responsibility under Newco's vacation program for such vacation due but not taken. (e) Severance Pay. Seller will promptly reimburse Newco and otherwise hold Newco harmless from and against all direct and indirect costs, expenses and liabilities of any sort whatsoever arising from or relating to any claims by or on behalf of present or former -4- 9 employees of Seller in respect of severance pay and similar obligations relating to the termination of such employee's employment on or prior to the Closing Date. (f) Purchaser's Plans. Effective as of the Closing Date until January 1, 1999 Purchaser shall continue the same health plans currently provided by Seller to its employees with respect to each employee of Seller who is hired by Newco pursuant to Section 2.4(a) ("Transferring Employees"), and after January 1, 1999, Purchaser shall cause each Transferring Employee to be provided with benefits on a basis substantially similar to Purchaser's normal practice. Purchaser shall cause each Transferring Employee to be covered under a group health plan that (i) provides medical and dental benefits to the Transferring Employee, (ii) credits such Transferring Employee, for the year during which such coverage under such group health plan begins, with any deductibles and copayments already incurred during such year under the group health plan maintained by Seller listed on Schedule 3.13(a), and (iii) waives any preexisting condition restrictions to the extent necessary to provide immediate coverage and to the extent such restrictions did not apply under the group health plan maintained by Seller. Purchaser shall cause the employee benefit plans and programs maintained after the Closing by Purchaser to recognize each Transferring Employee's years of service and level of seniority prior to the Closing Date with Seller and its affiliates for purposes of terms of employment and eligibility, vesting and benefit determination under such plans and programs (other than benefit accruals under any defined benefit pension plan). 2.5 Closing. The Closing of the purchase and sale of the Assets as contemplated by this Agreement shall take place at the offices of Sutin Thayer & Browne, Two Park Square, 6565 Americas Parkway, Albuquerque, New Mexico 87110, on a date mutually established by the parties following the satisfaction or waiver of the conditions set forth in Article VIII or at such other time and place and on such other date as Purchaser and Seller shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date." (a) Delivery by Seller. At the Closing, Seller will deliver to Newco (unless delivered previously), the following: (i) a duly executed Bill of Sale substantially in the form of Exhibit A hereto; (ii) the Instruments of Assignment and Other Instruments, in form and substance satisfactory to Newco, pursuant to Section 2.1(a)(ii); (iii) true copies of any consents referred to in Section 3.2 hereof; (iv) the opinion of counsel referred to in Section 8.2(l) hereof; (v) all the books and records of Seller pertaining to the Assets; (vi) executed copies of the Leases referred to in Sections 6.14 and 7.6 hereto; (vii) executed copies of the Employment Agreements; and -5- 10 (viii) all other documents, instruments and writings required to be delivered by Seller at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. (b) Delivery by Newco. At the Closing, Newco will deliver to Seller (unless previously delivered), the following: (i) the certified or bank cashier's check referred to in Section 2.1(b) hereof; (ii) the certificates representing Group 1 Common Stock pursuant to Section 2.1(b) hereof; (iii) the Undertaking referred to in Section 2.1(c) hereof; (iv) the opinion referred to in Section 8.3(b) hereof; (v) executed copies of the Leases referred to in Sections 6.14 and 7.6 hereto; (vi) executed copies of the Employment Agreements; and (vii) all other documents, instruments and writings required to be delivered by Newco at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS The Seller and the Stockholders, jointly and severally, represent and warrant to Group 1 as follows: 3.1 Approval and Authority; Title to Assets. The Seller has the full right, power and authority to enter into this Agreement and to perform all of its obligations under this Agreement, and the execution and delivery of this Agreement and the performance by Seller of its obligations under this Agreement require no further action or approval of any other person in order to constitute this Agreement as a binding and enforceable obligation of Seller. Except as disclosed in Schedule 3.1, Seller has good and indefeasible title to the Assets, free and clear of any claim, pledge, lien, charge, encumbrance, mortgage or other adverse claim. 3.2 Authorization of Agreement - No Violation - No Consents. The Seller has full power and authority to enter into this Agreement and the other documents delivered pursuant to this Agreement (collectively, the "Documents"). Except as disclosed in Schedule 3.2, neither the execution and delivery by Seller and the Stockholders of the Documents, nor the performance by Seller and the Stockholders of their obligations under the Documents will (assuming receipt of all consents, approvals, authorizations, permits, certificates and orders disclosed as requisite in Schedule 3.2) (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any -6- 11 applicable rule or regulation of any Court or Governmental Authority, (iii) any applicable permits received from any Governmental Authority (iv) the articles of incorporation or bylaws or other organizational documents of Seller or (v) any contract or agreement to which Seller or the Stockholders are a party or by which they, or any of the Assets, are bound; or (b) result in the creation or imposition of any Lien on any of the Assets; or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority; or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. Except for the applicable requirements, if any, of the HSR Act and as expressly contemplated by the Documents, no consent, action, approval or authorization of, or registration, declaration or filing with, any Court, Governmental Authority or any other person or entity is required to authorize, or is otherwise required in connection with, the execution and delivery of the Documents by any Seller, performance of the terms of the Documents or the validity or enforceability of the Documents. This Agreement and each Document delivered pursuant hereto constitutes the legal, valid and binding obligation of Seller and the Stockholders enforceable against each such Person in accordance with its terms. 3.3 Subsidiaries; Equity Investments. Seller has not controlled directly or indirectly, or had any direct or indirect equity participation in any corporation during the five-year period preceding the date hereof. 3.4 Financial Statements. Included in Schedule 3.4 are true and complete copies of the financial statements of Seller consisting of an unaudited balance sheet of Seller as of December 31, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the twelve-month period then ended (collectively, the "Seller Interim Financial Statements"). Except as provided in Schedule 3.4, the Seller Interim Financial Statements present fairly the financial position of Seller and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. Except as provided in Schedule 3.4, the Seller Interim Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of Seller reflected in the Seller Interim Financial Statements and as incurred since December 31, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful accounts or applicable chargebacks shown in the Seller Interim Financial Statements) in the ordinary course of business and, except as disclosed in Schedule 3.4, are not in dispute or subject to counterclaim, set-off or renegotiation. Schedule 3.4 contains an aged schedule of accounts receivable included in the Interim Balance Sheet. 3.5 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet or as disclosed in Schedule 3.5, Seller does not have any material liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP. 3.6 Certain Agreements. Except as disclosed in Schedule 3.6, neither Seller nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a noncompetition, territorial exclusivity or other provision covering such subject matter purportedly enforceable by a third party against Seller or any of its officers or directors, the scope of the business or operations of Seller or any of its officers or directors, geographically or otherwise. -7- 12 3.7 Contracts and Commitments. Seller has delivered to Purchaser a report which includes (i) a list of all contracts to which Seller is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of Seller, taken as a whole ("Material Contracts"); (ii) a list of all real or personal property leases to which Seller is a lessee involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which Seller is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between Seller and any of their officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. All of the Material Contracts, Material Leases, Guarantees and Related Party Agreements are valid, binding and in full force and effect and are enforceable by the Seller in accordance with their terms. The Seller has performed all material obligations required to be performed by it to date under the Material Contracts, Material Leases, Guarantees and Related Party Agreements and Seller is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder and, to the knowledge of Seller or Stockholders, no other party to any of the Material Contracts, Material Leases, Guarantees or Related Party Agreements (with or without the lapse of time or the giving of notice, or both) is in breach or default in any material respect thereunder. 3.8 Absence of Changes. Except as disclosed in Schedule 3.8, there has not been, since December 31, 1997, any material adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of Seller. Except as disclosed in Schedule 3.8, since December 31, 1997, Seller has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. Notwithstanding the preceding sentence, Seller makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since December 31, 1997, for any employee who after such increase would receive annual compensation of less than $50,000. 3.9 Tax Matters. (a) Except for filings and payments of assessments the failure of which to file or pay will not materially adversely affect the Assets, (i) all Tax Returns which are required to be filed on or before the Closing Date by or with respect to Seller have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to Seller have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. (b) No Tax Returns of or with respect to Seller for tax years subsequent to 1992 (other than a luxury tax audit) have been audited by the applicable Governmental Authority. The applicable statute of limitations has expired for all periods up to and including the periods set forth in Schedule 3.9(b). -8- 13 (c) There is no claim against Seller for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to Seller other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.9(c). (d) There is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to Seller or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to Seller. (e) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to Seller up to and through the periods covered thereby. (f) All Tax allocation or sharing agreements affecting Seller shall be terminated prior to the Closing Date and no payments shall be due or will become due by Seller on or after the Closing Date pursuant to any such agreement or arrangement. (g) Seller will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. (h) Seller has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (i) From the end of its most recent tax year through the Closing Date, (a) Seller continuously has been and will be an S Corporation within the meaning of section 1361 of the Code, and (b) each holder of Seller common stock has been an individual resident of the United States or an estate or trust described in section 1361(c)(2) that is permitted to hold the stock of an S Corporation. 3.10 Litigation. (a) Except as disclosed in Schedule 3.10(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of Seller or Stockholders, threatened against or specifically affecting the Assets, Seller before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent disclosed in Schedule 3.10(b), Seller has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of Seller and the Stockholders, no event has occurred which, with the lapse of time or action by a third party could result in a default under any contract or other agreement to which Seller is a party or by which it or any of the Assets are bound or under any applicable Order of any Court or Governmental Authority. 3.11 Compliance with Law. Except as disclosed in Schedule 3.11, Seller is in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. -9- 14 3.12 Permits. Except as disclosed in Schedule 3.12, Seller owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities necessary for the operation of the Acquired Dealership. A listing of all such items owned or held by Seller, with their expiration dates, is included in Schedule 3.12. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and Seller is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. 3.13 Employee Benefit Plans and Policies. (a) Schedule 3.13(a) provides a description of each of the following which is sponsored, maintained or contributed to by Seller for the benefit of its employees, or has been so sponsored, maintained or contributed to within six years prior to the Closing Date: (i) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA ("Plan"); and (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not disclosed in Section 3.13(a)(i) ("Benefit Program or Agreement"). True and complete copies of each of the Plans, Benefit Programs or Agreements, related trusts, if applicable, and all amendments thereto, have been furnished to Group 1. (b) Seller's 401(k) Plan satisfies in form the requirements of Section 401 of the Code, except to the extent amendments are not required by law to be made until a date after the Closing Date, and has not been operated in a way that would adversely affect its qualified status. (c) There has been no termination or partial termination of Seller's 401(k) Plan within the meaning of Section 411(d)(3) of the Code. (d) There are no actions, suits or claims pending (other than routine claims for benefits) or threatened against, or with respect to, Seller's 401(k) Plan or its assets. (e) There is no matter pending with respect to Seller's 401(k) Plan before the IRS, the Department of Labor or other Governmental Authority. (f) All contributions required to be made to Seller's 401(k) Plan pursuant to its terms and the provisions of ERISA, the Code, or any other applicable Law have been timely made." -10- 15 (g) Schedule 3.13(g) sets forth by name and job description of the employees of Seller with respect to the Acquired Dealership as of the date of this Agreement. None of said employees are subject to union or collective bargaining agreements. Seller has not at any time had or been threatened with any work stoppages or other labor disputes or controversies with respect to its employees. 3.14 Properties. (a) Seller owns, and will retain as Excluded Assets, the real properties described in Schedule 3.14(a)(1) (the "Owned Properties"). Seller does not lease any real property or any interest therein except as disclosed in Schedule 3.14(a)(2) (the "Leased Properties"), which sets forth the location and size of, principal improvements and buildings on, and Liens on the Leased Properties. True and correct copies of all Liens are attached to Schedule 3.14(a)(2) or have been delivered to Purchaser. Except as disclosed in Schedule 3.14(a)(2), with respect to each such parcel of Leased Property: (i) Seller has a good, valid and enforceable leasehold interest in each parcel of its Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of Seller or Stockholders, threatened condemnation proceedings, suits or administrative actions relating to the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) except as disclosed in Schedule 3.14(a)(iii), the legal descriptions for the parcels of Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the ownership or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Leased Property, except as disclosed in Schedule 3.14(a)(v); (vi) there are no outstanding options or rights of first refusal to purchase the Owned Properties or any leasehold interest in the Leased Properties, or any portion thereof or interest therein; -11- 16 (vii) there are no parties (other than Seller) in possession of the parcels of Leased Property, other than tenants under any leases disclosed in Schedule 3.14(a)(vii) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Leased Property are supplied with utilities and other services necessary for the operation of such facilities; (ix) each parcel of Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Leased Property are in good repair and adequate for the use of such Leased Property in the manner in which presently used; (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Leased Property, except as set forth in Schedule 3.14(a)(xi); (xii) the affiliates of Seller or any Stockholder which have leased real property to Seller as part of the Leased Properties have good and valid title to such properties, free and clear of any Lien other than Permitted Encumbrances; and (xiii) Seller has good and valid title to the Owned Properties, free and clear of any Lien other than Permitted Encumbrances. (b) Except as disclosed in Schedule 3.14(b), Seller has good and marketable title to all of the Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of Seller are in good operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.15 Insurance. Schedule 3.15 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Acquired Dealership (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. Seller is presently insured, and since the inception of operations by Seller has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. Seller has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as disclosed in Schedule 3.15, no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. Seller has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. 3.16 Affiliate Interests. Except as disclosed in Schedule 3.16, no employee, officer or director, or former employee, officer or director, of Seller has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business information, trademarks, service marks or trade names, used in or pertaining to the business of Seller, except for the normal rights of employees and stockholders. -12- 17 3.17 Environmental Matters. Except as disclosed in Schedule 3.17, to the best knowledge of Seller and the Stockholders: (a) Seller is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, dumping, discharging, release or disposal of Hazardous Substances, or other Waste. Seller is not currently liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. Seller is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. (b) Seller has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of its business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.17(b)), and Seller is in compliance with all the terms, conditions and requirements of such Licenses, and copies of such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or, to the knowledge of Seller or Stockholders, threatened by any Governmental Authority or third parties against Seller or its business, operations, properties, or assets, which question the validity or entitlement of Seller to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of Seller and the operation of its business. (c) Seller has not received nor is aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving Seller or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of their business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) Seller is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Owned Properties or the Leased Properties. (e) Seller has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, -13- 18 treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. Seller has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. (f) Seller has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto. (g) Seller has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor has it allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified Seller that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Seller has not received notice or have knowledge of any facts which could give rise to any notice, that Seller is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. Seller has not submitted nor was required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, Seller. Seller has not received any written nor, to the knowledge of Seller or Stockholders, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where Seller has transported, transferred or disposed of other Wastes. Seller has no been required to nor has undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. Seller has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) Seller has no Aboveground Storage Tanks or Underground Storage Tanks, except as disclosed in Schedule 3.17(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which Seller or Stockholders are aware undertaken by Seller or Stockholders, or by any Governmental Authority, or by any third party, relating to Seller or any of the Owned Properties or the Leased Properties; (ii) the results of which Seller or Stockholders are aware of any ground, water, soil, air or asbestos monitoring undertaken by Seller, or by any Governmental Authority, or by any third party, relating to Seller, or any of the Owned Properties or the Leased Properties; (iii) all written communications between Seller and any Governmental Authority arising under or related to Environmental, Laws; and (iv) all citations issued under OSHA, or similar state or -14- 19 local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting Seller or any of the Owned Properties or the Leased Properties. (j) Schedule 3.17(j) contains a list of the assets of Seller which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as disclosed in Schedule 3.17(j), Seller has operated and continues to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as disclosed in Schedule 3.17(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, directly affecting or, to the knowledge of Seller or Stockholders, threatened against Seller or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with its assets and operations. (k) Any references in this Section 3.17 to the "Owned Properties" or the "Leased Properties" are deemed to also refer to any properties previously owned or leased by Seller. 3.18 Intellectual Property. Except with respect to the Excluded Assets and as set forth in Schedule 3.18, Seller owns, or is licensed or otherwise has the right to use all Intellectual Property that are necessary for the conduct of the business and operations of Seller as currently conducted. To the knowledge of Seller or Stockholders, (a) the use of the Intellectual Property by Seller does not infringe on the rights of any Person, and (b) no Person is infringing on any right of Seller with respect to any Intellectual Property. No claims are pending or, to the knowledge of Seller or Stockholders, threatened that Seller is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Seller, no Person is infringing the rights of Seller with respect to any Intellectual Property. All of the Intellectual Property that is owned by Seller is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by Seller is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.19 Bank Accounts. Schedule 3.19 includes the names and locations of all banks in which Seller has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.20 Brokers. Except as disclosed in Schedule 3.20, no broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller. 3.21 Disclosure. Seller has disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of Seller. No representation or warranty to Group 1 by Seller or Stockholders contained in this Agreement, and no statement contained in the Schedules attached hereto, any certificate, list or other writing furnished to Group 1 by Seller or Stockholders pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, and any -15- 20 certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of Seller for all purposes of this Agreement. 3.22 Assumed Liabilities. There are no Assumed Liabilities except as described in Annex IV. Except as disclosed on Schedule 3.22, Seller is not, and but for a requirement that notice be given or a period of time elapse or both would not be, in default under any agreements, or documents delivered in connection therewith, relating to the Assumed Liabilities, including any mortgages or security interests securing the debt created thereunder. Except as disclosed on Schedule 3.22, since December 31, 1997, neither Seller's funds nor any Assumed Liability has been directly or indirectly used or incurred, as the case may be, in connection with any Excluded Asset or to reduce any liability that is not an Assumed Liability. Without limiting the generality of the foregoing, except as disclosed on Schedule 3.22, since December 31, 1997, Seller's funds and Assumed Liabilities have been used or incurred, as the case may be, solely in the conduct, and for the benefit, of the Acquired Dealership. 3.23 Accounts Receivable. All accounts and notes receivable of Seller in excess of $5,000 arose in the ordinary and usual course of its business, represent valid obligations due, and either have been collected or there is no legal impediment to their collection (subject only to bankruptcy stays sought by account debtors) in the ordinary and usual course of business in the net aggregate recorded amounts as reflected in the books of account of Seller in accordance with their terms. 3.24 Inventory. The inventories of Seller included in the Assets consist in all respects of items of a quality, condition and a quantity usable or saleable in the normal course of the business of Seller, other than for normal obsolescence; and the amount at which all such items are carried or reflected in the Interim Financial Statements does not exceed the market or realizable value thereof. ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS The Seller and each Stockholder hereby, severally and not jointly, represent and warrant to Group 1 that: 4.1 Investment Intent. The Seller intends to distribute some or all of the Closing Payment to its stockholders on or shortly after the Closing Date. The Seller and each Stockholder makes the following representations relating to his, her or its acquisition of shares of Group 1 Common Stock: (i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be issued pursuant to the Acquisition to such Stockholder solely for such Stockholder's account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of any of those shares in connection with any distribution (except by way of gift to a charitable foundation, provided that such foundation executes a customary investor representation letter with respect to exemptions from the Securities Act and any applicable state blue sky laws); (ii) such Stockholder is not a party to any agreement or other arrangement for the disposition of any shares of Group 1 Common Stock; (iii) such Stockholder is an "accredited investor" as defined in Securities Act Rule 501(a); (iv) such Stockholder (A) is able to bear the economic risk of an investment in the Group 1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a total loss of that investment, (C) has such knowledge and experience in financial and business matters, and such past participation in investments, that he or she is capable of evaluating the merits and risks of the proposed investment in the Group 1 Common Stock, -16- 21 (D) has received and reviewed the SEC Documents, (E) has had an adequate opportunity to ask questions and receive answers from the officers of Group 1 concerning any and all matters relating to the transactions contemplated hereby, including the background and experience of the current officers and directors of Group 1, the plans for the operations of the business of Group 1, the business, operations and financial condition of Group 1 and any plans of Group 1 for additional acquisitions, and (F) has asked all questions of the nature described in the preceding clause (E), and all those questions have been answered to his or her satisfaction; (v) such Stockholder acknowledges that the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Acquisition have not been and will not be registered under the Securities Act or qualified under applicable blue sky laws and therefore may not be resold by such Stockholder without compliance with Rule 144 of the Securities Act; (vi) such Stockholder acknowledges that he or she has agreed, pursuant to Section 10.8 herein, not to sell the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Acquisition for a period of one year from the Closing Date; (vii) such Stockholder, if a corporation, partnership, trust or other entity, acknowledges that it was not formed for the specific purpose of acquiring the Group 1 Common Stock; and (viii) without limiting any of the foregoing, such Stockholder agrees not to dispose of any portion of Group 1 Common Stock unless (1) a registration statement under the Securities Act is in effect as to the applicable shares and the disposition is made in accordance with that registration statement, (2) the Stockholder has notified Group 1 of the proposed disposition, disposition is made through Merrill, Lynch, Pierce, Fenner & Smith Incorporated or Goldman, Sachs & Co., Inc., or any of their successors or affiliates, subject to SEC Rule 144 and such disposition is made in compliance with any other requirements of the Securities Act, or (3) such disposition is made by gift to a charitable foundation in compliance with any applicable requirements of the Securities Act and any applicable state blue sky laws. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Each of Group 1 and Newco hereby represent and warrant, severally and not jointly, to Seller that: 5.1 Corporate Organization. Each of Group 1 and Newco is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by it at the Closing. 5.2 Authorization. The execution and delivery by Group 1 and Newco of this Agreement, the performance by Purchaser of its obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Purchaser at the Closing have been duly and validly authorized by all requisite corporate action on the part of Purchaser. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Purchaser at, or prior to, the Closing will then be, duly executed and delivered by Purchaser. This Agreement constitutes, and, to the extent it purports to obligate Purchaser, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms. -17- 22 5.3 Approvals. Except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Purchaser, to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by Purchaser at or prior to the Closing. 5.4 Absence of Conflicts. Neither the execution and delivery by Purchaser of this Agreement or any instrument required hereby to be executed by it at or prior to the Closing nor the performance by Purchaser of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of Purchaser or (iv) any contract or agreement to which Purchaser is a party or by which it or any of its property is bound, or (b) result in the creation or imposition of any Liens on any of the properties or assets of Purchaser or any of its subsidiaries (other than any Lien created by Seller or any of its Subsidiaries), or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Purchaser and its subsidiaries, taken as a whole. 5.5 Authorization For Group 1 Common Stock. All shares of Group 1 Common Stock issuable pursuant to the Acquisition are duly authorized and will, when issued, be validly issued, fully paid and nonassessable and not issued in violation of the preemptive rights of any stockholder of Group 1. 5.6 SEC Documents. The SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Group 1 included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Group 1 and its consolidated subsidiaries as of the dates thereto and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information, for normal year-end adjustments). ARTICLE VI COVENANTS OF THE SELLER AND THE STOCKHOLDERS 6.1 Acquisition Proposals. Prior to the Closing Date, neither Seller, any of its officers, directors, employees or agents nor any Stockholder shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion -18- 23 of the assets of, or a substantial equity interest in, Seller, other than the transactions with Group 1 contemplated by this Agreement. 6.2 Access. The Seller and the Stockholders shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all their properties, books, contracts, commitments and records related to the Dealerships and, during such period, Seller and the Stockholders shall furnish promptly to Group 1 any information concerning their business, properties and personnel related to the Acquired Dealership as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by Seller or the Stockholders pursuant to this Agreement. 6.3 Conduct of Business by Seller Pending the Acquisition. Seller and the Stockholders covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of Seller shall be conducted only in, and Seller shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that Seller may dealer trade vehicles for similar models, but Seller shall not liquidate or otherwise dispose of any of its new vehicles other than in the ordinary course of business to retail buyers. Seller agrees to maintain its advertising expenditures and activities commensurate with prior business practices. Seller shall not advertise a "Going Out of Business" sale; (b) Seller shall not directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of Seller or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any Assets, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of Seller, (iii) split, combine or reclassify any outstanding capital stock of Seller, or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to the capital stock of Seller whether now or hereafter outstanding, (iv) redeem, purchase or acquire or offer to acquire any of the capital stock of Seller, (v) create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business), or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) Seller shall use its best efforts (i) to preserve intact the business organization of Seller, (ii) to maintain in effect any franchises, authorizations or similar rights of Seller, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those -19- 24 expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. (d) Seller shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $150,000, provided, however, that expenditures related to new and used vehicle inventory made consistent with past practice and in the ordinary course of business shall not be deemed a violation of this Section 6.3(d); (e) Seller shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as Seller in good faith may dispute; (f) Seller shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of Seller or its Subsidiaries, except in the ordinary course of business consistent with past practice; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $50,000; (g) Seller shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Acquisition set forth in Article VIII not being satisfied; (h) Seller shall not (i) amend or terminate any Plan or Benefit Program or Agreement except as may be required by applicable law, (ii) increase or accelerate the payment or vesting of the amounts payable under any Plan or Benefit Program or Agreement, or (iii) adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, program, practice or understanding (other than the Plans and the Benefit Programs or Agreements); (i) Seller shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; (j) Seller shall not directly or indirectly use Seller's funds or incur any Assumed Liability in connection with any Excluded Asset or to reduce any liability that is not an Assumed Liability. Without limiting the generality of the foregoing, Seller's funds and Assumed Liabilities will be used or incurred, as the case may be, solely for the benefit of the Acquired Dealership; and (k) Notwithstanding anything to the contrary, no dividends or other form of distribution to the Stockholders shall be made after the date of the Interim Balance Sheet which will cause Seller to be in violation of manufacturer working capital or equity guidelines or requirements. -20- 25 6.4 Confidentiality. Seller agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence, and not to disclose, and the Stockholders shall hold and not disclose, to others for any reason whatsoever, any non-public information received by them or their representatives in connection with the transactions contemplated hereby, including but not limited to all terms, conditions and agreements related to this transaction, except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Seller as necessary in connection with the transactions contemplated hereby; and (iii) for information which becomes publicly available other than through the actions of Seller or the Stockholders. In the event the Acquisition is not consummated, Seller and the Stockholders will return all non-public documents and other material obtained from Group 1 or its representatives in connection with the transactions contemplated hereby or certify to Group 1 that all such information has been destroyed. 6.5 Supplemental Disclosure. Seller shall have the continuing obligation until the Closing promptly to supplement or amend the Schedules hereto with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in such Schedules; provided, however, that for the purpose of the rights and obligations of the parties hereunder, any such supplemental or amended Schedule shall not be deemed to have been disclosed as of the date of this Agreement for purposes of determining whether any Closing conditions have been satisfied, unless so agreed in writing by Purchaser. 6.6 Consents. Subject to the terms and conditions of this Agreement, Seller shall (i) cooperate with Purchaser in obtaining all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on Purchaser), authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 6.7 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, Seller and the Stockholders agree to cooperate and use reasonable efforts to defend against and respond thereto. 6.8 Stockholders' Agreements Not to Sell. Except as otherwise contemplated by this Agreement, each of the Stockholders hereby covenants and agrees not to sell, pledge, transfer or dispose of or encumber any shares of Seller common stock currently owned, either beneficially or of record, by such Stockholder. 6.9 Intellectual Property Matters. Seller shall use its best efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or domestic patent, trademark, service mark, trade name or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. -21- 26 6.10 Removal of Related Party Guarantees. Seller and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all guarantees by Seller ("Related Guarantees") of indebtedness or other obligations of any of Seller's officers, directors, shareholders or employees or their affiliates; except for those Related Guarantees that are disclosed in Schedule 6.10 as guarantees that shall not be subject to this Section 6.10. All Related Guarantees are disclosed in Schedule 6.10. 6.11 Termination of Related Party Agreements. Seller and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.11 as agreements that shall not be subject to this Section 6.11. 6.12 Related Party Agreements. Seller and the Stockholders agree not to enter into any Related Party Agreements or engage in any transactions with the Stockholders or their affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.12 as agreements or transactions that shall not be subject to this Section 6.12. 6.13 Release. (a) AS OF THE CLOSING, SELLER AND EACH OF THE STOCKHOLDERS DOES HEREBY FOR HIMSELF OR HIS HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE PURCHASER AND THE ACQUIRED DEALERSHIP OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH EACH OF SUCH INDIVIDUALS NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST PURCHASER OR THE ACQUIRED DEALERSHIP INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF SELLER OR THE ACQUIRED DEALERSHIP OR THEIR AFFILIATES, EMPLOYEES AND AGENTS, EXISTING AS OF THE CLOSING OR RELATING TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT; AND PROVIDED FURTHER ANY LIABILITIES UNDER PLANS OR BENEFIT PROGRAMS OR AGREEMENTS LISTED ON THE SCHEDULES HERETO SHALL NOT BE RELEASED. (b) SELLER AND EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS RELEASED HEREIN. SELLER AND EACH OF THE STOCKHOLDERS COVENANTS AND AGREES THAT HE WILL NOT ASSIGN OR TRANSFER TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS TO BE RELEASED HEREIN. SELLER AND EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 6.13 AND THAT HE HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT. 6.14 Leases. Seller and the Stockholders agree to cause Seller, United Constructors Limited Company and United Properties Limited Company to enter into lease agreements with Newco on the -22- 27 basic terms, and covering the real properties and improvements, described on Exhibit C and to enter into subleases with Newco with respect to leases from other parties on the same terms as the leases entered into by Seller. Furthermore, Group 1 will use commercially reasonable efforts within the parameters of such lease agreements to structure a lease with Seller, United Constructors Limited Company and United Properties Limited Company that will not prevent the transfer of the related real estate to a real estate investment trust should the applicable landlord so request. 6.15 Employment Agreements. Mr. Kenneth E. Johns and Mrs. Cynthia C. Johns agree to enter into employment agreements (the "Employment Agreements") with Group 1 and Newco in form and substance substantially similar to Exhibit D attached hereto. 6.16 Audit of Seller Operations. Seller agrees to cause Peltier, Gustafson & Miller, P.A. to conduct an audit of the operations of Seller for its year ended December 31, 1997, and to cooperate with Arthur Andersen & Company to produce an audited balance sheet of Seller as of December 31, 1997 (the "Seller 1997 Balance Sheet") and the related audited statements of income, changes in stockholders' equity and cash flows for the year then ended (including the notes thereto) prepared in accordance with GAAP (collectively, the "Seller 1997 Financial Statements," and together with the Seller Interim Financial Statements, the "Seller Financial Statements"). Seller further agrees to complete and provide to Group 1 the Seller 1997 Financial Statements as soon as reasonably practicable. Seller covenants that the financial position and results of operations of Seller set forth in the Seller 1997 Financial Statements will not be materially different from the financial position and results of operations of Seller set forth in the Interim Financial Statements, except for the amount required to record the charge back reserve liability. Fees incurred by Peltier, Gustafson & Miller, P.A. will be paid by Seller, and fees incurred by Arthur Andersen & Company will be paid by Group 1. 6.17 Allocation of Purchase Price. The parties hereto agree that the Purchase Price is allocated for the purposes of Section 1060 of the Code, in accordance with the value set forth for each class of Asset, listed on the attached Annex V ("Allocation of Purchase Price"). Prior to Closing the parties will agree on the value of the Group 1 Common Stock as part of the Closing Payment for purposes of determining the purchase price of the Assets. The parties hereto agree that each of them will timely file with the Internal Revenue Service Form 8594 and that all tax returns or other tax information any party hereto files or cause to be filed with any governmental agency including the Internal Revenue Service, will be prepared in a manner that is consistent with this Section 6.17. 6.18 Record Retention. For a period of six years after the Closing, Seller and the Stockholders agree that prior to the destruction or disposition of any such books or records pertaining to Seller's business which relate to the Assets, Seller and the Stockholders shall provide not less than 60 days prior written notice to Purchaser of any such proposed destruction or disposal. If Purchaser desires to obtain any of such documents, it may do so by notifying Seller in writing at any time prior to the scheduled date for such destruction or disposal. Such notice must specify the documents which the Purchaser wishes to obtain. The parties shall then promptly arrange for the delivery of such documents. All out-of-pocket costs associated with the delivery of the requested documents shall be paid by Purchaser. -23- 28 ARTICLE VII COVENANTS OF PURCHASER 7.1 Confidentiality. Purchaser agrees, and Purchaser agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence all, and not to disclose to others for any reason whatsoever, any non-public information received by it or its representatives in connection with the transactions contemplated hereby except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Purchaser as necessary in connection with the transactions contemplated hereby or as necessary to the operation of Purchaser's business; and (iii) for information which becomes publicly available other than through the actions of Purchaser. In the event the Acquisition is not consummated, Purchaser will return all non-public documents and other material obtained from Seller or its representatives in connection with the transactions contemplated hereby or certify to Seller that all such information has been destroyed. 7.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for issuance and shall issue, out of its authorized but unissued capital stock, such number of shares of Group 1 Common Stock as may be issuable upon consummation of the Acquisition. 7.3 Consents. Subject to the terms and conditions of this Agreement, Purchaser shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.4 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, Purchaser agrees to cooperate and use reasonable efforts to defend against and respond thereto. 7.5 New Limited Partnership Relationship. (a) Newco shall form a limited partnership relationship with Premier Auto Finance L.P. ("Premier") similar to the current relationship among Seller, Premier and Fiesta Family Partners, Ltd. ("Fiesta"). Benefits flowing from business written with Premier through Fiesta prior to the formation of the new partnership will constitute Excluded Assets. Benefits from the new partnership will accrue to the benefit of Newco. (b) All benefits from sales of credit life, accident, health and service contract products consummated by the Acquired Dealership will accrue to the benefit of Newco. Until December 31, 1998, Newco will conduct business with parties mutually acceptable to Seller and Newco. 7.6 Leases. Newco agrees, and Group 1 agrees to cause Newco, to enter into lease agreements with United Constructors Limited Company, United Properties Limited Company and Holiday Bowl, Inc. on the basic terms, and covering the real properties and improvements, described on Exhibit C. Furthermore, Group 1 and Newco will use commercially reasonable efforts within the -24- 29 parameters of such lease agreements to structure a lease that will not prevent the transfer of the related real estate to a real estate investment trust should the applicable landlord so request. 7.7 Employment Agreements. Group 1 and Newco agree to enter into Employment Agreements with Mr. Kenneth E. Johns and Mrs. Cynthia C. Johns in form and substance substantially similar to Exhibit D attached hereto. 7.8 Allocation of Purchase Price. Purchaser and Seller agree that the Purchase Price is allocated for the purposes of Section 1060 of the Code, in accordance with the value set forth for each class of Asset, as listed on the attached Annex V ("Allocation of Purchase Price"). Prior to Closing the parties will agree on the value of the Group 1 Common Stock as part of the Closing Payment for purposes of determining the purchase price of the Assets. The parties hereto agree that each of them will timely file with the Internal Revenue Service Form 8594 and that all tax returns or other tax information any party hereto files or cause to be filed with any governmental agency including the Internal Revenue Service, will be prepared in a manner that is consistent with this Section 7.8. 7.9 Security for Newco Loans. Purchaser shall not require Seller or any Stockholder to serve as obligors under any floor plan or credit facilities to which Newco is a party. 7.10 Guaranteed Price. If Seller or a Stockholder, or any family foundation to which a Stockholder or Seller has transferred shares of Group 1 Common Stock, sells any of the Group 1 Common Stock received by such Stockholder or Seller pursuant to this Agreement at the Closing as part of the Closing Payment for a per share price of less than twelve dollars ($12.00), subject to adjustment for stock splits and stock dividends, Group 1 shall pay, within 30 days after such sale, in cash the difference between the purchase price for shares sold and the price such Stockholder, Seller or family foundation, as the case may be, would have received if the shares were sold at $12.00 per share, subject to adjustment for stock splits and stock dividends; provided, that this Section 7.10 shall only apply to sales (i) occurring after the expiration of the Restricted Period and (ii) made in the public market; and provided, further that this Section 7.10 shall terminate on the date 10 years after the Closing Date. ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition. The respective obligations of each party to effect the Acquisition shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Acquisition; (b) There shall have been obtained any and all permits, approvals and consents of securities or "blue sky" commissions of each jurisdiction and of any other governmental agency or authority, with respect to the consummation of the Acquisition; and -25- 30 (c) The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated. 8.2 Additional Conditions Precedent to Obligations of Purchaser. The obligation of Purchaser to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of Seller contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date, and all of the terms, covenants and conditions of this Agreement to be complied with and performed by Seller and Stockholders on or before the Closing Date shall have been duly complied with and performed in all respects, in each case except for breaches as to matters that, in the aggregate, are not reasonably likely to result in Indemnifiable Damages (as defined in Section 9.1(a) below) in excess of $100,000. A certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Seller and each of the Stockholders shall have been delivered to Group 1; (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Acquisition and the transactions contemplated thereby will be in compliance with applicable laws; (c) Purchaser shall have received all requisite manufacturer's approvals of the Acquisition and the transactions contemplated thereby; (d) Purchaser shall have received evidence, satisfactory to Purchaser, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.10 and 6.11 hereto; (e) Purchaser shall have received executed representations from Seller and each Stockholder stating that such Seller or Stockholder (with respect to shares owned beneficially or of record by him, her or it) has no current plan or intention to sell or otherwise dispose of the Group 1 Common Stock to be received by him, her or it in the Acquisition, except as provided in Section 4.1 herein; (f) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of Seller shall have occurred, and Seller shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of Seller, and Group 1 shall have received a certificate signed by the chief executive officer of Seller dated the Closing Date to such effect; (g) Receipt by Group 1 of current or updated Phase I Environmental Surveys, at Seller's expense, prepared by a firm approved in writing by Group 1, showing no environmental problems or recommended actions, which will be performed at the discretion of Group 1; -26- 31 (h) Receipt by Group 1, at Sellers's expense, of a title commitment, issued by a title company, approved by Group 1, subject only to the exceptions described in Schedule 8.2(h) ("Permitted Title Exceptions"); (i) Receipt by Group 1, at Seller's expense, of a current ALTA survey of the Leased Properties showing the location of any improvements, prepared by a licensed surveyor approved by Group 1; (j) Receipt by Group 1 of the Lease Agreements executed by United Constructors Limited Company, United Properties Limited Company and Holiday Bowl, Inc. in accordance with Section 6.14 herein; (k) Receipt by Group 1 of Employment Agreements executed by the Stockholders in accordance with Section 6.15 herein; (l) Group 1 and Newco shall have received a favorable opinion of Sutin Thayer & Browne A Professional Corporation, counsel to Seller, dated the Closing Date, with respect to the matters set forth in Exhibit E hereto; (m) Receipt by Group 1 of the Seller 1997 Financial Statements, provided further, that the Seller 1997 Financial Statements shall not reflect any material adverse change from the Seller Interim Financial Statements; (n) Satisfaction or waiver of the conditions set forth in Article VIII of the Other Agreement and the simultaneous closing of the Other Acquisition; and (o) The Board of Directors of Group 1 shall have approved the Acquisition. 8.3 Additional Conditions Precedent to Obligations of Seller and the Stockholders. The obligation of the Stockholders to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects; and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to Seller. (b) Seller shall have received a favorable opinion of Vinson & Elkins L.L.P., Counsel to Purchaser, dated the Closing Date, with respect to the matters set forth in Exhibit F hereto. -27- 32 (c) Seller shall have received from Purchaser a Non-Taxable Transaction Certificate relating to Newco's acquisition of Seller's parts inventory for resale. ARTICLE IX INDEMNIFICATION 9.1 Agreement by Seller and the Stockholders to Indemnify. Seller and each Stockholder agree jointly and severally to indemnify, defend and hold Purchaser harmless (subject to the limitations set forth in Section 9.1(e) below) from and against the aggregate of all Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Indemnifiable Damages" means, without duplication, the aggregate of all losses incurred or suffered by Purchaser, on a pre-tax consolidated basis to the extent (i) resulting from any breach of a representation or warranty made by Seller or the Stockholders in or pursuant to this Agreement (provided, however, that for purposes of this indemnification, the representation and warranty contained in Section 3.17 of this Agreement shall be deemed to have been made without the qualification of knowledge), (ii) resulting from any breach of the covenants or agreements made by Seller or the Stockholders pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate or environmental report delivered by Seller or the Stockholders pursuant to this Agreement. For purposes of this Agreement, the term "loss" shall mean any and all direct or indirect payments, obligations, assessments, losses, loss of income, liabilities, fines, penalties, costs and expenses paid or incurred, or diminutions in value of any kind or character (whether known or unknown, conditional or unconditional, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise) that have occurred, including without limitation penalties, interest on any amount payable to a third party as a result of the foregoing and any legal or other expenses reasonably incurred in connection with investigating or defending any demands, claims, actions or causes of action that, if adversely determined, would likely result in losses, and all amounts paid in settlement of claims or actions. (b) Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Purchaser shall have the right to be put in the same pre-tax consolidated financial position as Purchaser would have been in had each of the representations and warranties of Seller and the Stockholders hereunder been true and correct and had the covenants and agreements of Seller and the Stockholders hereunder been performed in full. (c) Each of the representations and warranties made by Seller and the Stockholders in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date except (i) the representations and warranties of Seller and the Stockholders contained in Section 2.4(c)(i), Section 3.13 and Section 3.17 shall survive for five years, (ii) the representations and warranties of Seller and the Stockholders contained in Section 3.9 shall survive until all applicable limitations periods have expired and (iii) the representations and warranties of Seller and the Stockholders contained in Sections 3.1, 3.2, 3.3, 3.14(a)(i), 3.14(a)(xii) and 4.1 shall not expire, but shall continue indefinitely. No claim for the recovery of Indemnifiable Damages may be asserted by Purchaser against Seller or the Stockholders after such representations and warranties shall expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by -28- 33 investigation (and whether or not such party was negligent in connection with any such investigation), each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) If Purchaser believes it is entitled to a claim for any Indemnifiable Damages hereunder, Purchaser shall promptly give written notice to Seller and to the Stockholders of such claim and do the amount or the estimated amount of such claim, and the basis for such claim. If Seller or the Stockholders do not pay the amount of the claim for Indemnifiable Damages to Purchaser within 10 days, then Purchaser may exercise its respective rights under Section 9.3 and/or take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.1, Seller's and the Stockholders' liability for Indemnifiable Damages shall be limited as follows: (1) Purchaser shall have no claim for Indemnifiable Damages unless and until all Indemnifiable Damages incurred by Purchaser exceed an aggregate of $55,000 (the "Basket Amount"), in which event Seller and the Stockholders shall be liable for only such Indemnifiable Damages in excess of the Basket Amount; provided, however, that (A) the Basket Amount shall be reduced by the amount of any Indemnifiable Damages attributable to any matter set forth in any supplement or amendment to any Schedule, any breach of representation or warranty or any failure to comply with or perform any covenant, and (B) Purchaser shall have no obligation to close the transaction if such Indemnifiable Damages exceed $55,000. For example, (x) if the aggregate amount of such Indemnifiable Damages set forth in any supplement or amendment, or attributable to any breach of representation or warranty or failure to comply with or perform any covenant were $50,000, Purchaser would be obligated to close the transaction (assuming all closing conditions of Purchaser (other than Section 8.2(a) relating to representations and warranties) have been satisfied or waived) and the Basket Amount after the Closing would be $5,000; and (y) if such Indemnifiable Damages amounted to $200,000, Purchaser would not be obligated to close the transaction; but if it chooses to close the transaction, the Basket Amount after the closing would be $0, and Seller and the Stockholders would have an indemnification obligation to Purchaser of $145,000. (2) The total amount of Indemnifiable Damages for which Seller and the Stockholders shall be liable to Group 1 shall not exceed the value of the consideration received in the Acquisition, of which the stock portion shall be valued as provided in Section 2.3 herein. 9.2 Agreement by Purchaser to indemnify. Purchaser agrees to indemnify, defend and hold Seller harmless from and against the aggregate of all Seller Indemnifiable Damages (as defined below). -29- 34 (a) For purposes of this Agreement, "Seller Indemnifiable Damages" means, without duplication, the aggregate of all losses incurred or suffered by Seller, on a pre-tax consolidated basis, to the extent (i) resulting from any breach of a representation or warranty made by Purchaser in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by Purchaser in or pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by Purchaser pursuant to this Agreement. (b) Without limiting the generality of the foregoing, with respect to the measurement of Seller Indemnifiable Damages, Seller has the right to be put in the same pre-tax consolidated financial position as it would have been in had each of the representations and warranties of Purchaser hereunder been true and correct and had the covenants and agreements of Purchaser hereunder been performed in full. (c) Each of the representations and warranties made by Purchaser in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date. No claim for the recovery of Seller Indemnifiable Damages may be asserted by Seller against Purchaser after such representations and warranties shall thus expire, provided, however, that claims for Seller Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation (and whether or not such party was negligent in connection with any such investigation), each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) In the event that Seller believes it is entitled to a claim for any Seller Indemnifiable Damages hereunder, Seller shall promptly give written notice to Purchaser of such claim and the amount or the estimated amount of such claim, and the basis for such claim. 9.3 Conditions of Indemnification. The obligations and liabilities of Seller, the Stockholders and Purchaser hereunder with respect to their respective indemnities pursuant to this Article IX resulting from any claim or other assertion of liabilities by third parties (hereinafter called collectively "Claims"), shall be subject to the following terms and conditions: (a) the party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claim 10 business days after the Indemnified Party receives notice thereof (provided that failure to give notice within such 10 day period does not relieve the Indemnifying Party of his obligations to indemnify the Indemnified Party hereunder, except to the extent that such Indemnifying Party is harmed by the failure of the Indemnified Party to provide timely notice); (b) the Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claim; provided, however, if a Claim is made against Purchaser, then Purchaser shall have the right to control the defense of the Claim; -30- 35 (c) if the Indemnifying Party shall elect not to undertake such defense, or within a reasonable time after notice of any such Claim from the Indemnified Party shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claim at any time prior to settlement, compromise or final determination thereof); (d) anything in this Section 9.3 to the contrary notwithstanding, (A) the Indemnified Party shall have the right, at its own cost and expense, to have its own counsel to protect its own interests and participate in the defense, compromise or settlement of the Claim, (B) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claim or consent to entry of any judgement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim, and (C) the Indemnified Party, by counsel or other representatives of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claim, and the Indemnifying Party and the Indemnified Party and their respective counsel shall cooperate with respect to such Claim. 9.4 Applicability. THE PROVISIONS OF THIS ARTICLE IX SHALL APPLY NOTWITHSTANDING THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF THE INDEMNIFIED PARTY. IF BOTH THE INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY ARE NEGLIGENT OR OTHERWISE AT FAULT OR STRICTLY LIABLE WITHOUT FAULT, THE CONTRACTUAL OBLIGATIONS OF INDEMNIFICATION UNDER THIS ARTICLE IX SHALL CONTINUE, BUT THE INDEMNIFYING PARTY SHALL INDEMNIFY THE INDEMNIFIED PARTY ONLY FOR THE PERCENTAGE OF RESPONSIBILITY FOR THE DAMAGE OR INJURIES ATTRIBUTABLE TO THE INDEMNIFYING PARTY. 9.5 Statutory Requirement. If a court of competent jurisdiction determines that the provisions of Section 56-7-1 NMSA 1978, as amended, are applicable to this Agreement or any claim arising under this Agreement, then any agreement to indemnify in connection with this Agreement will not extend to liability, claims, damages, losses or expenses, including attorney fees, arising out of (1) the preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs or specifications by the indemnitee, or the agents or employees of the indemnitee, or (2) the giving of or the failure to give directions or instructions by the indemnitee, or the agents or employees of the indemnitee, where such giving or failure to give directions or instructions is the primary cause of bodily injury to persons or damage to property. ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. The Schedules to this Agreement, contain all disclosure required to be made by Seller and the Stockholders under the various terms and provisions of this Agreement. -31- 36 10.2 Certain Post-Closing Payments. (a) As soon as reasonably practicable after completion of the audited Group 1 consolidated financial statement for the year ending December 31, 1998, but in no event later than April 30, 1999, Seller shall receive from Newco a Post-Closing Payment calculated as follows: (i) the annualized income before income taxes of the Acquired Dealerships from Closing through December 31, 1998 will be determined based on the statements of operations of Newco and Other Newco included in the 1998 audited Group 1 consolidated financial statements (such statement of operations to be based upon the books and records of Newco and Other Newco); (ii) from this amount $4,425,000 will be deducted; and (iii) the result will be multiplied by 3.3. For purposes of this calculation, finance earnings will include earnings as reported in the December 31, 1998, Premier Auto Finance L.P. report of Newco's participation in the limited partnership (before the deferral relating to FASB #125) and will include income earned from Resource Group (or similar providing entity mutually agreeable to the parties) with respect to 1998 credit life, accident and health insurance and extended service contract operations of Newco and Other Newco. Prior to December 31, 1998, (i) the programs for finance, service and insurance income will not be changed without Seller's consent, (ii) Group 1 will not require Newco to change to more costly or less efficient providers than those used prior to Closing without Seller's consent, and (iii) any Group 1 allocations of indirect costs, indirect overhead or goodwill amortization will not be included in income before income taxes for purposes of the computation. The amount of this Post-Closing Payment will be paid in cash up to an amount of $3,445,000. Any amount payable up to and including this initial cash amount of $3,445,000 will be escalated at 8% per annum from the Closing Date. Any amounts due over $3,445,000 (as escalated) will be paid 50% in cash and 50% in Group 1 Common Stock at the Designated Value of Group 1 Common Stock as of the date of payment (such date to be fixed at least two weeks in advance of the payment, i.e. no later than April 16, 1999) and in accordance with the procedures, including the dispute resolution procedures, set forth for the payment of the Closing Payment. The parties hereto acknowledge that this Section 10.2(a) and Section 10.2(a) of the Other Agreement each require only one calculation and payment. Annualized income before income taxes of each Acquired Dealership shall equal (i) pre-tax income as previously described and included in the 1998 operations of Group 1, (ii) divided by the number of months the Acquired Dealership is included in the 1998 operations of Group 1, and (iii) which quotient shall be multiplied by 12. This same method of annualization shall be used with respect to the Additional Dealerships, if annualization is required by Section 10.2(b)(ii). (b) As additional consideration for the Assets, Seller and Stockholders are required to participate in Group 1's acquisition of Additional Dealerships (as defined below) following the Closing and to assume, with the mutual consent of Group 1 and Stockholders, managerial responsibility for such Additional Dealerships. As partial consideration for such participation, Group 1 will pay Seller as follows: (i) the income before income taxes of each Additional Dealership will be determined for the applicable Calculation Year and multiplied by 5.5, (ii) from this amount the Group 1 investment in the applicable Additional Dealership will be deducted, and (iii) the difference will be paid to Seller 50% in Group 1 Common Stock and 50% in cash. For purposes of this Section 10.2(b), (i) Additional Dealerships shall mean any dealerships acquired from the Closing Date through December 31, 2000, and those acquisitions -32- 37 which are in progress at such date and are consummated on or before June 30, 2001, which become part of the executive management responsibility of Stockholders and Seller; (ii) Calculation Year shall mean, with respect to each Additional Dealership, the first full calendar year following Group 1's completed acquisition of such Additional Dealership (except that the Calculation Year for any Additional Dealership acquired by Group 1 in the first quarter of a calendar year shall be that year, and income before income taxes for such dealership earned post-acquisition shall be annualized); (iii) in calculating the stock portion of any payment due to Sellers hereunder, Designated Value of Group 1 Common Stock will be used; (iv) Group 1 Investment shall be the purchase price paid by Group 1 with respect to each acquisition, costs of moving franchises to alternate facilities, costs of modification of facilities to accommodate expanded operations or any other investment in the operation required by Group 1 with respect to the Calculation Year; and (v) income before income taxes will be calculated in accordance with Section 10.2(a) herein. Any payments due to Seller under this Section 10.2(b) will be paid by Group 1 no later than April 30 of the calendar year immediately following the Calculation Year (with two weeks advance notice required to calculate the Designated Value of the Group 1 Common Stock to be paid). (c) The payments due to Seller under paragraphs (a) and (b) of this Section 10.2 (the "Post-Closing Payments," and together with the Closing Payment, as adjusted pursuant to Section 2.2, the "Purchase Price") are additional consideration for the Assets, and the parties hereto agree to report such amounts on such basis for income tax purposes. (d) Any Post-Closing Payments payable to Seller may be applied by Purchaser to offset any Indemnifiable Damages for which a Claim has been filed pursuant to Sections 9.1 and 9.3 herein. 10.3 Certain Repurchase Rights. In the event Group 1 elects to sell one or more of the dealerships under Stockholders' management (in a transaction not involving the sale of Group 1 or a major portion thereof), Stockholders shall have a right of first refusal on terms identical to the third party offer. Stockholders' right hereunder shall expire on the tenth anniversary of the Closing Date. 10.4 Non-Competition Obligations. (a) As an additional inducement for Purchaser to enter into this Agreement, the Stockholders and Purchaser agree to the non-competition provisions of this Section 10.4. Each Stockholder agrees that during the period of the Stockholder's non-competition obligations hereunder, the Stockholder will not, directly or indirectly for himself or herself or for others, within twelve miles of or in the county of any operations sold to Purchaser under this Agreement or operations subsequently under the executive management of such Stockholder as of the date in question or during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, including financing, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; -33- 38 (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Group 1 or any of its subsidiaries or affiliates. These non-competition obligations shall apply for the period specified in any employment agreement entered into by such Stockholder with Group 1 or its Subsidiaries. If Group 1 or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this non-competition covenant shall not apply to such former aspect of that business. Notwithstanding the foregoing, the non-competition obligations of this Section 10.4 shall not apply (i) to any Stockholder's operation and management of any dealership purchased in accordance with Section 10.3 hereof and (ii) with respect to (a) Kenneth E. Johns, such individual's passive investment in an automobile dealership owned and managed by members of his immediate family or affiliates of such individuals or (b) Cynthia C. Johns, such individual's investment and management participation in an automobile dealership owned and operated by members of her immediate family or affiliates of such individuals, provided that Mrs. Johns continues to devote substantially all of her business time, energy and best efforts to the business and affairs of Group 1, its subsidiaries and affiliates so long as she is an employee of Group 1 or any of its subsidiaries or affiliates. (b) During this non-competition period the Stockholders will not engage in these restricted activities or assist in the industry consolidation efforts on behalf of any publicly held entity in the automotive retailing industry (nor any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity), regardless of geographic area or market. (c) The Stockholders understand that the foregoing restrictions may limit their ability to engage in certain businesses during the period provided for above, but acknowledge that the Stockholders will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. The Stockholders acknowledge that money damages would not be sufficient remedy for any breach of this Section 10.4 by the Stockholders, and Group 1 or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Section 10.4 by terminating any payments then owing to the Stockholders under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Section 10.4, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Group 1 and the Stockholders' agents involved in such breach. (d) It is expressly understood and agreed that Group 1 and the Stockholders consider the restrictions contained in this Section 10.4 to be reasonably necessary to protect the legitimate business interests of Group 1 and its subsidiaries and affiliates, including the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having -34- 39 jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. (e) The parties hereto expressly acknowledge that Purchaser's rights under this Section 10.4 are assignable and that such rights shall be fully enforceable by any of Purchaser's assignees or successors in interest. 10.5 Termination. This Agreement may be terminated and the Acquisition and the other transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual consent of Purchaser and Seller; (b) by either Purchaser or Seller if the Acquisition has not been effected on or before March 31, 1998; (c) by either Purchaser or Seller if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Acquisition or the other transactions contemplated hereby shall have been entered; (d) by Purchaser if (i) since the date of this Agreement there has been a material adverse change in the business operations or financial condition of Seller; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by Seller or the Stockholders which breach has not been cured within ten business days following receipt by Seller of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the normalized pre-tax income (after addbacks) expected for Seller, on which the Purchase Price was based; (e) by Seller if there has been a material breach of any representation or warranty set forth in this Agreement by Purchaser which breach has not been cured within ten business days following receipt by Purchaser of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice); (f) by Group 1 if the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate hereunder shall expire thirty (30) calendar days following the execution of this Agreement; or (g) by Purchaser if the Seller 1997 Financial Statements reflect a material adverse change from the Seller Interim Financial Statements, except as contemplated by this Agreement. 10.6 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.5, Seller and Purchaser shall have no obligation or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1, 7.4 and 10.7 survive any such termination. -35- 40 10.7 Expenses. Regardless of whether the Acquisition is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby incurred by Purchaser shall be paid by Purchaser and all such costs and expenses incurred by Seller and the Stockholders shall be paid by the Sellers. Seller's expenses shall not be included in Assumed Liabilities. Seller and Purchaser each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.8 Restrictions on Transfer of Group 1 Common Stock. (a) During the one-year period ending on the anniversary of the Closing Date (the "Restricted Period"), neither Seller nor any Stockholder voluntarily will: (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of Group 1 Common Stock received by any such Seller or Stockholder in the Acquisition or (B) any interest in (including any option to buy or sell) any of those shares of Group 1 Common Stock, in whole or in part, and Group 1 will have no obligation to, and shall not, treat any such attempted transfer as effective for any purpose or (ii) engage in any transaction, whether or not with respect to any shares of Group 1 Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning the shares of Group 1 Common Stock acquired pursuant to this Agreement (including, for example, engaging in put, call, short sale, straddle or similar market transactions). Notwithstanding the foregoing, Seller may distribute shares of Group 1 Common Stock to the Stockholders, and Seller and each such Stockholder may (i) pledge shares of Group 1 Common Stock, provided that the pledgee of such shares shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (ii) transfer shares to immediate family members or the estate of any such individual (including, without limitation, any transfer by such Seller or Stockholder to or among any trust, custodial or other similar accounts or funds that are for the benefit of his or her immediate family members), provided that such person or entity shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (iii) transfer all of such shares to a charitable foundation, provided that such foundation (a) agrees not to sell or otherwise dispose of any such shares for the Restricted Period, and (b) executes a customary investor representation letter with respect to exemptions from the Securities Act and any applicable blue sky laws; and (iv) transfer shares by will or the laws of descent and distribution or otherwise by reason of such Stockholder's death. The certificates evidencing the Group 1 Common Stock delivered to Seller and each Stockholder pursuant to this Agreement will bear a legend substantially in the form set forth below and containing such other information as Group 1 may deem necessary or appropriate: EXCEPT PURSUANT TO THE TERMS OF THE ASSET PURCHASE AGREEMENT AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE -36- 41 LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. (b) Seller and each Stockholder, severally and not jointly with any other Person, (i) acknowledges that the shares of Group 1 Common Stock to be delivered to Seller and that Stockholder pursuant to this Agreement have not been and, if applicable, will not be registered under the Securities Act and therefore may not be resold by Seller or that Stockholder without compliance with the Securities Act and (ii) covenants that none of the shares of Group 1 Common Stock issued to Seller or that Stockholder pursuant to this Agreement will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all the applicable provisions of the Securities Act and the rules and regulations of the Commission and applicable state securities laws and regulations. All certificates evidencing shares of Group 1 Common Stock issued pursuant to this Agreement will bear the following legend in addition to the legend prescribed by Section 10.8(a): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." In addition, certificates evidencing shares of Group 1 Common Stock issued pursuant to the Acquisition to Seller and each Stockholder will bear any legend required by the securities or blue sky laws of the state in which Seller or that Stockholder resides. 10.9 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is, or whose stockholders are, entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. 10.10 Public Statements. Seller, the Stockholders and Purchaser agree to consult with each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law. 10.11 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other parties hereto. -37- 42 10.12 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: if to Seller: United Management, Inc. 7201 Lomas Blvd. NE Albuquerque, New Mexico 87110 Telecopy: (505) 262-8696 Attention: Kenneth E. Johns with a copy to: Sutin Thayer & Browne Two Park Square, Suite 1000 6565 Americas Parkway Albuquerque, New Mexico 87710 Attention: Graham Browne if to the Stockholders: Kenneth E. Johns and Cynthia C. Johns 1117 Salamanca St. NW Albuquerque, New Mexico 87106 Telecopy: (505) 344-0124 James J. Burns, Trustee 4801 Loop, 289 South Lubbock, Texas 79424 Telecopy: (806) 798-4592 if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.12. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back -38- 43 is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Delivery to the Stockholders' representative, if any, of any notice to Stockholders hereunder shall constitute delivery to all Stockholders and any notice given by such Stockholders' representative shall be deemed to be notice given by all Stockholders. 10.13 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Mexico, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.14 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.15 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.16 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. -39- 44 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ B.B. HOLLINGSWORTH, JR. ------------------------------------- Name: B.B. Hollingsworth, Jr. Title: Chairman, President and Chief Executive Officer CASA CHEVROLET INC. By: /s/ JOHN T. TURNER ------------------------------------- Name: John T. Turner Title: President UNITED MANAGEMENT, INC. By: /s/ KENNETH E. JOHNS ------------------------------------- Name: Kenneth E. Johns Title: President STOCKHOLDERS /s/ KENNETH E. JOHNS ----------------------------------------- Kenneth E. Johns /s/ CYNTHIA C. JOHNS ----------------------------------------- Cynthia C. Johns Johns Investment Trust By: /s/ JAMES J. BURNS ------------------------------------- James J. Burns, as Trustee for Jeffrey Johns and Julie Johns -40- 45 ANNEX I SCHEDULE OF DEFINED TERMS The following terms when used in the Agreement shall have the meanings set forth below unless the context shall otherwise require: "Aboveground Storage Tanks" and "Underground Storage Tanks" shall have the meanings given them in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree, as in effect as of the Closing Date, governing Aboveground Storage Tanks or Underground Storage Tanks. "affiliate" shall mean, with respect to any specified Person, any other Person who directly or indirectly, through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. "Agreement" shall mean the Asset Purchase Agreement made and entered into as of February 20, 1998 by and among Group 1, Newco, Seller and the Stockholders, including any amendments thereto and each Annex (including this Annex I), Exhibit and schedule thereto (including the Schedules). "Allocation of Purchase Price" shall have the meaning set forth in Sections 6.18 and 7.8 herein. "Assets" shall mean, except for the Excluded Assets set forth on Annex III, all of the assets, properties, goodwill, and rights (contractual or otherwise) of every kind, nature and description, real, personal or mixed, tangible or intangible and wherever situated purportedly owned or used by Seller relating to the business and operations of the Acquired Dealership, including, without limitation, the sale and service of new and used automobiles, trucks and related products, and the provision of financing and insurance in connection therewith under the names "Casa Chevrolet," and any derivations thereof. The Assets shall include the Assets listed on Annex II hereto. "Assumed Liabilities" shall mean all liabilities of Seller set forth on Annex IV hereto (which liabilities shall include all accounts payable of Seller attributable to the Acquired Dealership incurred in the ordinary course of business on or after December 31, 1997 that would be required to be recorded on its balance sheets prepared in accordance with generally accepted accounting principles). Without limiting the generality of the foregoing, the term "Assumed Liabilities" shall not include (a) any liabilities arising from or relating to any Excluded Assets, or (b) any transaction expenses or other amounts expressly provided to be paid by Seller pursuant to the provisions of this Agreement. "Benefit Program or Agreement" shall have the meaning set forth in Section 3.13. "Business Day" means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. "Closing" shall mean a meeting, which shall be held in accordance with Section 2.5, of representatives of the parties to the Agreement at which, among other things, all documents deemed necessary by the parties to the Agreement to evidence the fulfillment or waiver of all conditions -1- 46 precedent to the consummation of the transactions contemplated by the Agreement are executed and delivered. "Closing Date" shall mean the date of the Closing as determined pursuant to Section 2.5. "Closing Payment" shall have the meaning set forth in Section 2.1(b) herein. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Documents" shall have the meaning set forth in Section 3.2 herein. "Environmental Laws" shall mean all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, as in effect on the Closing Date, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the Regulations promulgated thereunder. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder. "Excluded Assets" shall mean those assets set forth on Annex III attached hereto. "Fixed Assets" shall mean all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures included in the Assets. "GAAP" shall mean accounting principles generally accepted in the United States as in effect from time to time consistently applied by a specified Person, as defined by the independent public accountants retained by Group. -2- 47 "Governmental Authority" shall mean any governmental agency or authority (other than a Court) of the Seller States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. "Guarantees" shall have the meaning set forth in Section 3.7 herein. "Hazardous Substance" shall mean any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, metals, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires remediation under any Environmental, Health and Safety Laws in effect on the Closing Date, including, without limitation, the United States Department of Transportation Table (49 CFR 172, 101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and any amendments thereto; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state statute or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnifiable Damages" shall have the meaning set forth in Section 9.1 herein. "Indemnified Party" shall have the meaning set forth in Section 9.3 herein. "Indemnifying Party" shall have the meaning set forth in Section 9.3 herein. "Intellectual Property" shall mean all patents, trademarks, copyrights and other proprietary rights. "IRS" shall mean the Internal Revenue Service. "Law" shall mean all laws, statutes, ordinances, rules and regulations of the United States, any foreign country, or any domestic or foreign state, and any political subdivision or agency thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Leased Properties" has the meaning set forth in Section 3.14 herein. -3- 48 "Licenses" shall mean all licenses, certificates, permits, approvals and registrations. "Lien" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Law of any jurisdiction. "Material Contract" has the meaning set forth in Section 3.7 herein. "Material Leases" shall have the meaning set forth in Section 3.7 herein. "Order" shall mean any judgment, order or decree of any Court or Governmental Authority, federal, foreign, state or local. "Owned Properties" shall have the meaning set forth in Section 3.14 herein. "Permitted Encumbrances" shall mean the following: (1) liens for taxes, assessments and other governmental charges not delinquent or which are currently being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (2) mechanics' and materialmen's liens not filed of record and similar charges not delinquent or which are filed of record but are being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (3) liens in respect of judgments or awards with respect to which the specified Person shall in good faith currently be prosecuting an appeal or other proceeding for review and with respect to which such Person shall have secured a stay of execution pending such appeal or such proceeding for review; provided that such Person shall have set aside on its books adequate reserves with respect thereto; (4) easements, leases, reservations or other rights of others in, or minor defects and irregularities in title to, property or assets of a specified Person; provided that such easements, leases, reservations, rights, defects or irregularities do not materially impair the use of such property or assets for the purposes for which they are held; and (5) any lien or privilege vested in any lessor, licensor or permittor for rent or other obligations of a specified Person thereunder so long as the payment of such rent or the performance of such obligations is not delinquent. "Person" shall mean an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Court or Governmental Authority. -4- 49 "Phase I Environmental Surveys" shall mean the surveys being prepared by O'Brien & Gere Engineers, Inc. "Plan" shall have the meaning set forth in Section 3.13. "Post-Closing Payments" shall have the meaning set forth in Section 10.2(c) herein. "Purchase Price" shall have the meaning set forth in Section 10.2(c) herein. "Related Party Agreements" shall have the meaning set forth in Section 3.7 herein. "Related Party Guarantees" shall have the meaning set forth in Section 6.10 herein. "Release" and "Discharge" shall have the meanings given them in the Environmental, Health and Safety Laws "Reports" shall mean, with respect to a specified Person, all reports, registrations, filings and other documents and instruments required to be filed by the specified Person or any of its Subsidiaries with any Governmental Authority. "Restricted Period" shall have the meaning set forth in Section 10.8 herein. "SEC Documents" shall mean the Group 1 Automotive, Inc. Prospectus dated October 29, 1997, Form 10-Q for the third quarter ended September 30, 1997, and Form 8-K dated December 17, 1997. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Seller" shall mean United Management, Inc., a New Mexico corporation, all predecessor entities of Seller and its successors from time to time. "Seller 1997 Balance Sheet" shall have the meaning set forth in Section 6.16 herein. "Seller 1997 Financial Statements" shall have the meaning set forth in Section 6.16 herein. "Seller Indemnifiable Damages" shall have the meaning set forth in Section 9.2 herein. "Seller's 401(k) Plan" shall have the meaning set forth in Section 2.4(c) herein. A "Subsidiary" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. "Tax Returns" shall mean all returns, reports and filings relating to Taxes. -5- 50 "Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, payroll and franchises imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof. "Terminated Benefit Plans" shall mean Benefit Plans that were sponsored, maintained, or contributed to by a specified Person or any of its Subsidiaries within six years prior to the date of the Agreement but which have been terminated prior to the date of the Agreement. "Waste" shall mean toxic agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash; provided, however, the term "Waste" shall not include scrap metal. -6- 51 ANNEX II ASSETS [All to be as included in the Manufacturer Financial Statements (MS) for Westside and Casa, prepared as of the Closing Date, unless otherwise indicated below] Total cash & equivalents MS Total receivables MS Total inventories MS Prepaid expenses MS Other assets & investments MS Service equipment; company cars & service vehicles; furniture, signs & equipment (except as included in EXCLUDED ASSETS) MS Contracts Schedule 3.7 Permits Schedule 3.12 Insurance Schedule 3.15 Bank accounts Schedule 3.19 Names, reputation, intellectual property and goodwill (except as included in EXCLUDED ASSETS) to include the following: o Competitor information including notes of meetings, financial analyses, valuation studies, personal notes, lists of acquisition candidates, etc. o Market information, including market studies, market sales history, personal notes and list of top performing dealership employees in market for possible future hire, etc. o Manufacturer information including correspondence to and from manufacturers, sales and service agreements, financial analyses prepared by manufacturers, notes of meetings, competitor analyses, CSI reports/comparisons, manufacturers channeling strategies, personal notes, etc. o Market and legal data from local and state automobile dealer associations o Reports received from any consultants regarding market or competitor o Regional and local market maps and population trends o Architectural plans for new facilities o Market demographics studies o Market research on cost savings or consolidation of the market o Organization charts for multi-dealer franchise groups o Regional and local compensation information o Business Plan 52 ANNEX III EXCLUDED ASSETS All real estate "United Management" and all derivations thereof Personal furniture and office accessories of Kenneth E. Johns and Cynthia C. Johns 53 ANNEX IV ASSUMED LIABILITIES Except as indicated below, the Assumed Liabilities shall include all liabilities of the Acquired Dealership at Closing that would be recorded on the Seller's Closing Date balance sheet prepared consistently with Seller's past accounting principles and practices, including accounts and notes payable, accrued expenses, and other liabilities and obligations. The Assumed Liabilities shall also include accounts payable, accrued expenses, and other liabilities and obligations incurred by the Acquired Dealership prior to Closing in the normal course of its business that may not have been reflected on the Seller's Closing balance sheet prepared consistently with Seller's past accounting principles and practices. Without limiting the foregoing, Assumed Liabilities shall also include future chargebacks of finance, insurance and service contracts commission income on prematurely terminated contracts sold by the Acquired Dealership, the obligation to perform on limited guarantees made to financial institutions by the Acquired Dealership to enable customers to obtain financing for vehicles purchased from Seller, contractual obligations referred to in Schedule 3.7(i)(b) and 3.7(ii)(a)(1), to the extent that such contractual obligations are normal and customary contracts relating to the normal operation of the Acquired Dealership, with no unusual, material negative terms, and Seller's benefit plan identified on Section 2.4(c). In addition, at the Closing Date, Purchaser will obtain substitute floor plan financing the proceeds of which will be used to pay off any amounts outstanding on Seller's floor plan financing and will obtain substitute line of credit financing which will pay off any amounts outstanding on Seller's line of credit financing, in accordance with Section 7.9. Purchaser will not assume any obligations or liabilities arising from any of the contracts, leases, guarantees or Related Party Agreements referred to in Schedules 6.10, 3.7(i)(a), (ii)(b), (iii)(b), (iii)(c), (iii)(d), (iii)(e), (iv)(a), and (iv)(c). EX-10.51 22 ASSET PURCHASE AGREEMENT - CASA CHRYSLER PLYMOUTH 1 EXHIBIT 10.51 ASSET PURCHASE AGREEMENT AMONG GROUP 1 AUTOMOTIVE, INC., CASA CHRYSLER PLYMOUTH JEEP INC., A WHOLLY OWNED SUBSIDIARY OF GROUP 1 AUTOMOTIVE, INC., UNITED MANAGEMENT, INC., AND THE STOCKHOLDERS OF UNITED MANAGEMENT, INC. DATED AS OF February 25, 1998 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II THE ACQUISITION 2.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Working Capital Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Group 1 Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.4 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.5 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS 3.1 Approval and Authority; Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2 Authorization of Agreement - No Violation - No Consents . . . . . . . . . . . . . . . . . . . . . . . 6 3.3 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.5 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.6 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.7 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.8 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.11 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.12 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.13 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.14 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.15 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.16 Affiliate Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.17 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.18 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.19 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.20 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.21 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.22 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.23 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.24 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS 4.1 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.5 Authorization For Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VI COVENANTS OF THE SELLER AND THE STOCKHOLDERS 6.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.3 Conduct of Business by Seller Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . . . 18 6.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.5 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.10 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.11 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.12 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.13 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.15 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.16 Audit of Seller Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.17 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.18 Record Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-ii- 4 ARTICLE VII COVENANTS OF PURCHASER 7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.5 New Limited Partnership Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.6 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.8 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.9 Security for Newco Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 25 8.2 Additional Conditions Precedent to Obligations of Purchaser . . . . . . . . . . . . . . . . . . . . 25 8.3 Additional Conditions Precedent to Obligations of Seller and the Stockholders . . . . . . . . . . . 26 ARTICLE IX INDEMNIFICATION 9.1 Agreement by Seller and the Stockholders to Indemnify . . . . . . . . . . . . . . . . . . . . . . . 27 9.2 Agreement by Purchaser to indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.4 Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 9.5 Statutory Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.2 Certain Post-Closing Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.3 Certain Repurchase Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.4 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.6 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.8 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.9 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.10 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.16 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-iii- 5 GROUP 1 AUTOMOTIVE, INC. ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this "Agreement"), dated as of the 25th day of February, 1998, is among GROUP 1 AUTOMOTIVE, INC., a Delaware corporation ("Group 1"), CASA CHRYSLER PLYMOUTH JEEP INC. a New Mexico corporation and a wholly owned subsidiary of Group 1 ("Newco," and together with Group 1, "Purchaser"), UNITED MANAGEMENT, INC., a New Mexico corporation ("Seller"), and THE STOCKHOLDERS OF SELLER (each a "Stockholder" and collectively the "Stockholders") set forth on the signature page hereof. RECITALS: WHEREAS, Seller is presently a party to a Sales and Service Agreement with Chrysler Corp. (the "Manufacturer"), which provides for the sale and service of Chrysler Plymouth Jeep vehicles ("Acquired Dealership") at 9733 Coors Blvd. NW, Albuquerque, New Mexico (the "Acquired Dealership Location"); WHEREAS, Purchaser wishes to acquire the Assets (as hereinafter defined) of the Acquired Dealership for the purpose of succeeding Seller as the authorized Chrysler dealer at the Acquired Dealership Location (the "Acquisition"); WHEREAS, Group 1 has formed Newco to acquire the Assets; WHEREAS, the parties hereto have executed an agreement substantially similar to this Agreement (the "Other Agreement") dated as of the date hereof by and among Group 1, Casa Chevrolet Inc., a wholly-owned subsidiary of Group 1 ("Other Newco"), Seller and the Stockholders providing for Group 1's acquisition (the "Other Acquisition") of all assets related to Seller's sale and service of Chevrolet vehicles and related activities at 7201 Lomas NE, Albuquerque, New Mexico (the "Other Dealership"). For the purposes of this Agreement, the Acquired Dealership and the Other Dealership shall be referred to collectively as the "Acquired Dealerships." WHEREAS, the parties hereto wish to set forth the representations, warranties, agreements and conditions under which Purchaser shall purchase, and Seller shall sell, all of the Assets; and NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex I hereto and are used herein with the meanings ascribed to them therein. 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined has the meaning -1- 6 ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. ARTICLE II THE ACQUISITION 2.1 The Acquisition. (a) Assets to be Sold. (i) Subject to the terms and conditions of this Agreement, at the closing provided for in Section 2.5 hereof (the "Closing"), Seller will, sell, convey, assign, transfer and deliver to Newco all of Seller's right, title and interest at the time of the Closing in and to the Assets free and clear of any mortgage, pledge, lien, charge, encumbrance or other adverse claim (whether absolute, accrued, contingent or otherwise), except as otherwise disclosed in Schedule 3.1. (ii) Such sale, conveyance, assignment, transfer and delivery will be effected by delivery by Seller to Newco of (A) a duly executed bill of sale ("Bill of Sale") in the form of Exhibit A annexed hereto, (B) instruments of assignment (collectively the "Instruments of Assignment"), and (C) such other good and sufficient instruments of conveyance and transfer as shall be necessary to vest in Newco (subject to the terms of this Agreement) good and marketable title to the Assets (collectively the "Other Instruments"), free and clear of all mortgages, pledges, liens, charges, encumbrances and other adverse claims (whether absolute, accrued, contingent or otherwise), except as otherwise disclosed in Schedule 3.1. (b) Closing Payment. At the Closing, Seller will sell, transfer, convey and deliver to Newco the Assets, in exchange for (a) (i) $7,224,750 in cash, by a certified or bank cashier's check, subject to adjustment as set forth in Section 2.2, and (ii) 393,750 shares of common stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") as set forth in Section 2.3, (clauses (i) and (ii) are collectively referred to as the "Closing Payment") and (b) the assumption or discharge by Newco of the Assumed Liabilities, all of which are listed on Annex IV attached hereto. Except for the Assumed Liabilities, Purchaser shall not assume or otherwise be liable for, and shall be indemnified with respect to, in accordance with the provisions of Section 9.1 hereof, all other liabilities and obligations of Seller. (c) Assumption of Liabilities. Newco shall at Closing execute and deliver to Seller an undertaking, in the form attached hereto as Exhibit B (the "Undertaking"), whereby Newco will, as specified therein, assume and agree to pay and discharge the Assumed Liabilities of Seller. -2- 7 2.2 Working Capital Adjustment. (a) Adjustment. The cash portion of the Closing Payment set forth in Section 2.1(a)(i) shall be adjusted based on the product of (i) the difference of (x) the amount of Working Capital (as defined below) on the Closing Date, less (y) $5,163,000, times (ii) 0.45 (the "Working Capital Adjustment"). If the Working Capital Adjustment is positive, then the cash portion of the Closing Payment shall be increased by the amount of the Working Capital Adjustment. If the Working Capital Adjustment is negative, then the cash portion of the Closing Payment shall be reduced by the amount of the Working Capital Adjustment. (b) Procedure. As promptly as possible, but in any event within sixty (60) days after the Closing, Purchaser will deliver to Seller a schedule setting forth the calculation of the Working Capital Adjustment (the "Adjustment Schedule"). Seller and its independent certified public accountant shall have the right to observe and comment upon the preparation of such schedule, including the taking of a physical inventory of the new and used automobiles of the Acquired Dealership, which physical inventory shall be taken at Purchaser's expense on the Closing Date. Within thirty (30) days after receipt of the Adjustment Schedule by Seller, Seller may notify Purchaser in writing that such schedule does not fairly state the Working Capital Adjustment in accordance with the provisions of this Agreement, setting forth in full the respects in which it fails to do so and the reasons for reaching that conclusion. In the event that Purchaser and Seller are unable to resolve any dispute so raised within sixty (60) days after receipt of the Adjustment Schedule by Seller, they shall appoint an independent, nationwide accounting firm acceptable to both of them, whose expenses will be shared equally by Seller, on the one hand, and Purchaser, on the other hand. Such accounting firm shall as promptly as possible determine whether the Adjustment Schedule fairly states, in accordance with the provisions of this Agreement, the values of the items as to which Seller has taken issue and, if such firm concludes that it does not do so with respect to any of such items, the value which in such firm's opinion does so shall be final and dispositive. The determination of the Working Capital Adjustment by such independent firm shall be conclusive and binding on the parties hereto. (c) Payment. Within five (5) days after receipt of the report by such accounting firm or the settlement of any dispute, or within thirty-five (35) days following receipt of the Adjustment Schedule by Seller if no dispute exists, payment shall be made of the Working Capital Adjustment, if any. If the Working Capital Adjustment is positive, such amount shall be paid in cash by a certified or bank cashier's check by Purchaser to Seller. If the Working Capital Adjustment is negative, such amount shall be paid in cash by a certified or bank cashier's check by Seller to Purchaser. (d) Working Capital. For purposes of calculating the Working Capital Adjustment, the term "Working Capital" shall mean, as of the Closing Date, the Seller's current assets less current liabilities as of such date with respect to the Acquired Dealerships, all calculated in accordance with GAAP, on a basis consistent with the preparation of the Seller 1997 Balance Sheet, with inventory being valued at the lower of cost, determined by the first-in, first-out method ("FIFO"), or market; provided, however, that Seller's current assets or liabilities with respect to the Acquired Dealership for the purposes of this calculation shall not give effect to (i) any charge-back reserve resulting from the audit of the Seller 1997 Balance Sheet, and (ii) any -3- 8 expenditures of working capital, made in accordance with Section 6.3 hereof, to acquire equipment and other Fixed Assets sold to Purchaser pursuant to this Agreement. 2.3 Group 1 Common Stock. The number of shares of Group 1 Common Stock to be issued to Seller at Closing shall be appropriately adjusted to give effect to any stock split or stock dividend of Group 1 Common Stock effected prior to the Closing Date. The "Designated Value of Group 1 Common Stock" shall mean the average closing price of Group 1 Common Stock on the New York Stock Exchange for the five full trading days immediately preceding the date specified. No fractional shares of Group 1 Common Stock shall be issued, but in lieu thereof, Seller shall receive cash for any fractional shares at the Designated Value of Group 1 Common Stock. 2.4 Employees. (a) Continued Employment. Except as Newco has otherwise heretofore disclosed to Seller, Newco will offer to employ, beginning on the Closing Date, all of those persons who are employed by Seller on a full-time basis with respect to the Acquired Dealership on the Closing Date, upon total compensation and benefit terms substantially commensurate with the total compensation and benefit terms of the employee's employment with Seller. Newco further agrees that with respect to any such employee who presently is employed by Seller pursuant to a written employment contract, Newco's offer of employment to such employee shall be expressly conditioned upon the execution and delivery by such employee of a written release relieving and discharging Seller from any obligation or liability following the Closing Date under such employment contract and Newco shall deliver a written copy of any such offer to Seller. Seller agrees to cooperate with Newco by permitting Newco throughout the period prior to the Closing Date (i) to inspect such employees' medical and other employment records maintained by Seller, (ii) to meet with the employees of Seller at such times as shall be approved by a representative of Seller (which approval will not be unreasonably withheld) and (iii) to distribute to such employees such forms and other documents relating to employment by Newco after the Closing as Newco shall reasonably request. (b) Benefits, Workers' Compensation. Seller agrees that, with respect to claims for workers' compensation and all claims under Seller's employee benefit programs by persons working for Seller with respect to the Acquired Dealership arising out of events occurring prior to the Closing Date, whether insured or otherwise (including, but not limited to, workers' compensation, life insurance, medical and disability programs), Seller will, at its own expense, honor or cause its insurance carriers to honor such claims in accordance with the terms and conditions of such programs or applicable workers' compensation statutes without interruption as a result of the employment by Newco of any such employees on or after the Closing Date. (c) 401(k) Matters. Newco shall assume at Closing the Ken and Cindy Johns Automotive Group 401(k) Profit Sharing Plan (the "Seller's 401(k) Plan"). (d) Vacation Pay. Seller shall accrue in the Seller 1997 Balance Sheet a liability for the amount due for vacation pay with respect to employees of Seller for vacation due but not taken. Newco will thereafter assume responsibility under Newco's vacation program for such vacation due but not taken. -4- 9 (e) Severance Pay. Seller will promptly reimburse Newco and otherwise hold Newco harmless from and against all direct and indirect costs, expenses and liabilities of any sort whatsoever arising from or relating to any claims by or on behalf of present or former employees of Seller in respect of severance pay and similar obligations relating to the termination of such employee's employment on or prior to the Closing Date. (f) Purchaser's Plans. Effective as of the Closing Date until January 1, 1999 Purchaser shall continue the same health plans currently provided by Seller to its employees with respect to each employee of Seller who is hired by Newco pursuant to Section 2.4(a) ("Transferring Employees"), and after January 1, 1999, Purchaser shall cause each Transferring Employee to be provided with benefits on a basis substantially similar to Purchaser's normal practice. Purchaser shall cause each Transferring Employee to be covered under a group health plan that (i) provides medical and dental benefits to the Transferring Employee, (ii) credits such Transferring Employee, for the year during which such coverage under such group health plan begins, with any deductibles and copayments already incurred during such year under the group health plan maintained by Seller listed on Schedule 3.13(a), and (iii) waives any preexisting condition restrictions to the extent necessary to provide immediate coverage and to the extent such restrictions did not apply under the group health plan maintained by Seller. Purchaser shall cause the employee benefit plans and programs maintained after the Closing by Purchaser to recognize each Transferring Employee's years of service and level of seniority prior to the Closing Date with Seller and its affiliates for purposes of terms of employment and eligibility, vesting and benefit determination under such plans and programs (other than benefit accruals under any defined benefit pension plan). 2.5 Closing. The Closing of the purchase and sale of the Assets as contemplated by this Agreement shall take place at the offices of Sutin Thayer & Browne, Two Park Square, 6565 Americas Parkway, Albuquerque, New Mexico 87110, on a date mutually established by the parties following the satisfaction or waiver of the conditions set forth in Article VIII or at such other time and place and on such other date as Purchaser and Seller shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date." (a) Delivery by Seller. At the Closing, Seller will deliver to Newco (unless delivered previously), the following: (i) a duly executed Bill of Sale substantially in the form of Exhibit A hereto; (ii) the Instruments of Assignment and Other Instruments, in form and substance satisfactory to Newco, pursuant to Section 2.1(a)(ii); (iii)true copies of any consents referred to in Section 3.2 hereof; (iv) the opinion of counsel referred to in Section 8.2(l) hereof; (v) all the books and records of Seller pertaining to the Assets; (vi) executed copies of the Leases referred to in Sections 6.14 and 7.6 hereto; -5- 10 (vii) executed copies of the Employment Agreements; and (viii) all other documents, instruments and writings required to be delivered by Seller at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. (b) Delivery by Newco. At the Closing, Newco will deliver to Seller (unless previously delivered), the following: (i) the certified or bank cashier's check referred to in Section 2.1(b) hereof; (ii) the certificates representing Group 1 Common Stock pursuant to Section 2.1(b) hereof; (iii) the Undertaking referred to in Section 2.1(c) hereof; (iv) the opinion referred to in Section 8.3(b) hereof; (v) executed copies of the Leases referred to in Sections 6.14 and 7.6 hereto; (vi) executed copies of the Employment Agreements; and (vii) all other documents, instruments and writings required to be delivered by Newco at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS The Seller and the Stockholders, jointly and severally, represent and warrant to Group 1 as follows: 3.1 Approval and Authority; Title to Assets. The Seller has the full right, power and authority to enter into this Agreement and to perform all of its obligations under this Agreement, and the execution and delivery of this Agreement and the performance by Seller of its obligations under this Agreement require no further action or approval of any other person in order to constitute this Agreement as a binding and enforceable obligation of Seller. Except as disclosed in Schedule 3.1, Seller has good and indefeasible title to the Assets, free and clear of any claim, pledge, lien, charge, encumbrance, mortgage or other adverse claim. 3.2 Authorization of Agreement - No Violation - No Consents. The Seller has full power and authority to enter into this Agreement and the other documents delivered pursuant to this Agreement (collectively, the "Documents"). Except as disclosed in Schedule 3.2, neither the execution and delivery by Seller and the Stockholders of the Documents, nor the performance by Seller and the Stockholders of their obligations under the Documents will (assuming receipt of all consents, approvals, -6- 11 authorizations, permits, certificates and orders disclosed as requisite in Schedule 3.2) (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) any applicable permits received from any Governmental Authority (iv) the articles of incorporation or bylaws or other organizational documents of Seller or (v) any contract or agreement to which Seller or the Stockholders are a party or by which they, or any of the Assets, are bound; or (b) result in the creation or imposition of any Lien on any of the Assets; or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority; or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. Except for the applicable requirements, if any, of the HSR Act and as expressly contemplated by the Documents, no consent, action, approval or authorization of, or registration, declaration or filing with, any Court, Governmental Authority or any other person or entity is required to authorize, or is otherwise required in connection with, the execution and delivery of the Documents by any Seller, performance of the terms of the Documents or the validity or enforceability of the Documents. This Agreement and each Document delivered pursuant hereto constitutes the legal, valid and binding obligation of Seller and the Stockholders enforceable against each such Person in accordance with its terms. 3.3 Subsidiaries; Equity Investments. Seller has not controlled directly or indirectly, or had any direct or indirect equity participation in any corporation during the five-year period preceding the date hereof. 3.4 Financial Statements. Included in Schedule 3.4 are true and complete copies of the financial statements of Seller consisting of an unaudited balance sheet of Seller as of December 31, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the twelve-month period then ended (collectively, the "Seller Interim Financial Statements"). Except as provided in Schedule 3.4, the Seller Interim Financial Statements present fairly the financial position of Seller and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. Except as provided in Schedule 3.4, the Seller Interim Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of Seller reflected in the Seller Interim Financial Statements and as incurred since December 31, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful accounts or applicable chargebacks shown in the Seller Interim Financial Statements) in the ordinary course of business and, except as disclosed in Schedule 3.4, are not in dispute or subject to counterclaim, set-off or renegotiation. Seller has delivered to Purchaser a report which contains an aged schedule of accounts receivable included in the Interim Balance Sheet. 3.5 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet or as disclosed in Schedule 3.5, Seller does not have any material liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP. 3.6 Certain Agreements. Except as disclosed in Schedule 3.6, neither Seller nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a noncompetition, territorial exclusivity or other provision -7- 12 covering such subject matter purportedly enforceable by a third party against Seller or any of its officers or directors, the scope of the business or operations of Seller or any of its officers or directors, geographically or otherwise. 3.7 Contracts and Commitments. Schedule 3.7 includes (i) a list of all contracts to which Seller is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of Seller, taken as a whole ("Material Contracts"); (ii) a list of all real or personal property leases to which Seller is a lessee involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which Seller is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between Seller and any of their officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. All of the Material Contracts, Material Leases, Guarantees and Related Party Agreements are valid, binding and in full force and effect and are enforceable by the Seller in accordance with their terms. The Seller has performed all material obligations required to be performed by it to date under the Material Contracts, Material Leases, Guarantees and Related Party Agreements and Seller is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder and, to the knowledge of Seller or Stockholders, no other party to any of the Material Contracts, Material Leases, Guarantees or Related Party Agreements (with or without the lapse of time or the giving of notice, or both) is in breach or default in any material respect thereunder. 3.8 Absence of Changes. Except as disclosed in Schedule 3.8, there has not been, since December 31, 1997, any material adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of Seller. Except as disclosed in Schedule 3.8, since December 31, 1997, Seller has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. Notwithstanding the preceding sentence, Seller makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since December 31, 1997, for any employee who after such increase would receive annual compensation of less than $50,000. 3.9 Tax Matters. (a) Except for filings and payments of assessments the failure of which to file or pay will not materially adversely affect the Assets, (i) all Tax Returns which are required to be filed on or before the Closing Date by or with respect to Seller have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to Seller have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. -8- 13 (b) No Tax Returns of or with respect to Seller for tax years subsequent to 1992 (other than a luxury tax audit) have been audited by the applicable Governmental Authority. The applicable statute of limitations has expired for all periods up to and including the periods set forth in Schedule 3.9(b). (c) There is no claim against Seller for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or with respect to Seller other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.9(c). (d) There is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to Seller or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to Seller. (e) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to Seller up to and through the periods covered thereby. (f) All Tax allocation or sharing agreements affecting Seller shall be terminated prior to the Closing Date and no payments shall be due or will become due by Seller on or after the Closing Date pursuant to any such agreement or arrangement. (g) Seller will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. (h) Seller has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (i) From the end of its most recent tax year through the Closing Date, (a) Seller continuously has been and will be an S Corporation within the meaning of section 1361 of the Code, and (b) each holder of Seller common stock has been an individual resident of the United States or an estate or trust described in section 1361(c)(2) that is permitted to hold the stock of an S Corporation. 3.10 Litigation. (a) Except as disclosed in Schedule 3.10(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of Seller or Stockholders, threatened against or specifically affecting the Assets, Seller before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent disclosed in Schedule 3.10(b), Seller has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of Seller and the Stockholders, no event has occurred which, with the lapse of time or action by a third party could result in a default under -9- 14 any contract or other agreement to which Seller is a party or by which it or any of the Assets are bound or under any applicable Order of any Court or Governmental Authority. 3.11 Compliance with Law. Except as disclosed in Schedule 3.11, Seller is in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. 3.12 Permits. Except as disclosed in Schedule 3.12, Seller owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities necessary for the operation of the Acquired Dealership. A listing of all such items owned or held by Seller, with their expiration dates, is included in Schedule 3.12. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and Seller is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. 3.13 Employee Benefit Plans and Policies. (a) Schedule 3.13(a) provides a description of each of the following which is sponsored, maintained or contributed to by Seller for the benefit of its employees, or has been so sponsored, maintained or contributed to within six years prior to the Closing Date: (i) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA ("Plan"); and (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement and each other employee benefit plan, agreement, arrangement, program, practice or understanding that is not disclosed in Section 3.13(a)(i) ("Benefit Program or Agreement"). True and complete copies of each of the Plans, Benefit Programs or Agreements, related trusts, if applicable, and all amendments thereto, have been furnished to Group 1. (b) Seller's 401(k) Plan satisfies in form the requirements of Section 401 of the Code, except to the extent amendments are not required by law to be made until a date after the Closing Date, and has not been operated in a way that would adversely affect its qualified status. (c) There has been no termination or partial termination of Seller's 401(k) Plan within the meaning of Section 411(d)(3) of the Code. (d) There are no actions, suits or claims pending (other than routine claims for benefits) or threatened against, or with respect to, Seller's 401(k) Plan or its assets. (e) There is no matter pending with respect to Seller's 401(k) Plan before the IRS, the Department of Labor or other Governmental Authority. -10- 15 (f) All contributions required to be made to Seller's 401(k) Plan pursuant to its terms and the provisions of ERISA, the Code, or any other applicable Law have been timely made. (g) Schedule 3.13(g) sets forth by name and job description of the employees of Seller with respect to the Acquired Dealership as of the date of this Agreement. None of said employees are subject to union or collective bargaining agreements. Seller has not at any time had or been threatened with any work stoppages or other labor disputes or controversies with respect to its employees. 3.14 Properties. (a) Seller owns, and will retain as Excluded Assets, the real properties described in Schedule 3.14(a)(1) (the "Owned Properties"). Seller does not lease any real property or any interest therein except as disclosed in Schedule 3.14(a)(2) (the "Leased Properties"), which sets forth the location and size of, principal improvements and buildings on, and Liens on the Leased Properties. True and correct copies of all Liens are attached to Schedule 3.14(a)(2) or have been delivered to Purchaser. Except as disclosed in Schedule 3.14(a)(2), with respect to each such parcel of Leased Property: (i) Seller has a good, valid and enforceable leasehold interest in each parcel of its Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of Seller or Stockholders, threatened condemnation proceedings, suits or administrative actions relating to the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) except as disclosed in Schedule 3.14(a)(iii), the legal descriptions for the parcels of Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the ownership or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Leased Property, except as disclosed in Schedule 3.14(a)(v); -11- 16 (vi) there are no outstanding options or rights of first refusal to purchase the parcels of Leased Property, or any portion thereof or interest therein; (vii) there are no parties (other than Seller) in possession of the parcels of Leased Property, other than tenants under any leases disclosed in Schedule 3.14(a)(vii) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Leased Property are supplied with utilities and other services necessary for the operation of such facilities; (ix) each parcel of Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Leased Property are in good repair and adequate for the use of such Leased Property in the manner in which presently used; (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Leased Property, except as set forth in Schedule 3.14(a)(xi); and (xii) the owners of each parcel of real property leased to Seller as part of the Leased Properties have good and valid title to such properties, free and clear of any Lien other than Permitted Encumbrances. (b) Except as disclosed in Schedule 3.14(b), Seller has good and marketable title to all of the Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of Seller are in good operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.15 Insurance. Schedule 3.15 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Acquired Dealership (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. Seller is presently insured, and since the inception of operations by Seller has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. Seller has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as disclosed in Schedule 3.15, no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. Seller has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. 3.16 Affiliate Interests. Except as disclosed in Schedule 3.16, no employee, officer or director, or former employee, officer or director, of Seller has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business information, trademarks, service marks or trade names, used in or pertaining to the business of Seller, except for the normal rights of employees and stockholders. -12- 17 3.17 Environmental Matters. Except as disclosed in Schedule 3.17, to the best knowledge of Seller and the Stockholders: (a) Seller is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, dumping, discharging, release or disposal of Hazardous Substances, or other Waste. Seller is not currently liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. Seller is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. (b) Seller has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of its business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.17(b)), and Seller is in compliance with all the terms, conditions and requirements of such Licenses, and copies of such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or, to the knowledge of Seller or Stockholders, threatened by any Governmental Authority or third parties against Seller or its business, operations, properties, or assets, which question the validity or entitlement of Seller to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of Seller and the operation of its business. (c) Seller has not received nor is aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving Seller or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of their business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) Seller is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Owned Properties or the Leased Properties. (e) Seller has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, -13- 18 treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. Seller has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. (f) Seller has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Owned Properties or the Leased Properties or to any properties adjacent thereto. (g) Seller has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor has it allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified Seller that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Seller has not received notice or have knowledge of any facts which could give rise to any notice, that Seller is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. Seller has not submitted nor was required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, Seller. Seller has not received any written nor, to the knowledge of Seller or Stockholders, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where Seller has transported, transferred or disposed of other Wastes. Seller has no been required to nor has undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. Seller has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) Seller has no Aboveground Storage Tanks or Underground Storage Tanks, except as disclosed in Schedule 3.17(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which Seller or Stockholders are aware undertaken by Seller or Stockholders, or by any Governmental Authority, or by any third party, relating to Seller or any of the Owned Properties or the Leased Properties; (ii) the results of which Seller or Stockholders are aware of any ground, water, soil, air or asbestos monitoring undertaken by Seller, or by any Governmental Authority, or by any third party, relating to Seller, or any of the Owned Properties or the Leased Properties; (iii) all written communications between Seller and any Governmental Authority arising under or related to Environmental, Laws; and (iv) all citations issued under OSHA, or similar state or -14- 19 local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting Seller or any of the Owned Properties or the Leased Properties. (j) Schedule 3.17(j) contains a list of the assets of Seller which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as disclosed in Schedule 3.17(j), Seller has operated and continues to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as disclosed in Schedule 3.17(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, directly affecting or, to the knowledge of Seller or Stockholders, threatened against Seller or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with its assets and operations. (k) Any references in this Section 3.17 to the "Owned Properties" or the "Leased Properties" are deemed to also refer to any properties previously owned or leased by Seller. 3.18 Intellectual Property. Except with respect to the Excluded Assets and as set forth in Schedule 3.18, Seller owns, or is licensed or otherwise has the right to use all Intellectual Property that are necessary for the conduct of the business and operations of Seller as currently conducted. To the knowledge of Seller or Stockholders, (a) the use of the Intellectual Property by Seller does not infringe on the rights of any Person, and (b) no Person is infringing on any right of Seller with respect to any Intellectual Property. No claims are pending or, to the knowledge of Seller or Stockholders, threatened that Seller is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Seller, no Person is infringing the rights of Seller with respect to any Intellectual Property. All of the Intellectual Property that is owned by Seller is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by Seller is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.19 Bank Accounts. Schedule 3.19 includes the names and locations of all banks in which Seller has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.20 Brokers. Except as disclosed in Schedule 3.20, no broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller. 3.21 Disclosure. Seller has disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of Seller. No representation or warranty to Group 1 by Seller or Stockholders contained in this Agreement, and no statement contained in the Schedules attached hereto, any certificate, list or other writing furnished to Group 1 by Seller or Stockholders pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, and any -15- 20 certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of Seller for all purposes of this Agreement. 3.22 Assumed Liabilities. There are no Assumed Liabilities except as described in Annex IV. Except as disclosed on Schedule 3.22, Seller is not, and but for a requirement that notice be given or a period of time elapse or both would not be, in default under any agreements, or documents delivered in connection therewith, relating to the Assumed Liabilities, including any mortgages or security interests securing the debt created thereunder. Except as disclosed on Schedule 3.22, since December 31, 1997, neither Seller's funds nor any Assumed Liability has been directly or indirectly used or incurred, as the case may be, in connection with any Excluded Asset or to reduce any liability that is not an Assumed Liability. Without limiting the generality of the foregoing, except as disclosed on Schedule 3.22, since December 31, 1997, Seller's funds and Assumed Liabilities have been used or incurred, as the case may be, solely in the conduct, and for the benefit, of the Acquired Dealership. 3.23 Accounts Receivable. All accounts and notes receivable of Seller in excess of $5,000 arose in the ordinary and usual course of its business, represent valid obligations due, and either have been collected or there is no legal impediment to their collection (subject only to bankruptcy stays sought by account debtors) in the ordinary and usual course of business in the net aggregate recorded amounts as reflected in the books of account of Seller in accordance with their terms. 3.24 Inventory. The inventories of Seller included in the Assets consist in all respects of items of a quality, condition and a quantity usable or saleable in the normal course of the business of Seller, other than for normal obsolescence; and the amount at which all such items are carried or reflected in the Interim Financial Statements does not exceed the market or realizable value thereof. ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS The Seller and each Stockholder hereby, severally and not jointly, represent and warrant to Group 1 that: 4.1 Investment Intent. The Seller intends to distribute some or all of the Closing Payment to its stockholders on or shortly after the Closing Date. The Seller and each Stockholder makes the following representations relating to his, her or its acquisition of shares of Group 1 Common Stock: (i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be issued pursuant to the Acquisition to such Stockholder solely for such Stockholder's account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of any of those shares in connection with any distribution (except by way of gift to a charitable foundation, provided that such foundation executes a customary investor representation letter with respect to exemptions from the Securities Act and any applicable state blue sky laws); (ii) such Stockholder is not a party to any agreement or other arrangement for the disposition of any shares of Group 1 Common Stock; (iii) such Stockholder is an "accredited investor" as defined in Securities Act Rule 501(a); (iv) such Stockholder (A) is able to bear the economic risk of an investment in the Group 1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a total loss of that investment, (C) has such knowledge and experience in financial and business matters, and such past participation in investments, that he or she is capable of evaluating the merits and risks of the proposed investment in the Group 1 Common Stock, -16- 21 (D) has received and reviewed the SEC Documents, (E) has had an adequate opportunity to ask questions and receive answers from the officers of Group 1 concerning any and all matters relating to the transactions contemplated hereby, including the background and experience of the current officers and directors of Group 1, the plans for the operations of the business of Group 1, the business, operations and financial condition of Group 1 and any plans of Group 1 for additional acquisitions, and (F) has asked all questions of the nature described in the preceding clause (E), and all those questions have been answered to his or her satisfaction; (v) such Stockholder acknowledges that the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Acquisition have not been and will not be registered under the Securities Act or qualified under applicable blue sky laws and therefore may not be resold by such Stockholder without compliance with Rule 144 of the Securities Act; (vi) such Stockholder acknowledges that he or she has agreed, pursuant to Section 10.8 herein, not to sell the shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to the Acquisition for a period of one year from the Closing Date; (vii) such Stockholder, if a corporation, partnership, trust or other entity, acknowledges that it was not formed for the specific purpose of acquiring the Group 1 Common Stock; and (viii) without limiting any of the foregoing, such Stockholder agrees not to dispose of any portion of Group 1 Common Stock unless (1) a registration statement under the Securities Act is in effect as to the applicable shares and the disposition is made in accordance with that registration statement, (2) the Stockholder has notified Group 1 of the proposed disposition, disposition is made through Merrill, Lynch, Pierce, Fenner & Smith Incorporated or Goldman, Sachs & Co., Inc., or any of their successors or affiliates, subject to SEC Rule 144 and such disposition is made in compliance with any other requirements of the Securities Act, or (3) such disposition is made by gift to a charitable foundation in compliance with any applicable requirements of the Securities Act and any applicable state blue sky laws. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Each of Group 1 and Newco hereby represent and warrant, severally and not jointly, to Seller that: 5.1 Corporate Organization. Each of Group 1 and Newco is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by it at the Closing. 5.2 Authorization. The execution and delivery by Group 1 and Newco of this Agreement, the performance by Purchaser of its obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Purchaser at the Closing have been duly and validly authorized by all requisite corporate action on the part of Purchaser. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Purchaser at, or prior to, the Closing will then be, duly executed and delivered by Purchaser. This Agreement constitutes, and, to the extent it purports to obligate Purchaser, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms. -17- 22 5.3 Approvals. Except for applicable requirements, if any, of the HSR Act, no filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Purchaser, to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by Purchaser at or prior to the Closing. 5.4 Absence of Conflicts. Neither the execution and delivery by Purchaser of this Agreement or any instrument required hereby to be executed by it at or prior to the Closing nor the performance by Purchaser of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (iii) the organizational documents of Purchaser or (iv) any contract or agreement to which Purchaser is a party or by which it or any of its property is bound, or (b) result in the creation or imposition of any Liens on any of the properties or assets of Purchaser or any of its subsidiaries (other than any Lien created by Seller or any of its Subsidiaries), or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Purchaser and its subsidiaries, taken as a whole. 5.5 Authorization For Group 1 Common Stock. All shares of Group 1 Common Stock issuable pursuant to the Acquisition are duly authorized and will, when issued, be validly issued, fully paid and nonassessable and not issued in violation of the preemptive rights of any stockholder of Group 1. 5.6 SEC Documents. The SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the Commission promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Group 1 included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Group 1 and its consolidated subsidiaries as of the dates thereto and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information, for normal year-end adjustments). ARTICLE VI COVENANTS OF THE SELLER AND THE STOCKHOLDERS 6.1 Acquisition Proposals. Prior to the Closing Date, neither Seller, any of its officers, directors, employees or agents nor any Stockholder shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion -18- 23 of the assets of, or a substantial equity interest in, Seller, other than the transactions with Group 1 contemplated by this Agreement. 6.2 Access. The Seller and the Stockholders shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all their properties, books, contracts, commitments and records related to the Dealerships and, during such period, Seller and the Stockholders shall furnish promptly to Group 1 any information concerning their business, properties and personnel related to the Acquired Dealership as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by Seller or the Stockholders pursuant to this Agreement. 6.3 Conduct of Business by Seller Pending the Acquisition. Seller and the Stockholders covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of Seller shall be conducted only in, and Seller shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that Seller may dealer trade vehicles for similar models, but Seller shall not liquidate or otherwise dispose of any of its new vehicles other than in the ordinary course of business to retail buyers. Seller agrees to maintain its advertising expenditures and activities commensurate with prior business practices. Seller shall not advertise a "Going Out of Business" sale; (b) Seller shall not directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of Seller or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any Assets, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of Seller, (iii) split, combine or reclassify any outstanding capital stock of Seller, or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to the capital stock of Seller whether now or hereafter outstanding, (iv) redeem, purchase or acquire or offer to acquire any of the capital stock of Seller, (v) create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business), or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) Seller shall use its best efforts (i) to preserve intact the business organization of Seller, (ii) to maintain in effect any franchises, authorizations or similar rights of Seller, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those -19- 24 expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. (d) Seller shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $150,000, provided, however, that expenditures related to new and used vehicle inventory made consistent with past practice and in the ordinary course of business shall not be deemed a violation of this Section 6.3(d); (e) Seller shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as Seller in good faith may dispute; (f) Seller shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of Seller or its Subsidiaries, except in the ordinary course of business consistent with past practice; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $50,000; (g) Seller shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Acquisition set forth in Article VIII not being satisfied; (h) Seller shall not (i) amend or terminate any Plan or Benefit Program or Agreement except as may be required by applicable law, (ii) increase or accelerate the payment or vesting of the amounts payable under any Plan or Benefit Program or Agreement, or (iii) adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, program, practice or understanding (other than the Plans and the Benefit Programs or Agreements); (i) Seller shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; (j) Seller shall not directly or indirectly use Seller's funds or incur any Assumed Liability in connection with any Excluded Asset or to reduce any liability that is not an Assumed Liability. Without limiting the generality of the foregoing, Seller's funds and Assumed Liabilities will be used or incurred, as the case may be, solely for the benefit of the Acquired Dealership; and (k) Notwithstanding anything to the contrary, no dividends or other form of distribution to the Stockholders shall be made after the date of the Interim Balance Sheet which will cause Seller to be in violation of manufacturer working capital or equity guidelines or requirements. -20- 25 6.4 Confidentiality. Seller agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence, and not to disclose, and the Stockholders shall hold and not disclose, to others for any reason whatsoever, any non-public information received by them or their representatives in connection with the transactions contemplated hereby, including but not limited to all terms, conditions and agreements related to this transaction, except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Seller as necessary in connection with the transactions contemplated hereby; and (iii) for information which becomes publicly available other than through the actions of Seller or the Stockholders. In the event the Acquisition is not consummated, Seller and the Stockholders will return all non-public documents and other material obtained from Group 1 or its representatives in connection with the transactions contemplated hereby or certify to Group 1 that all such information has been destroyed. 6.5 Supplemental Disclosure. Seller shall have the continuing obligation until the Closing promptly to supplement or amend the Schedules hereto with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in such Schedules; provided, however, that for the purpose of the rights and obligations of the parties hereunder, any such supplemental or amended Schedule shall not be deemed to have been disclosed as of the date of this Agreement for purposes of determining whether any Closing conditions have been satisfied, unless so agreed in writing by Purchaser. 6.6 Consents. Subject to the terms and conditions of this Agreement, Seller shall (i) cooperate with Purchaser in obtaining all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on Purchaser), authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 6.7 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, Seller and the Stockholders agree to cooperate and use reasonable efforts to defend against and respond thereto. 6.8 Stockholders' Agreements Not to Sell. Except as otherwise contemplated by this Agreement, each of the Stockholders hereby covenants and agrees not to sell, pledge, transfer or dispose of or encumber any shares of Seller common stock currently owned, either beneficially or of record, by such Stockholder. 6.9 Intellectual Property Matters. Seller shall use its best efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or domestic patent, trademark, service mark, trade name or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. -21- 26 6.10 Removal of Related Party Guarantees. Seller and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all guarantees by Seller ("Related Guarantees") of indebtedness or other obligations of any of Seller's officers, directors, shareholders or employees or their affiliates; except for those Related Guarantees that are disclosed in Schedule 6.10 as guarantees that shall not be subject to this Section 6.10. All Related Guarantees are disclosed in Schedule 6.10. 6.11 Termination of Related Party Agreements. Seller and the Stockholders agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.11 as agreements that shall not be subject to this Section 6.11. 6.12 Related Party Agreements. Seller and the Stockholders agree not to enter into any Related Party Agreements or engage in any transactions with the Stockholders or their affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.12 as agreements or transactions that shall not be subject to this Section 6.12. 6.13 Release. (a) AS OF THE CLOSING, SELLER AND EACH OF THE STOCKHOLDERS DOES HEREBY FOR HIMSELF OR HIS HEIRS, EXECUTORS, ADMINISTRATORS AND LEGAL REPRESENTATIVES REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE PURCHASER AND THE ACQUIRED DEALERSHIP OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, WHICH EACH OF SUCH INDIVIDUALS NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST PURCHASER OR THE ACQUIRED DEALERSHIP INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF SELLER OR THE ACQUIRED DEALERSHIP OR THEIR AFFILIATES, EMPLOYEES AND AGENTS, EXISTING AS OF THE CLOSING OR RELATING TO ANY MATTER THAT OCCURRED ON OR PRIOR TO THE CLOSING; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT; AND PROVIDED FURTHER ANY LIABILITIES UNDER PLANS OR BENEFIT PROGRAMS OR AGREEMENTS LISTED ON THE SCHEDULES HERETO SHALL NOT BE RELEASED. (b) SELLER AND EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS NOT PREVIOUSLY ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS RELEASED HEREIN. SELLER AND EACH OF THE STOCKHOLDERS COVENANTS AND AGREES THAT HE WILL NOT ASSIGN OR TRANSFER TO ANY PERSON OR ENTITY WHATSOEVER ALL OR ANY PART OF THE CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION OR OBLIGATIONS TO BE RELEASED HEREIN. SELLER AND EACH OF THE STOCKHOLDERS REPRESENTS AND WARRANTS THAT HE HAS READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS SECTION 6.13 AND THAT HE HAS BEEN REPRESENTED BY LEGAL COUNSEL OF HIS OWN CHOOSING IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AGREEMENT. 6.14 Leases. Seller and the Stockholders agree to cause United Constructors Limited Company to enter into a lease agreement with Newco on the basic terms, and covering the real -22- 27 properties and improvements, described on Exhibit C. Furthermore, Group 1 will use commercially reasonable efforts within the parameters of such lease agreements to structure a lease that will not prevent the transfer of the related real estate to a real estate investment trust should the applicable landlord so request. 6.15 Employment Agreements. Mr. Kenneth E. Johns and Mrs. Cynthia C. Johns agree to enter into employment agreements (the "Employment Agreements") with Group 1 and Newco in form and substance substantially similar to Exhibit D attached hereto. 6.16 Audit of Seller Operations. Seller agrees to cause Peltier, Gustafson & Miller, P.A. to conduct an audit of the operations of Seller for its year ended December 31, 1997, and to cooperate with Arthur Andersen & Company to produce an audited balance sheet of Seller as of December 31, 1997 (the "Seller 1997 Balance Sheet") and the related audited statements of income, changes in stockholders' equity and cash flows for the year then ended (including the notes thereto) prepared in accordance with GAAP (collectively, the "Seller 1997 Financial Statements," and together with the Seller Interim Financial Statements, the "Seller Financial Statements"). Seller further agrees to complete and provide to Group 1 the Seller 1997 Financial Statements as soon as reasonably practicable. Seller covenants that the financial position and results of operations of Seller set forth in the Seller 1997 Financial Statements will not be materially different from the financial position and results of operations of Seller set forth in the Interim Financial Statements, except for the amount required to record the charge back reserve liability. Fees incurred by Peltier, Gustafson & Miller, P.A. will be paid by Seller, and fees incurred by Arthur Andersen & Company will be paid by Group 1. 6.17 Allocation of Purchase Price. The parties hereto agree that the Purchase Price is allocated for the purposes of Section 1060 of the Code, in accordance with the value set forth for each class of Asset, listed on the attached Annex V ("Allocation of Purchase Price"). Prior to Closing the parties will agree on the value of the Group 1 Common Stock as part of the Closing Payment for purposes of determining the purchase price of the Assets. The parties hereto agree that each of them will timely file with the Internal Revenue Service Form 8594 and that all tax returns or other tax information any party hereto files or cause to be filed with any governmental agency including the Internal Revenue Service, will be prepared in a manner that is consistent with this Section 6.17. 6.18 Record Retention. For a period of six years after the Closing, Seller and the Stockholders agree that prior to the destruction or disposition of any such books or records pertaining to Seller's business which relate to the Assets, Seller and the Stockholders shall provide not less than 60 days prior written notice to Purchaser of any such proposed destruction or disposal. If Purchaser desires to obtain any of such documents, it may do so by notifying Seller in writing at any time prior to the scheduled date for such destruction or disposal. Such notice must specify the documents which the Purchaser wishes to obtain. The parties shall then promptly arrange for the delivery of such documents. All out-of-pocket costs associated with the delivery of the requested documents shall be paid by Purchaser. -23- 28 ARTICLE VII COVENANTS OF PURCHASER 7.1 Confidentiality. Purchaser agrees, and Purchaser agrees to cause its officers, directors, employees, representatives and consultants, to hold in confidence all, and not to disclose to others for any reason whatsoever, any non-public information received by it or its representatives in connection with the transactions contemplated hereby except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of Purchaser as necessary in connection with the transactions contemplated hereby or as necessary to the operation of Purchaser's business; and (iii) for information which becomes publicly available other than through the actions of Purchaser. In the event the Acquisition is not consummated, Purchaser will return all non-public documents and other material obtained from Seller or its representatives in connection with the transactions contemplated hereby or certify to Seller that all such information has been destroyed. 7.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for issuance and shall issue, out of its authorized but unissued capital stock, such number of shares of Group 1 Common Stock as may be issuable upon consummation of the Acquisition. 7.3 Consents. Subject to the terms and conditions of this Agreement, Purchaser shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.4 Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, whether before or after the Closing, Purchaser agrees to cooperate and use reasonable efforts to defend against and respond thereto. 7.5 New Limited Partnership Relationship. (a) Newco shall form a limited partnership relationship with Premier Auto Finance L.P. ("Premier") similar to the current relationship among Seller, Premier and Fiesta Family Partners, Ltd. ("Fiesta"). Benefits flowing from business written with Premier through Fiesta prior to the formation of the new partnership will constitute Excluded Assets. Benefits from the new partnership will accrue to the benefit of Newco. (b) All benefits from sales of credit life, accident, health and service contract products consummated by the Acquired Dealership will accrue to the benefit of Newco. Until December 31, 1998, Newco will conduct business with parties mutually acceptable to Seller and Newco. 7.6 Leases. Newco agrees, and Group 1 agrees to cause Newco, to enter into a lease agreement with United Constructors Limited Company on the basic terms, and covering the real properties and improvements, described on Exhibit C. Furthermore, Group 1 and Newco will use commercially reasonable efforts within the parameters of such lease agreement to structure a lease that -24- 29 will not prevent the transfer of the related real estate to a real estate investment trust should the applicable landlord so request. 7.7 Employment Agreements. Group 1 and Newco agree to enter into Employment Agreements with Mr. Kenneth E. Johns and Mrs. Cynthia C. Johns in form and substance substantially similar to Exhibit D attached hereto. 7.8 Allocation of Purchase Price. Purchaser and Seller agree that the Purchase Price is allocated for the purposes of Section 1060 of the Code, in accordance with the value set forth for each class of Asset, as listed on the attached Annex V ("Allocation of Purchase Price"). Prior to Closing the parties will agree on the value of the Group 1 Common Stock as part of the Closing Payment for purposes of determining the purchase price of the Assets. The parties hereto agree that each of them will timely file with the Internal Revenue Service Form 8594 and that all tax returns or other tax information any party hereto files or cause to be filed with any governmental agency including the Internal Revenue Service, will be prepared in a manner that is consistent with this Section 7.8. 7.9 Security for Newco Loans. Purchaser shall not require Seller or any Stockholder to serve as obligors under any floor plan or credit facilities to which Newco is a party. 7.10 Guaranteed Price. If Seller or a Stockholder, or any family foundation to which a Stockholder or Seller has transferred shares of Group 1 Common Stock, sells any of the Group 1 Common Stock received by such Stockholder or Seller pursuant to this Agreement at the Closing as part of the Closing Payment for a per share price of less than twelve dollars ($12.00), subject to adjustment for stock splits and stock dividends, Group 1 shall pay, within 30 days after such sale, in cash the difference between the purchase price for shares sold and the price such Stockholder, Seller or family foundation, as the case may be, would have received if the shares were sold at $12.00 per share, subject to adjustment for stock splits and stock dividends; provided, that this Section 7.10 shall only apply to sales (i) occurring after the expiration of the Restricted Period and (ii) made in the public market; and provided, further that this Section 7.10 shall terminate on the date 10 years after the Closing Date. ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition. The respective obligations of each party to effect the Acquisition shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Acquisition; (b) There shall have been obtained any and all permits, approvals and consents of securities or "blue sky" commissions of each jurisdiction and of any other governmental agency or authority, with respect to the consummation of the Acquisition; and -25- 30 (c) The applicable waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated. 8.2 Additional Conditions Precedent to Obligations of Purchaser. The obligation of Purchaser to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of Seller contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date, and all of the terms, covenants and conditions of this Agreement to be complied with and performed by Seller and Stockholders on or before the Closing Date shall have been duly complied with and performed in all respects, in each case except for breaches as to matters that, in the aggregate, are not reasonably likely to result in Indemnifiable Damages (as defined in Section 9.1(a) below) in excess of $100,000. A certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Seller and each of the Stockholders shall have been delivered to Group 1; (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Acquisition and the transactions contemplated thereby will be in compliance with applicable laws; (c) Purchaser shall have received all requisite manufacturer's approvals of the Acquisition and the transactions contemplated thereby; (d) Purchaser shall have received evidence, satisfactory to Purchaser, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.10 and 6.11 hereto; (e) Purchaser shall have received executed representations from Seller and each Stockholder stating that such Seller or Stockholder (with respect to shares owned beneficially or of record by him, her or it) has no current plan or intention to sell or otherwise dispose of the Group 1 Common Stock to be received by him, her or it in the Acquisition, except as provided in Section 4.1 herein; (f) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of Seller shall have occurred, and Seller shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of Seller, and Group 1 shall have received a certificate signed by the chief executive officer of Seller dated the Closing Date to such effect; (g) Receipt by Group 1 of current or updated Phase I Environmental Surveys, at Seller's expense, prepared by a firm approved in writing by Group 1, showing no environmental problems or recommended actions, which will be performed at the discretion of Group 1; -26- 31 (h) Receipt by Group 1, at Sellers's expense, of a title commitment, issued by a title company, approved by Group 1, subject only to the exceptions described in Schedule 8.2(h) ("Permitted Title Exceptions"); (i) Receipt by Group 1, at Seller's expense, of a current ALTA survey of the Leased Properties showing the location of any improvements, prepared by a licensed surveyor approved by Group 1; (j) Receipt by Group 1 of the Lease Agreement executed by United Constructors Limited Company in accordance with Section 6.14 herein; (k) Receipt by Group 1 of Employment Agreements executed by the Stockholders in accordance with Section 6.15 herein; (l) Group 1 and Newco shall have received a favorable opinion of Sutin Thayer & Browne A Professional Corporation, counsel to Seller, dated the Closing Date, with respect to the matters set forth in Exhibit E hereto; (m) Receipt by Group 1 of the Seller 1997 Financial Statements, provided further, that the Seller 1997 Financial Statements shall not reflect any material adverse change from the Seller Interim Financial Statements; (n) Satisfaction or waiver of the conditions set forth in Article VIII of the Other Agreement and the simultaneous closing of the Other Acquisition; and (o) The Board of Directors of Group 1 shall have approved the Acquisition. 8.3 Additional Conditions Precedent to Obligations of Seller and the Stockholders. The obligation of the Stockholders to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects; and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to Seller. (b) Seller shall have received a favorable opinion of Vinson & Elkins L.L.P., Counsel to Purchaser, dated the Closing Date, with respect to the matters set forth in Exhibit F hereto. (c) Seller shall have received from Purchaser a Non-Taxable Transaction Certificate relating to Newco's acquisition of Seller's parts inventory for resale. -27- 32 ARTICLE IX INDEMNIFICATION 9.1 Agreement by Seller and the Stockholders to Indemnify. Seller and each Stockholder agree jointly and severally to indemnify, defend and hold Purchaser harmless (subject to the limitations set forth in Section 9.1(e) below) from and against the aggregate of all Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Indemnifiable Damages" means, without duplication, the aggregate of all losses incurred or suffered by Purchaser, on a pre-tax consolidated basis to the extent (i) resulting from any breach of a representation or warranty made by Seller or the Stockholders in or pursuant to this Agreement (provided, however, that for purposes of this indemnification, the representation and warranty contained in Section 3.17 of this Agreement shall be deemed to have been made without the qualification of knowledge), (ii) resulting from any breach of the covenants or agreements made by Seller or the Stockholders pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate or environmental report delivered by Seller or the Stockholders pursuant to this Agreement. For purposes of this Agreement, the term "loss" shall mean any and all direct or indirect payments, obligations, assessments, losses, loss of income, liabilities, fines, penalties, costs and expenses paid or incurred, or diminutions in value of any kind or character (whether known or unknown, conditional or unconditional, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise) that have occurred, including without limitation penalties, interest on any amount payable to a third party as a result of the foregoing and any legal or other expenses reasonably incurred in connection with investigating or defending any demands, claims, actions or causes of action that, if adversely determined, would likely result in losses, and all amounts paid in settlement of claims or actions. (b) Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Purchaser shall have the right to be put in the same pre-tax consolidated financial position as Purchaser would have been in had each of the representations and warranties of Seller and the Stockholders hereunder been true and correct and had the covenants and agreements of Seller and the Stockholders hereunder been performed in full. (c) Each of the representations and warranties made by Seller and the Stockholders in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date except (i) the representations and warranties of Seller and the Stockholders contained in Section 2.4(c)(i), Section 3.13 and Section 3.17 shall survive for five years, (ii) the representations and warranties of Seller and the Stockholders contained in Section 3.9 shall survive until all applicable limitations periods have expired and (iii) the representations and warranties of Seller and the Stockholders contained in Sections 3.1, 3.2, 3.3, 3.14(a)(i), 3.14(a)(xii) and 4.1 shall not expire, but shall continue indefinitely. No claim for the recovery of Indemnifiable Damages may be asserted by Purchaser against Seller or the Stockholders after such representations and warranties shall expire, provided, however, that claims for Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation (and whether or not such party was negligent in connection with any such investigation), each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other -28- 33 documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) If Purchaser believes it is entitled to a claim for any Indemnifiable Damages hereunder, Purchaser shall promptly give written notice to Seller and to the Stockholders of such claim and do the amount or the estimated amount of such claim, and the basis for such claim. If Seller or the Stockholders do not pay the amount of the claim for Indemnifiable Damages to Purchaser within 10 days, then Purchaser may exercise its respective rights under Section 9.3 and/or take any action or exercise any remedy available to it by appropriate legal proceedings to collect the Indemnifiable Damages. (e) Notwithstanding anything to the contrary contained in this Section 9.1, Seller's and the Stockholders' liability for Indemnifiable Damages shall be limited as follows: (1) Purchaser shall have no claim for Indemnifiable Damages unless and until all Indemnifiable Damages incurred by Purchaser exceed an aggregate of $45,000 (the "Basket Amount"), in which event Seller and the Stockholders shall be liable for only such Indemnifiable Damages in excess of the Basket Amount; provided, however, that (A) the Basket Amount shall be reduced by the amount of any Indemnifiable Damages attributable to any matter set forth in any supplement or amendment to any Schedule, any breach of representation or warranty or any failure to comply with or perform any covenant, and (B) Purchaser shall have no obligation to close the transaction if such Indemnifiable Damages exceed $45,000. For example, (x) if the aggregate amount of such Indemnifiable Damages set forth in any supplement or amendment, or attributable to any breach of representation or warranty or failure to comply with or perform any covenant were $40,000, Purchaser would be obligated to close the transaction (assuming all closing conditions of Purchaser (other than Section 8.2(a) relating to representations and warranties) have been satisfied or waived) and the Basket Amount after the Closing would be $5,000; and (y) if such Indemnifiable Damages amounted to $200,000, Purchaser would not be obligated to close the transaction; but if it chooses to close the transaction, the Basket Amount after the closing would be $0, and Seller and the Stockholders would have an indemnification obligation to Purchaser of $155,000. (2) The total amount of Indemnifiable Damages for which Seller and the Stockholders shall be liable to Group 1 shall not exceed the value of the consideration received in the Acquisition, of which the stock portion shall be valued as provided in Section 2.3 herein. 9.2 Agreement by Purchaser to indemnify. Purchaser agrees to indemnify, defend and hold Seller harmless from and against the aggregate of all Seller Indemnifiable Damages (as defined below). (a) For purposes of this Agreement, "Seller Indemnifiable Damages" means, without duplication, the aggregate of all losses incurred or suffered by Seller, on a pre-tax consolidated -29- 34 basis, to the extent (i) resulting from any breach of a representation or warranty made by Purchaser in or pursuant to this Agreement, (ii) resulting from any breach of the covenants or agreements made by Purchaser in or pursuant to this Agreement, or (iii) resulting from any inaccuracy in any certificate delivered by Purchaser pursuant to this Agreement. (b) Without limiting the generality of the foregoing, with respect to the measurement of Seller Indemnifiable Damages, Seller has the right to be put in the same pre-tax consolidated financial position as it would have been in had each of the representations and warranties of Purchaser hereunder been true and correct and had the covenants and agreements of Purchaser hereunder been performed in full. (c) Each of the representations and warranties made by Purchaser in this Agreement or pursuant hereto shall survive for a period of three years after the Closing Date. No claim for the recovery of Seller Indemnifiable Damages may be asserted by Seller against Purchaser after such representations and warranties shall thus expire, provided, however, that claims for Seller Indemnifiable Damages first asserted within the applicable period shall not thereafter be barred. Notwithstanding any knowledge of facts determined or determinable by any party by investigation (and whether or not such party was negligent in connection with any such investigation), each party shall have the right to fully rely on the representations, warranties, covenants and agreements of the other parties contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties contained in this Agreement is independent of each other representation, warranty, covenant and agreement. (d) In the event that Seller believes it is entitled to a claim for any Seller Indemnifiable Damages hereunder, Seller shall promptly give written notice to Purchaser of such claim and the amount or the estimated amount of such claim, and the basis for such claim. 9.3 Conditions of Indemnification. The obligations and liabilities of Seller, the Stockholders and Purchaser hereunder with respect to their respective indemnities pursuant to this Article IX resulting from any claim or other assertion of liabilities by third parties (hereinafter called collectively "Claims"), shall be subject to the following terms and conditions: (a) the party seeking indemnification (the "Indemnified Party") must give the other party or parties, as the case may be (the "Indemnifying Party"), notice of any such Claim 10 business days after the Indemnified Party receives notice thereof (provided that failure to give notice within such 10 day period does not relieve the Indemnifying Party of his obligations to indemnify the Indemnified Party hereunder, except to the extent that such Indemnifying Party is harmed by the failure of the Indemnified Party to provide timely notice); (b) the Indemnifying Party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense of such Claim; provided, however, if a Claim is made against Purchaser, then Purchaser shall have the right to control the defense of the Claim; (c) if the Indemnifying Party shall elect not to undertake such defense, or within a reasonable time after notice of any such Claim from the Indemnified Party shall fail to defend, the Indemnified Party (upon further written notice to the Indemnifying Party) shall have the right -30- 35 to undertake the defense, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnifying Party (subject to the right of the Indemnifying Party to assume defense of such Claim at any time prior to settlement, compromise or final determination thereof); (d) anything in this Section 9.3 to the contrary notwithstanding, (A) the Indemnified Party shall have the right, at its own cost and expense, to have its own counsel to protect its own interests and participate in the defense, compromise or settlement of the Claim, (B) the Indemnifying Party shall not, without the Indemnified Party's written consent, settle or compromise any Claim or consent to entry of any judgement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim, and (C) the Indemnified Party, by counsel or other representatives of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnifying Party and its counsel or other representatives concerning such Claim, and the Indemnifying Party and the Indemnified Party and their respective counsel shall cooperate with respect to such Claim. 9.4 Applicability. THE PROVISIONS OF THIS ARTICLE IX SHALL APPLY NOTWITHSTANDING THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF THE INDEMNIFIED PARTY. IF BOTH THE INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY ARE NEGLIGENT OR OTHERWISE AT FAULT OR STRICTLY LIABLE WITHOUT FAULT, THE CONTRACTUAL OBLIGATIONS OF INDEMNIFICATION UNDER THIS ARTICLE IX SHALL CONTINUE, BUT THE INDEMNIFYING PARTY SHALL INDEMNIFY THE INDEMNIFIED PARTY ONLY FOR THE PERCENTAGE OF RESPONSIBILITY FOR THE DAMAGE OR INJURIES ATTRIBUTABLE TO THE INDEMNIFYING PARTY. 9.5 Statutory Requirement. If a court of competent jurisdiction determines that the provisions of Section 56-7-1 NMSA 1978, as amended, are applicable to this Agreement or any claim arising under this Agreement, then any agreement to indemnify in connection with this Agreement will not extend to liability, claims, damages, losses or expenses, including attorney fees, arising out of (1) the preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs or specifications by the indemnitee, or the agents or employees of the indemnitee, or (2) the giving of or the failure to give directions or instructions by the indemnitee, or the agents or employees of the indemnitee, where such giving or failure to give directions or instructions is the primary cause of bodily injury to persons or damage to property. ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. The Schedules to this Agreement contain all disclosure required to be made by Seller and the Stockholders under the various terms and provisions of this Agreement. -31- 36 10.2 Certain Post-Closing Payments. (a) As soon as reasonably practicable after completion of the audited Group 1 consolidated financial statement for the year ending December 31, 1998, but in no event later than April 30, 1999, Seller shall receive from Newco a Post-Closing Payment calculated as follows: (i) the annualized income before income taxes of the Acquired Dealerships from Closing through December 31, 1998 will be determined based on the statements of operations of Newco and Other Newco included in the 1998 audited Group 1 consolidated financial statements (such statement of operations to be based upon the books and records of Newco and Other Newco); (ii) from this amount $4,425,000 will be deducted; and (iii) the result will be multiplied by 2.7. For purposes of this calculation, finance earnings will include earnings as reported in the December 31, 1998, Premier Auto Finance L.P. report of Newco's participation in the limited partnership (before the deferral relating to FASB #125) and will include income earned from Resource Group (or similar providing entity mutually agreeable to the parties) with respect to 1998 credit life, accident and health insurance and extended service contract operations of Newco and Other Newco. Prior to December 31, 1998, (i) the programs for finance, service and insurance income will not be changed without Seller's consent, (ii) Group 1 will not require Newco to change to more costly or less efficient providers than those used prior to Closing without Seller's consent, and (iii) any Group 1 allocations of indirect costs, indirect overhead or goodwill amortization will not be included in income before income taxes for purposes of the computation. The amount of this Post-Closing Payment will be paid in cash up to an amount of $3,445,000. Any amount payable up to and including this initial cash amount of $3,445,000 will be escalated at 8% per annum from the Closing Date. Any amounts due over $3,445,000 (as escalated) will be paid 50% in cash and 50% in Group 1 Common Stock at the Designated Value of Group 1 Common Stock as of the date of payment (such date to be fixed at least two weeks in advance of the payment, i.e. no later than April 16, 1999) and in accordance with the procedures, including the dispute resolution procedures, set forth for the payment of the Closing Payment. The parties hereto acknowledge that this Section 10.2(a) and Section 10.2(a) of the Other Agreement each require only one calculation and payment. Annualized income before income taxes of each Acquired Dealership shall equal (i) pre-tax income as previously described and included in the 1998 operations of Group 1, (ii) divided by the number of months the Acquired Dealership is included in the 1998 operations of Group 1, and (iii) which quotient shall be multiplied by 12. This same method of annualization shall be used with respect to the Additional Dealerships, if annualization is required by Section 10.2(b)(ii). (b) As additional consideration for the Assets, Seller and Stockholders are required to participate in Group 1's acquisition of Additional Dealerships (as defined below) following the Closing and to assume, with the mutual consent of Group 1 and Stockholders, managerial responsibility for such Additional Dealerships. As partial consideration for such participation, Group 1 will pay Seller as follows: (i) the income before income taxes of each Additional Dealership will be determined for the applicable Calculation Year and multiplied by 5.5, (ii) from this amount the Group 1 investment in the applicable Additional Dealership will be deducted, and (iii) the difference will be paid to Seller 50% in Group 1 Common Stock and 50% in cash. For purposes of this Section 10.2(b), (i) Additional Dealerships shall mean any dealerships acquired from the Closing Date through December 31, 2000, and those acquisitions -32- 37 which are in progress at such date and are consummated on or before June 30, 2001, which become part of the executive management responsibility of Stockholders and Seller; (ii) Calculation Year shall mean, with respect to each Additional Dealership, the first full calendar year following Group 1's completed acquisition of such Additional Dealership (except that the Calculation Year for any Additional Dealership acquired by Group 1 in the first quarter of a calendar year shall be that year, and income before income taxes for such dealership earned post-acquisition shall be annualized); (iii) in calculating the stock portion of any payment due to Sellers hereunder, Designated Value of Group 1 Common Stock will be used; (iv) Group 1 Investment shall be the purchase price paid by Group 1 with respect to each acquisition, costs of moving franchises to alternate facilities, costs of modification of facilities to accommodate expanded operations or any other investment in the operation required by Group 1 with respect to the Calculation Year; and (v) income before income taxes will be calculated in accordance with Section 10.2(a) herein. Any payments due to Seller under this Section 10.2(b) will be paid by Group 1 no later than April 30 of the calendar year immediately following the Calculation Year (with two weeks advance notice required to calculate the Designated Value of the Group 1 Common Stock to be paid). (c) The payments due to Seller under paragraphs (a) and (b) of this Section 10.2 (the "Post-Closing Payments," and together with the Closing Payment, as adjusted pursuant to Section 2.2, the "Purchase Price") are additional consideration for the Assets, and the parties hereto agree to report such amounts on such basis for income tax purposes. (d) Any Post-Closing Payments payable to Seller may be applied by Purchaser to offset any Indemnifiable Damages for which a Claim has been filed pursuant to Sections 9.1 and 9.3 herein. 10.3 Certain Repurchase Rights. In the event Group 1 elects to sell one or more of the dealerships under Stockholders' management (in a transaction not involving the sale of Group 1 or a major portion thereof), Stockholders shall have a right of first refusal on terms identical to the third party offer. Stockholders' right hereunder shall expire on the tenth anniversary of the Closing Date. 10.4 Non-Competition Obligations. (a) As an additional inducement for Purchaser to enter into this Agreement, the Stockholders and Purchaser agree to the non-competition provisions of this Section 10.4. Each Stockholder agrees that during the period of the Stockholder's non-competition obligations hereunder, the Stockholder will not, directly or indirectly for himself or herself or for others, within twelve miles of or in the county of any operations sold to Purchaser under this Agreement or operations subsequently under the executive management of such Stockholder as of the date in question or during the previous twelve months: (i) engage in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, including financing, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; -33- 38 (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Group 1 or any of its subsidiaries or affiliates. These non-competition obligations shall apply for the period specified in any employment agreement entered into by such Stockholder with Group 1 or its Subsidiaries. If Group 1 or any of its subsidiaries or affiliates abandons a particular aspect of its business, that is, ceases such aspect of its business with the intention to permanently refrain from such aspect of its business, then this non-competition covenant shall not apply to such former aspect of that business. Notwithstanding the foregoing, the non-competition obligations of this Section 10.4 shall not apply (i) to any Stockholder's operation and management of any dealership purchased in accordance with Section 10.3 hereof and (ii) with respect to (a) Kenneth E. Johns, such individual's passive investment in an automobile dealership owned and managed by members of his immediate family or affiliates of such individuals or (b) Cynthia C. Johns, such individual's investment and management participation in an automobile dealership owned and operated by members of her immediate family or affiliates of such individuals, provided that Mrs. Johns continues to devote substantially all of her business time, energy and best efforts to the business and affairs of Group 1, its subsidiaries and affiliates so long as she is an employee of Group 1 or any of its subsidiaries or affiliates. (b) During this non-competition period the Stockholders will not engage in these restricted activities or assist in the industry consolidation efforts on behalf of any publicly held entity in the automotive retailing industry (nor any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity), regardless of geographic area or market. (c) The Stockholders understand that the foregoing restrictions may limit their ability to engage in certain businesses during the period provided for above, but acknowledge that the Stockholders will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. The Stockholders acknowledge that money damages would not be sufficient remedy for any breach of this Section 10.4 by the Stockholders, and Group 1 or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Section 10.4 by terminating any payments then owing to the Stockholders under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Section 10.4, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Group 1 and the Stockholders' agents involved in such breach. (d) It is expressly understood and agreed that Group 1 and the Stockholders consider the restrictions contained in this Section 10.4 to be reasonably necessary to protect the legitimate business interests of Group 1 and its subsidiaries and affiliates, including the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having -34- 39 jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. (e) The parties hereto expressly acknowledge that Purchaser's rights under this Section 10.4 are assignable and that such rights shall be fully enforceable by any of Purchaser's assignees or successors in interest. 10.5 Termination. This Agreement may be terminated and the Acquisition and the other transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual consent of Purchaser and Seller; (b) by either Purchaser or Seller if the Acquisition has not been effected on or before March 31, 1998; (c) by either Purchaser or Seller if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Acquisition or the other transactions contemplated hereby shall have been entered; (d) by Purchaser if (i) since the date of this Agreement there has been a material adverse change in the business operations or financial condition of Seller; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by Seller or the Stockholders which breach has not been cured within ten business days following receipt by Seller of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the normalized pre-tax income (after addbacks) expected for Seller, on which the Purchase Price was based; (e) by Seller if there has been a material breach of any representation or warranty set forth in this Agreement by Purchaser which breach has not been cured within ten business days following receipt by Purchaser of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice); (f) by Group 1 if the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate hereunder shall expire thirty (30) calendar days following the execution of this Agreement; or (g) by Purchaser if the Seller 1997 Financial Statements reflect a material adverse change from the Seller Interim Financial Statements, except as contemplated by this Agreement. 10.6 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.5, Seller and Purchaser shall have no obligation or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1, 7.4 and 10.7 survive any such termination. -35- 40 10.7 Expenses. Regardless of whether the Acquisition is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby incurred by Purchaser shall be paid by Purchaser and all such costs and expenses incurred by Seller and the Stockholders shall be paid by the Sellers. Seller's expenses shall not be included in Assumed Liabilities. Seller and Purchaser each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.8 Restrictions on Transfer of Group 1 Common Stock. (a) During the one-year period ending on the anniversary of the Closing Date (the "Restricted Period"), neither Seller nor any Stockholder voluntarily will: (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of Group 1 Common Stock received by Seller or any such Stockholder in the Acquisition or (B) any interest in (including any option to buy or sell) any of those shares of Group 1 Common Stock, in whole or in part, and Group 1 will have no obligation to, and shall not, treat any such attempted transfer as effective for any purpose or (ii) engage in any transaction, whether or not with respect to any shares of Group 1 Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning the shares of Group 1 Common Stock acquired pursuant to this Agreement (including, for example, engaging in put, call, short sale, straddle or similar market transactions). Notwithstanding the foregoing, Seller may distribute shares of Group 1 Common Stock to the Stockholders, and Seller and each such Stockholder may (i) pledge shares of Group 1 Common Stock, provided that the pledgee of such shares shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (ii) transfer shares to immediate family members or the estate of any such individual (including, without limitation, any transfer by Seller or such Stockholder to or among any trust, custodial or other similar accounts or funds that are for the benefit of his or her immediate family members), provided that such person or entity shall agree not to sell or otherwise dispose of any such shares for the Restricted Period; (iii) transfer all of such shares to a charitable foundation, provided that such foundation (a) agrees not to sell or otherwise dispose of any such shares for the Restricted Period, and (b) executes a customary investor representation letter with respect to exemptions from the Securities Act and any applicable blue sky laws; and (iv) transfer shares by will or the laws of descent and distribution or otherwise by reason of such Stockholder's death. The certificates evidencing the Group 1 Common Stock delivered to Seller and each Stockholder pursuant to this Agreement will bear a legend substantially in the form set forth below and containing such other information as Group 1 may deem necessary or appropriate: EXCEPT PURSUANT TO THE TERMS OF THE ASSET PURCHASE AGREEMENT AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE -36- 41 LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE. (b) Seller and each Stockholder, severally and not jointly with any other Person, (i) acknowledges that the shares of Group 1 Common Stock to be delivered to Seller and that Stockholder pursuant to this Agreement have not been and, if applicable, will not be registered under the Securities Act and therefore may not be resold by Seller or that Stockholder without compliance with the Securities Act and (ii) covenants that none of the shares of Group 1 Common Stock issued to Seller or that Stockholder pursuant to this Agreement will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all the applicable provisions of the Securities Act and the rules and regulations of the Commission and applicable state securities laws and regulations. All certificates evidencing shares of Group 1 Common Stock issued pursuant to this Agreement will bear the following legend in addition to the legend prescribed by Section 10.8(a): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." In addition, certificates evidencing shares of Group 1 Common Stock issued pursuant to the Acquisition to Seller and each Stockholder will bear any legend required by the securities or blue sky laws of the state in which Seller or that Stockholder resides. 10.9 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is, or whose stockholders are, entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. 10.10 Public Statements. Seller, the Stockholders and Purchaser agree to consult with each other prior to issuing any press release or otherwise making any public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law. 10.11 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other parties hereto. -37- 42 10.12 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: if to Seller: United Management, Inc. 7201 Lomas Blvd. NE Albuquerque, New Mexico 87110 Telecopy: (505) 262-8696 Attention: Kenneth E. Johns with a copy to: Sutin Thayer & Browne Two Park Square, Suite 1000 6565 Americas Parkway Albuquerque, New Mexico 87710 Attention: Graham Browne if to the Stockholders: Kenneth E. Johns and Cynthia C. Johns 1117 Salamanca St. NW Albuquerque, New Mexico 87106 Telecopy: (505) 344-0124 James J. Burns, Trustee 4801 Loop, 289 South Lubbock, Texas 79424 Telecopy: (806) 798-4592 if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.12. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back -38- 43 is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. Delivery to the Stockholders' representative, if any, of any notice to Stockholders hereunder shall constitute delivery to all Stockholders and any notice given by such Stockholders' representative shall be deemed to be notice given by all Stockholders. 10.13 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Mexico, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.14 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.15 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.16 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. -39- 44 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ B.B. HOLLINGSWORTH, JR. ---------------------------------------- Name: B.B. Hollingsworth, Jr. Title: Chairman, President and Chief Executive Officer CASA CHRYSLER PLYMOUTH JEEP INC. By: /s/ JOHN T. TURNER ----------------------------------------- Name: John T. Turner Title: President UNITED MANAGEMENT, INC. By: /s/ KENNETH E. JOHNS ----------------------------------------- Name: Kenneth E. Johns Title: President STOCKHOLDERS /s/ KENNETH E. JOHNS -------------------------------------------- Kenneth E. Johns /s/ CYNTHIA C. JOHNS -------------------------------------------- Cynthia C. Johns Johns Investment Trust By: /s/ JAMES J. BURNS ----------------------------------------- James J. Burns, as Trustee for Jeffrey Johns and Julie Johns -40- EX-10.52 23 PURCHASE AGREEMENT - BOB HOWARD NISSAN, INC. 1 EXHIBIT 10.52 ================================================================================ PURCHASE AGREEMENT BETWEEN GROUP 1 AUTOMOTIVE, INC., AND THE STOCKHOLDER OF BOB HOWARD NISSAN, INC. DATED AS OF DECEMBER 30, 1997 ================================================================================ 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . 1 ARTICLE II THE ACQUISITION 2.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . 2 3.3 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 2 3.4 Equity Investments . . . . . . . . . . . . . . . . . . . . . 3 3.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 3 3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . 3 3.7 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . 3 3.8 Certain Agreements . . . . . . . . . . . . . . . . . . . . . 4 3.9 Contracts and Commitments . . . . . . . . . . . . . . . . . 4 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . 4 3.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 4 3.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.13 Compliance with Law . . . . . . . . . . . . . . . . . . . . 5 3.14 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.15 Employee Benefit Plans and Policies . . . . . . . . . . . . 6 3.16 Properties . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.18 Affiliate Interests . . . . . . . . . . . . . . . . . . . . 7 3.19 Environmental Matters . . . . . . . . . . . . . . . . . . . 8 3.20 Intellectual Property . . . . . . . . . . . . . . . . . . . 10 3.21 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 10 3.22 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 11
-i- 3 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER 4.1 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 11 4.2 Authorization of Agreement . . . . . . . . . . . . . . . . . 11 4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 12 ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 12 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 12 5.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 12 ARTICLE VI COVENANTS OF THE STOCKHOLDER 6.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . 13 6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.3 Conduct of Business by the Company Pending the Acquisition . 13 6.4 Notification of Certain Matters . . . . . . . . . . . . . . 15 6.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.6 Removal of Related Party Guarantees . . . . . . . . . . . . 15 6.7 Termination of Related Party Agreements . . . . . . . . . . 15 6.8 Related Party Agreements . . . . . . . . . . . . . . . . . . 15 ARTICLE VII COVENANTS OF GROUP 1 7.1 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . 16 8.2 Additional Conditions Precedent to Obligations of Group 1 . 16 8.3 Additional Conditions Precedent to Obligations of the Stockholder . . . . . . . . . . . . . . . . . . . . . . . . 17
-ii- 4 ARTICLE IX SURVIVAL OF REPRESENTATIONS AND WARRANTIES 9.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. . . . . . . . . . . . . . . . . 17 10.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . 17 10.3 Effect of Termination . . . . . . . . . . . . . . . . . . . 18 10.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 18 10.5 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . 18 10.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 19 10.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 19 10.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 20 10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . 20 10.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 20 10.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.12 Third Party Beneficiaries . . . . . . . . . . . . . . . . . 20
-iii- 5 GROUP 1 AUTOMOTIVE, INC. STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement"), dated as of the 30th day of December, 1997, is between Group 1 Automotive, Inc., a Delaware corporation ("Group 1") and Robert E. Howard, II, the sole stockholder ("Stockholder") of Bob Howard Nissan, Inc., an Oklahoma corporation (the "Company"). RECITALS: WHEREAS, the Stockholder is the holder of all of the issued and outstanding capital stock of the Company; WHEREAS, Group 1 proposes to acquire all of the capital stock of the Company from the Stockholder (the "Acquisition") on the terms and conditions set forth herein; and WHEREAS, the parties hereto wish to set forth the representations, warranties, agreements and conditions under which Group 1 shall purchase, and the Stockholder shall sell, all of the capital stock of the Company. NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Certain capitalized and other terms used in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 1.2 Rules of Construction. Unless the context otherwise requires, as used in this Agreement, (a) a term has the meaning ascribed to it; (b) an accounting term not otherwise defined has the meaning ascribed to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means "including, without limitation;" (e) words in the singular include the plural; (f) words in the plural include the singular; (g) words applicable to one gender shall be construed to apply to each gender; (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar words refer to this entire Agreement; (i) the terms "Article" or "Section" shall refer to the specified Article or Section of this Agreement; and (j) section and paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. 6 ARTICLE II THE ACQUISITION 2.1 The Acquisition. At the Closing, the Stockholder shall sell to Group 1 and Group 1 shall purchase from the Stockholder 1,000 shares of Common Stock of the Company for a purchase price of $1,250,000 in cash payable in immediately available funds. 2.2 Closing Date. The Closing of the Acquisition as contemplated by this Agreement shall take place at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002, as soon as practicable after the satisfaction or waiver of the conditions set forth in Article VIII or at such other time and place and on such other date as Group 1 and the Stockholder shall agree; provided, that the conditions set forth in Article VIII shall have been satisfied or waived at or prior to such time. The date on which the Closing occurs is herein referred to as the "Closing Date," and shall be effective as of the first day of the month in which the Closing Date occurs. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER The Stockholder hereby represent and warrant to Group 1 as follows: 3.1 Organization. The Compay is a corporation duly organized, validly existing and in good standing under the laws of the state of Oklahoma with all requisite corporate power and authority to own or lease its properties and conduct its business as now owned, leased or conducted. True and complete copies of the articles of incorporation and bylaws of the Company are included in Schedule 3.1. The minute books of the Company previously made available to Group 1 are complete and accurately reflect all action taken prior to the date of this Agreement by its board of directors and stockholders in their capacities as such. 3.2 Qualification. The Company is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary. Schedule 3.2 sets forth a list of the jurisdictions in which each of the Company is qualified to do business, if any. 3.3 Absence of Conflicts. Except to the extent set forth in the Schedule 3.3, neither the execution and delivery by the Stockholder of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by them at, or prior to, the Closing, nor the performance by the Stockholder of their obligations under this Agreement or any such instrument, document or agreement will (assuming receipt of all consents, approvals, authorizations, permits, certificates and orders disclosed as requisite in Schedule 4.3) (a) violate or breach the terms of or cause a default under (i) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority with respect to the Company, (ii) any applicable permits received from any Governmental Authority with respect to the Company, (iii) the certificate of incorporation or bylaws of the Company or (iv) any contract or agreement to which the Company is a party or by which it, or any of its properties, is bound, or (b) result in the creation or imposition of any Lien on any of the -2- 7 properties or assets of the Company, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority with respect to the Company, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. 3.4 Equity Investments. The Company owns no equity securities, interests or other investments in any Person. 3.5 Capitalization. The authorized capital stock of the Company consists of 50,000 shares of Common Stock, $1.00 par value per share, of which 1,000 shares are issued and outstanding. Each outstanding share of the Common Stock of the Company has been duly authorized, is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights of any stockholder. Except for 1,000 shares of Common Stock owned by Robert E. Howard, II, there are no shares of capital stock of, or other equity interests in, the Company authorized, issued or outstanding. There is not outstanding any other security, including without limitation any option, warrant or right, entitling the holder thereof to purchase or otherwise acquire any Common Stock or other equity interest of the Company. There are no contracts, agreements, commitments or arrangements obligating the Company (i) to issue, sell, pledge, dispose of or encumber any Common Stock, or any options, warrants or rights of any kind to acquire, or any securities that are convertible into or exercisable or exchangeable for, any Common Stock of, or any other class of securities of the Company or (ii) to redeem, purchase or acquire or offer to acquire any Common Stock of, or any outstanding option, warrant or right to acquire, or any securities that are convertible into or exercisable or exchangeable for, any Common Stock of, or any other class of securities of the Company. 3.6 Financial Statements. Included in Schedule 3.6 are true and complete copies of the financial statements of the Company consisting of (i) an unaudited balance sheet of the Company as of November30, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the four month period (from August 1997, the month of incorporation of the Company) then ended (the "Company Financial Statements"). The Company Financial Statements present fairly the financial position of the Company and the results of its operations and changes in financial position as of the dates and for the periods indicated therein in conformity with GAAP. The Company Financial Statements do not omit to state any liabilities, absolute or contingent, required to be stated therein in accordance with GAAP. All accounts receivable of the Company reflected in the Company Financial Statements and as incurred since November 30, 1997 represent sales made in the ordinary course of business, are collectible (net of any reserves for doubtful accounts shown in the Company Financial Statements) in the ordinary course of business and, except as set forth in Schedule 3.6, are not in dispute or subject to counterclaim, set-off or renegotiation. Schedule 3.6 contains an aged schedule of accounts receivable included in the Interim Balance Sheet. 3.7 Undisclosed Liabilities. Except as and to the extent of the amounts specifically reflected or accrued for in the Interim Balance Sheet or as set forth in Schedule 3.7, the Company does not have any liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise, and whether due or to become due. The reserves reflected in the Interim Balance Sheet are adequate, appropriate and reasonable in accordance with GAAP. -3- 8 3.8 Certain Agreements. Except as set forth in Schedule 3.8, neither the Company nor any of its officers or directors, is a party to, or bound by, any contract, agreement or organizational document which purports to restrict, by virtue of a non-competition, territorial exclusivity or other provision covering such subject matter purportedly enforceable by a third party against the Company, or any of its officers or directors, the scope of the business or operations of the Company, or any of its officers or directors, geographically or otherwise. 3.9 Contracts and Commitments. Schedule 3.9 includes (i) a list of all contracts to which the Company is a party or by which its property is bound that involve consideration or other expenditure in excess of $50,000 or performance over a period of more than six months or that is otherwise material to the business or operations of the Company ("Material Contracts"); (ii) a list of all real or personal property leases to which the Company is a party involving consideration or other expenditure in excess of $50,000 over the term of the lease ("Material Leases"); (iii) a list of all guarantees of, or agreements to indemnify or be contingently liable for, the payment or performance by any Person to which the Company is a party ("Guarantees") and (iv) a list of all contracts or other formal or informal understandings between the Company and any of their officers, directors, employees, agents or stockholders or their affiliates ("Related Party Agreements"). True and complete copies of each Material Contract, Material Lease, Guarantee and Related Party Agreement have been furnished to Group 1. 3.10 Absence of Changes. Except as set forth in Schedule 3.10, there has not been, since November 30, 1997, any adverse change with respect to the business, assets, results of operations, prospects or condition (financial or otherwise) of the Company. Except as set forth in Schedule 3.10, since November 30, 1997, the Company has not engaged in any transaction or conduct of any kind which would be proscribed by Section 6.3 herein after execution and delivery of this Agreement. Notwithstanding the preceding sentence, the Company makes no representation regarding, and need not disclose, increases in compensation (of the type contemplated in Section 6.3(f)) since November 30, 1997, for any employee who after such increase would receive annual compensation of less than $50,000. 3.11 Tax Matters. (a) Except as set forth in Schedule 3.11, (i) all Tax Returns which are required to be filed on or before the Closing Date by or with respect to the Company have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been or will be so included and all information provided in each such Tax Return is true, correct and complete, (iii) all Taxes which have become or will become due with respect to the period covered by each such Tax Return have been or will be timely paid in full, (iv) all withholding Tax requirements imposed on or with respect to the Company have been or will be satisfied in full, and (v) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax. (b) There is no claim against the Company for any Taxes, and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return of or -4- 9 with respect to the Company, other than those disclosed (and to which are attached true and complete copies of all audit or similar reports) in Schedule 3.11(b). (c) There is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company, or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to the Company. (d) The total amounts set up as liabilities for current and deferred Taxes in the Interim Balance Sheet are sufficient to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to the Company up to and through the periods covered thereby. (e) The Company will not be required to include any amount in income for any taxable period as a result of a change in accounting method for any taxable period pursuant to any agreement with any Tax authority with respect to any such taxable period. (f) The Company has not consented to have the provisions of section 341(f)(2) of the Code apply with respect to a sale of its stock. (g) From the end of its most recent tax year through the Closing Date, (a) the Company continuously has been and will be an S Corporation within the meaning of section 1361 of the Code, and (b) each holder of the stock of the Company has been an individual resident of the United States. 3.12 Litigation. (a) Except as set forth in Schedule 3.12(a), there are no actions at law, suits in equity, investigations, proceedings or claims pending or, to the knowledge of the Stockholder, threatened against or specifically affecting the Company before or by any Court or Governmental Authority. (b) Except as contemplated by this Agreement and except to the extent set forth in Schedule 3.12(b), the Company has performed all obligations required to be performed by it to date and is not in default under, and, to the knowledge of the Stockholder, no event has occurred which, with the lapse of time or action by a third party could result in a default under any contract or other agreement to which the Company is a party or by which it or any of its properties is bound or under any applicable Order of any Court or Governmental Authority. 3.13 Compliance with Law. Except as set forth in Schedule 3.13, the Company is in compliance with all applicable statutes and other applicable laws and all applicable rules and regulations of all federal, state, foreign and local governmental agencies and authorities. 3.14 Permits. Except as set forth in Schedule 3.14, the Company owns or holds all franchises, licenses, permits, consents, approvals and authorizations of all Governmental Authorities -5- 10 necessary for the conduct of its business. Each franchise, license, permit, consent, approval and authorization so owned or held is in full force and effect, and the Company is in compliance with all of its obligations with respect thereto, and no event has occurred which allows, or upon the giving of notice or the lapse of time or otherwise would allow, revocation or termination of any franchise, license, permit, consent, approval or authorization so owned or held. 3.15 Employee Benefit Plans and Policies. Except as set forth in Schedule 3.15, the Company has no benefit plans of any kind. 3.16 Properties. (a) The Company does not own any real property or any interest therein. Schedule 3.16(a) (the "Leased Properties") sets forth the location and size of, principal improvements and buildings on, and Liens on all parcels of real estate leased by the Company (individually, a "Leased Property" and collectively, the "Leased Properties"). True and correct copies of all such Liens are attached to Schedule 3.16(a). Except as set forth in Schedule 3.16(a), with respect to each Leased Property: (i) the Company has good and valid leasehold interests in each parcel of its Leased Property, free and clear of any Lien other than Permitted Encumbrances; (ii) there are no pending or, to the knowledge of the Company or the Stockholder, threatened condemnation proceedings, suits or administrative actions relating to the Leased Properties or other matters affecting adversely the current use, occupancy or value thereof; (iii) except as set forth in Schedule 3.16(a), the legal descriptions for the parcels of Leased Property contained in the deeds thereof describe such parcels fully and adequately; the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, local comprehensive plan provisions, zoning laws and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), building code requirements, permits, licenses or other forms of approval by any Governmental Authority, and do not encroach on any easement which may burden the land; (iv) all facilities have received all approvals of Governmental Authorities (including licenses and permits) required in connection with the leasing or operation thereof and have been operated and maintained in compliance with applicable laws, ordinances, rules and regulations; (v) there are no contracts granting to any party or parties the right of use or occupancy of any portion of the parcels of Leased Property, except as set forth in Schedule 3.16(a); -6- 11 (vi) there are no outstanding options or rights of first refusal to purchase the parcels of Leased Property, or any portion thereof or interest therein; (vii) there are no parties (other than the Company) in possession of the parcels of Leased Property, other than tenants under any leases disclosed in Schedule 3.16(a) who are in possession of space to which they are entitled; (viii) all facilities located on the parcels of Leased Property are supplied with utilities and other services necessary for the operation of such facilities; (ix) each parcel of Leased Property abuts on and has direct vehicular access to a public road, or has access to a public road; (x) all improvements and buildings on the Leased Property are in good repair and adequate for the use of such Leased Property in the manner in which presently used; and (xi) there are no material service contracts, management agreements or similar agreements which affect the parcels of Leased Property, except as set forth in Schedule 3.16(a). (b) Except as set forth in Schedule 3.16(b), each of the Company has good and marketable title to all of its Assets, free and clear of any Liens or restrictions on use. The Fixed Assets currently in use for the business and operations of the Company are in good operating condition, normal wear and tear excepted and have been maintained in accordance with sound industry practices. 3.17 Insurance. Schedule 3.17 sets forth a list of all policies of insurance currently in effect relating to the business or operations of the Company (true and complete copies of which have been furnished to Group 1). Such insurance policies are in full force and effect. The Company is presently insured, and since the inception of operations by the Company has been insured, against such risks as companies engaged in the same or substantially similar business would, in accordance with good business practice, customarily be insured. The Company has given in a timely manner to its insurers all notices required to be given under such insurance policies with respect to all claims and actions covered by insurance, and, except as set forth in Schedule 3.17, no insurer has denied coverage of any such claims or actions or reserved its rights in respect of or rejected any of such claims. The Company has not received any notice or other communication from any such insurer canceling or materially amending any of such insurance policies, and no such cancellation is pending or threatened. The execution of this Agreement and the consummation of the transactions contemplated hereby will not cause such insurance policies to lapse, terminate or be canceled and will not result in any party thereto having the right to terminate or cancel such insurance policies. 3.18 Affiliate Interests. Except as set forth in Schedule 3.18, no employee, officer or director, or former employee, officer or director, of the Company has any interest in any property, tangible or intangible, including without limitation, patents, trade secrets, other confidential business -7- 12 information, trademarks, service marks or trade names, used in or pertaining to the business of the Company, except for the normal rights of employees, partners, and stockholders. 3.19 Environmental Matters. Except as set forth in Schedule 3.19: (a) The Company is in compliance with all Environmental Laws, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, transfer, labeling, handling, manufacturing, use, spilling, leaking, dumping, discharging, release or disposal of Hazardous Substances, or other Waste. The Company is currently not liable for any penalties, fines or forfeitures for failure to comply with any Environmental Laws. The Company is in compliance with all required notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws. (b) The Company has obtained, or caused to be obtained, and is in compliance with, all Licenses required by the Environmental Laws for the ownership of its properties and assets and the operation of its business as presently conducted, including, without limitation, all air emission, water discharge, water use and solid waste, hazardous waste and other Waste generation, transportation, transfer, storage, treatment or disposal Licenses (a listing of such items being included in Schedule 3.19(b), and the Company is in compliance with all the terms, conditions and requirements of such Licenses, and copies of such Licenses have been made available to Group 1. There are no administrative or judicial investigations, notices, claims or other proceedings pending or threatened by any Governmental Authority or third parties against the Company or its business, operations, properties, or assets, which question the validity or entitlement of the Company to any License required by the Environmental Laws for the ownership of each of the respective properties and assets of the Company and the operation of its business. (c) The Company has not received or is aware of any non-compliance order, warning letter, investigation, notice of violation, claim, suit, action, judgment, or administrative or judicial proceeding pending or threatened against or involving the Company or its business, operations, properties, or assets, issued by any Governmental Authority or third party with respect to any Environmental Laws in connection with the ownership of its properties or assets or the operation of its business, which has not been resolved to the satisfaction of the issuing Governmental Authority or third party. (d) The Company is in compliance with, and is not in breach of or default under any applicable writ, order, judgment, injunction, governmental communication or decree issued pursuant to the Environmental Laws and no event has occurred or is continuing which, with the passage of time or the giving of notice or both, would constitute such non-compliance, breach or default thereunder, or affect the Leased Properties. (e) The Company has not generated, manufactured, used, transported, transferred, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed, nor has it arranged for any third parties to generate, manufacture, use, transport, transfer, store, -8- 13 handle, treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances or other waste in an amount so as to require remedial efforts to or at any location other than a site permitted to receive such Hazardous Substances or other waste, nor has it performed, arranged for or allowed by any method or procedure such generation, manufacture, use, transportation, transfer, storage, treatment, spillage, leakage, dumping, discharge, release or disposal in contravention of any Environmental Laws. The Company has not generated, manufactured, used, stored, handled, treated, spilled, leaked, dumped, discharged, released or disposed of, or arranged for any third parties to generate, manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or dispose of, any material quantities of Hazardous Substances or other waste upon property currently or previously owned or leased by it, except in compliance with Environmental Laws. (f) The Company has not caused a Release or Discharge of any material quantity of Hazardous Substance on, into or beneath the surface of the Leased Properties or to any properties adjacent thereto except in compliance with the Environmental laws. There has not occurred, nor is there presently occurring, a Release or Discharge, or threatened Release or Discharge, of any Hazardous Substance on, into or beneath the surface of the Leased Properties or to any properties adjacent thereto. (g) The Company has not generated, handled, manufactured, treated, stored, used, shipped, transported, transferred, or disposed of, nor has it allowed or arranged, by contract, agreement or otherwise, for any third parties to generate, handle, manufacture, treat, store, use, ship, transport, transfer or dispose of, any material quantity of Hazardous Substance or other Waste to or at a site which, pursuant to CERCLA or any similar state law (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has notified the Company that it has proposed or is proposing to place on the National Priorities List or its state equivalent. Neither the Company nor the Stockholder have received notice or have knowledge of any facts which could give rise to any notice, that the Company is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA, RCRA or any other applicable Environmental Laws. The Company has not submitted nor was required to submit any notice pursuant to Section 103(c) of CERCLA with respect to any properties owned by, or used in the business of, the Company. The Company has not received any written or, to the knowledge of the Company or the Stockholder, oral request for information in connection with any federal or state environmental cleanup site, or in connection with any of the real property or premises where the Company has transported, transferred or disposed of other Wastes. The Company has not been required to nor has undertaken any response or remedial actions or clean-up actions at the request of any Governmental Authorities or at the request of any other third party. The Company has no liability under any Environmental Laws for personal injury, property damage, natural resource damage, or clean up obligations. (h) The Company has no Aboveground Storage Tanks or Underground Storage Tanks, except as listed in Schedule 3.19(h). (i) The following have been made available to Group 1 regardless of their materiality, (i) all environmental audits, assessments or occupational health studies of which -9- 14 the Company or the Stockholder are aware undertaken by the Company or their agents, or by the Stockholder, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Leased Properties; (ii) the results of which the Company or the Stockholder are aware of any ground, water, soil, air or asbestos monitoring undertaken by the Company or its agents, or by the Stockholder, or by any Governmental Authority, or by any third party, relating to the Company, or any of the Leased Properties; (iii) all written communications between the Company and any Governmental Authority arising under or related to Environmental, Laws; and (iv) all citations issued under OSHA, or similar state or local statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, relating to or affecting the Company, or any of the Leased Properties. (j) Schedule 3.19(j) contains a list of the assets of the Company which contain "asbestos" or "asbestos-containing material" (as such terms are identified under the Environmental Laws). Except as set forth in Schedule 3.19(j), the Company has operated and continue to operate in compliance with all Environmental Laws governing the handling, use and exposure to and disposal of asbestos or asbestos-containing materials. Except as set forth in Schedule 3.19(j), there are no claims, actions, suits, governmental investigations or proceedings before any Governmental Authority or third party pending, or threatened against or directly affecting the Company or any of its assets or operations relating to the use, handling or exposure to and disposal of asbestos or asbestos-containing materials in connection with their assets and operations. 3.20 Intellectual Property. Except as set forth in Schedule 3.20, the Company owns, or is licensed or otherwise has the right to use all Intellectual Property that is necessary for the conduct of the business and operations of the Company as currently conducted. To the knowledge of the Company and the Stockholder, (a) the use of the Intellectual Property by the Company does not infringe on the rights of any Person, and (b) no Person is infringing on any right of the Company with respect to any Intellectual Property. No claims are pending or, to the knowledge of the Company and the Stockholder threatened that the Company is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the knowledge of the Company and the Stockholder, no Person is infringing the rights of the Company with respect to any Intellectual Property. All of the Intellectual Property that is owned by the Company is owned free and clear of all encumbrances and was not misappropriated from any Person. All of the Intellectual Property that is licensed by the Company is licensed pursuant to valid and existing license agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. 3.21 Bank Accounts. Schedule 3.21 includes the names and locations of all banks in which the Company has an account or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto. 3.22 Brokers. No broker, finder, investment banker or other person is entitled to any brokerage, finder's or other fee, commission or payment in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. -10- 15 3.23 Disclosure. The Company has disclosed in writing, or pursuant to this Agreement and the Schedules attached hereto, all facts material to the business, assets, prospects and condition (financial or otherwise) of the Company. No representation or warranty to Group 1 by the Stockholder contained in this Agreement, and no statement contained in the Schedules attached hereto, any certificate, list or other writing furnished to Group 1 by the Stockholder pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. All statements contained in this Agreement, the Schedules attached hereto, and any certificate, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a representation and warranty of the Stockholder for all purposes of this Agreement. ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER The Stockholder further represents and warrants to Group 1 that: 4.1 Capital Stock. The Stockholder is the beneficial and record Stockholder of 1,000 shares of Common Stock of the Company, free and clear of any lien, claim, pledge, encumbrance or other adverse claim. The Stockholder does not own, beneficially or of record, any capital stock or other security, including without limitation any option, warrant or right entitling the holder thereof to purchase or otherwise acquire any shares of capital stock of the Company. 4.2 Authorization of Agreement. (a) The Stockholder has full legal right, power, capacity and authority to execute, deliver and perform its obligations pursuant to this Agreement and to execute, deliver and perform its obligations under each instrument, document or agreement required hereby to be executed and delivered by the Stockholder at, or prior to, the Closing. (b) This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by the Stockholder at, or prior to, the Closing will then be, duly executed and delivered by the Stockholder, and this Agreement constitutes and, to the extent it purports to obligate the Stockholder, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of the Stockholder enforceable against him in accordance with its terms. 4.3 Approvals. No filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Governmental Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit the Stockholder to execute, deliver or perform this Agreement or any instrument required hereby to be executed and delivered by him at the Closing. -11- 16 4.4 Absence of Conflicts. Except to the extent set forth in Schedule 4.4, neither the execution and delivery by the Stockholder of this Agreement or any instrument, document or agreement required hereby to be executed and delivered by him at, or prior to, the Closing, nor the performance by the Stockholder of his obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Law, (ii) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, or (iii) any contract or agreement to which the Stockholder is a party or by which he, or any of his properties, is bound, or (b) result in the creation or imposition of any Lien on any of the properties or assets of the Stockholder, or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit, certificate or order of any Court or Governmental Authority, or (d) with the passage of time or the giving of notice or the taking of any action of any third party have any of the effects set forth in clause (a), (b) or (c) of this Section. ARTICLE V REPRESENTATIONS AND WARRANTIES OF GROUP 1 Group 1 hereby represents and warrants to the Stockholder that: 5.1 Corporate Organization. Group 1 is a corporation duly organized, validly existing and in good standing under the laws of Delaware with all requisite corporate power and authority to execute, deliver and perform this Agreement and each instrument required hereby to be executed and delivered by it at the Closing. 5.2 Authorization. The execution and delivery by Group 1of this Agreement, the performance by Group 1 of its obligations pursuant to this Agreement, and the execution, delivery and performance of each instrument required hereby to be executed and delivered by Group 1 at the Closing have been duly and validly authorized by all requisite corporate action on the part of Group 1. This Agreement has been, and each instrument, document or agreement required hereby to be executed and delivered by Group 1 at, or prior to, the Closing will then be, duly executed and delivered by Group 1. This Agreement constitutes, and, to the extent it purports to obligate Group 1, each such instrument, document or agreement will constitute (assuming due authorization, execution and delivery by each other party thereto), the legal, valid and binding obligation of Group 1, enforceable against it in accordance with its terms. 5.3 Approvals. No filing or registration with, and no consent, approval, authorization, permit, certificate or order of any Court or Government Authority is required by any applicable Law or by any applicable Order or any applicable rule or regulation of any Court or Governmental Authority to permit Group 1 to execute, deliver or consummate the transactions contemplated by this Agreement or any instrument required hereby to be executed and delivered by Group 1 at or prior to the Closing. 5.4 Absence of Conflicts. Neither the execution and delivery by Group 1 of this Agreement or any instrument required hereby to be executed by it at or prior to the Closing nor the -12- 17 performance by Group 1 of its obligations under this Agreement or any such instrument will (a) violate or breach the terms of or cause a default under (i) any applicable Order or any applicable rule or regulation of any Court or Governmental Authority, (ii) the organizational documents of Group 1 or (iii) any contract or agreement to which Group 1 is a party or by which it or any of its property is bound, or (b) result in the creation or imposition of any Liens on any of the properties or assets of Group 1 (other than any Lien created by the Company), or (c) result in the cancellation, forfeiture, revocation, suspension or adverse modification of any existing consent, approval, authorization, license, permit certificate or order of any Court or Governmental Authority or (d) with the passage of time or the giving of notice or the taking of any action by any third party have any of the effects set forth in clause (a), (b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or (d) of this Section, where such matter would not have a material adverse effect on the business, assets, prospects or condition (financial or otherwise) of Group 1 and its subsidiaries, taken as a whole. ARTICLE VI COVENANTS OF THE STOCKHOLDER 6.1 Acquisition Proposals. Prior to the Closing Date, neither the Company nor any of its officers, directors, employees or agents nor any Stockholder shall agree to, solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition, business combination or purchase of all or a substantial portion of the assets of, or a substantial equity interest in, the Company, other than the transactions with Group 1 contemplated by this Agreement. 6.2 Access. The Company shall afford Group 1's officers, employees, counsel, accountants and other authorized representatives access, during normal business hours throughout the period prior to the Closing Date, to all its properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Group 1 any information concerning its business, properties and personnel as Group 1 may reasonably request; provided, however, that no investigation pursuant to this Section or otherwise shall affect or be deemed to modify any representation or warranty made by the Stockholder pursuant to this Agreement. 6.3 Conduct of Business by the Company Pending the Acquisition. The Stockholder covenant and agree that, from the date of this Agreement until the Closing Date, unless Group 1 shall otherwise agree in writing or as otherwise expressly contemplated by this Agreement: (a) The business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business and consistent with past practice. In connection therewith, the parties agree that the Company may dealer trade vehicles for similar models, but the Company shall not liquidate or otherwise dispose of any of its new vehicles other than in the ordinary course of business to retail buyers. The Company shall maintain its advertising expenditures and activities commensurate with prior business practices. The Company shall not advertise a "Going Out of Business" sale; -13- 18 (b) The Company shall not, directly or indirectly do any of the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital stock (or securities convertible into capital stock) of the Company or (B) other than in the ordinary course of business and consistent with past practice and not relating to the borrowing of money, any assets of the Company, (ii) amend or propose to amend the articles of incorporation or bylaws (or other organizational documents) of the Company, (iii) split, combine or reclassify any outstanding capital stock of the Company or declare, set aside or pay any dividend payable in cash, stock, property or otherwise with respect to the capital stock of the Company whether now or hereafter outstanding, (iv) redeem, purchase or acquire or offer to acquire any of the capital stock of the Company, (v) create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money (other than floor plan indebtedness incurred in the ordinary course of business), or (vi) except in the ordinary course of business and consistent with past practice, enter into any contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 6.3(b); (c) The Company shall use its best efforts (i) to preserve intact the business organization of the Company, (ii) to maintain in effect any franchises, authorizations or similar rights of the Company, (iii) to keep available the services of its current officers and key employees, (iv) to preserve the goodwill of those having business relationships with it, (v) to maintain and keep its properties in as good a repair and condition as presently exists, except for deterioration due to ordinary wear and tear, (vi) to maintain in full force and effect insurance comparable in amount and scope of coverage to that currently maintained by it, (vii) to collect its accounts receivable, (viii) to preserve in full force and effect all leases, operating agreements, easements, rights-of-way, permits, licenses, contracts and other agreements which relate to its assets (other than those expiring by their terms), and (ix) to perform or cause to be performed all of its obligations in or under any of such leases, agreements and contracts. (d) The Company shall not make or agree to make any single capital expenditure or enter into any purchase commitments in excess of $50,000; (e) The Company shall perform its obligations under any contracts and agreements to which it is a party or to which its assets are subject, except for such obligations as the Company in good faith may dispute; (f) The Company shall not increase the salary, benefits, stock options, bonus or other compensation of any officer, director or employee of the Company other than normal, annual compensation increases consistent with the Company's past practices; and shall not grant, to any individual, severance or termination pay that exceeds the lesser of (i) such individual's compensation for the calendar month immediately preceding such individual's grant of severance or termination pay, or (ii) $5,000; (g) The Company shall not take any action that would, or that reasonably could be expected to, result in any of the representations and warranties set forth in this Agreement becoming untrue or any of the conditions to the Acquisition set forth in Article VIII not being satisfied; provided, however, that no such notification shall affect the representations or -14- 19 warranties or covenants or agreements of the parties or the conditions to the obligations of the parties hereunder; (h) The Company shall not adopt or enter into any personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement or any other employee benefit plan, agreement, arrangement, program, practice or understanding; (i) The Company shall not enter into any agreement or incur any obligation, the terms of which would be violated by the consummation of the transactions contemplated by this Agreement; and 6.4 Notification of Certain Matters. The Company shall give prompt notice to Group 1, orally and in writing, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing, (ii) any failure of the Company, or any officer, director, employee or agent thereof, or the Stockholder to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (iii) any litigation, or any claim or controversy or contingent liability of which the Company or the Stockholder has knowledge of that might reasonably be expected to become the subject of litigation, against the Company or affecting any of their assets, in each case in an amount in controversy in excess of $50,000, or that is seeking to prohibit or restrict the transactions contemplated hereby. 6.5 Consents. Subject to the terms and conditions of this Agreement, the Company shall (i) obtain all consents, waivers, approvals (including all applicable automobile manufacturers approvals, and such approvals shall not contain any unreasonably burdensome restrictions on the Company or Group 1), authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary or proper to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 6.6 Removal of Related Party Guarantees. The Stockholder agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate, waive or release all Company guarantees (such guarantees shall be referred to herein as "Related Guarantees", as described in Schedule 6.6 pursuant to Section 3.9 of this Agreement) of indebtedness or other obligations of any of the Company's officers, directors, shareholders or employees or their affiliates. 6.7 Termination of Related Party Agreements. The Stockholder agree to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to terminate the Related Party Agreements except those Related Party Agreements that are disclosed in Schedule 6.7 as agreements that shall not be subject to this Section 6.7. -15- 20 6.8 Related Party Agreements. The Stockholder agrees to cause the Company not to enter into any Related Party Agreements or engage in any transactions with the Stockholder or his affiliates; except for those Related Party Agreements or transactions with affiliates that are disclosed in Schedule 6.8 as agreements or transactions that shall not be subject to this Section 6.8. ARTICLE VII COVENANTS OF GROUP 1 7.1 Consents. Subject to the terms and conditions of this Agreement, Group 1 shall (i) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Acquisition; and (ii) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. ARTICLE VIII CONDITIONS 8.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition. The respective obligations of each party to effect the Acquisition shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) No Order shall have been entered and remain in effect in any action or proceeding before any Court or Governmental Authority that would prevent or make illegal the consummation of the Acquisition; (b) There shall have been obtained any and all permits, approvals and consents of any governmental agency or authority, with respect to the consummation of the Acquisition; 8.2 Additional Conditions Precedent to Obligations of Group 1. The obligation of Group 1 to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) The representations and warranties of the Stockholder contained in Article III and Article IV, respectively, shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all of the terms, covenants and conditions of this Agreement to be complied with and performed by the Company and the Stockholder on or before the Closing Date shall have been duly complied with and performed in all respects, and a certificate to the foregoing effect dated the Closing Date and signed by the Stockholder shall have been delivered to Group 1. (b) There shall have been obtained any and all permits, approvals and consents of securities or blue sky commissions of any jurisdiction, and of any other Governmental -16- 21 Authority and of any automobile manufacturer, that reasonably may be deemed necessary so that the consummation of the Acquisition and the transactions contemplated thereby will be in compliance with applicable laws. (c) Group 1 shall have received evidence, satisfactory to Group 1, that all Related Party Agreements shall have been terminated and all Related Guarantees shall have been terminated, waived or released pursuant to Sections 6.6 and 6.7 hereto. (d) Since the date of this Agreement, no material adverse change in the business, condition (financial or otherwise), assets, operations or prospects of the Company shall have occurred, and the Company shall not have suffered any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or business of the Company and Group 1 shall have received a certificate signed by the Stockholder dated the Closing Date to such effect. 8.3 Additional Conditions Precedent to Obligations of the Stockholder. The obligation of the Stockholder to effect the Acquisition is also subject to the fulfillment at or prior to the Closing Date of the following condition: (a) The representations and warranties of Group 1 contained in Article V shall be true and correct in all respects as of the date when made and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date; all the terms, covenants and conditions of this Agreement to be complied with and performed by Group 1 on or before the Closing Date shall have been duly complied with and performed in all material respects; and a certificate to the foregoing effect dated the Closing Date and signed by the chief executive officer of Group 1 shall have been delivered to the Stockholder. ARTICLE IX SURVIVAL OF REPRESENTATIONS AND WARRANTIES 9.1 Survival. The representations, warranties and agreements in this Agreement shall terminate at Closing. ARTICLE X MISCELLANEOUS 10.1 Schedules to this Agreement. The Schedules to this Agreement, contain all disclosure required to be made by the Stockholder under the various terms and provisions of this Agreement. 10.2 Termination. This Agreement may be terminated and the Acquisition and the other transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual consent of Group 1 and the Stockholder; -17- 22 (b) by either Group 1 or the Stockholder if the Acquisition has not been effected on or before February 28, 1998; (c) by Group 1 if the information disclosed on the Schedules or the results of Group 1's general due diligence investigation are not satisfactory to Group 1 in its sole discretion; provided, however, that Group 1's right to terminate under this Section 10.2(c) shall expire at midnight on January 31, 1998; (d) by either Group 1 or the Stockholder if a final, unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, a consummation of the Acquisition or the other transactions contemplated hereby shall have been entered; (e) by Group 1 if (i) since the date of this Agreement there has been a material adverse change in the business operations or financial condition of the Company; (ii) there has been a material breach of any representation, warranty, covenant or other agreement set forth in this Agreement by the Company or the Stockholder which breach has not been cured within ten business days following receipt by the Company of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice) or (iii) there is a material adverse change in the pre-tax income expected for the Company, on which the purchase price of the acquisition was based; or (f) by the Stockholder if there has been a material breach of any representation or warranty set forth in this Agreement by Group 1 which breach has not been cured within ten business days following receipt by Group 1 of notice of such breach (or if such breach cannot be cured within such time, reasonable efforts have begun to cure such breach and such breach is then cured within 30 days after notice). 10.3 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.2, the Stockholder and Group 1 shall have no obligation or liability to each other except that the provisions of Section 10.4 survive any such termination. 10.4 Expenses. Regardless of whether the Acquisition is consummated, all costs and expenses in connection with this Agreement and the transactions contemplated hereby shall be paid by Group 1. The Stockholder and Group 1 each represent and warrant to each other that there is no broker or finder involved in the transactions contemplated hereby. 10.5 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party hereto of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived. -18- 23 10.6 Assignment. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement shall not be assignable by the parties hereto without the written consent of the other parties hereto. 10.7 Notices. All notices, requests, demands, claims and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered in person or by courier, (ii) sent by telecopy or facsimile transmission, answer back requested, or (iii) mailed, by registered or certified mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: if to the Stockholder: Robert E. Howard, II. 13300 N. Broadway Extension Oklahoma City, Oklahoma 73114 Telecopy: (405) 936-8851 with a copy to: Randall K. Calvert 6520 N. Western, Suite 100 Oklahoma City, Oklahoma 73116 Telecopy: (405) 848-5052 if to Group 1: 950 Echo Lane, Suite 350 Houston, Texas 77024 Telecopy: (713) 467-1513 Attention: B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002-6760 Telecopy: (713) 615-5236 Attention: John S. Watson or to such other address as any party shall have furnished to the other by notice given in accordance with this Section 10.7. Such notices shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, (ii) if sent by telecopy or facsimile transmission, when the answer back is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown by the return receipt therefor. -19- 24 10.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. 10.9 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any party hereto or materially alter the terms of the transactions contemplated hereby. 10.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 10.11 Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10.12 Third Party Beneficiaries. Neither this agreement nor any document delivered in connection with this Agreement, confers upon any Person not a party hereto any rights or remedies hereunder. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. GROUP 1 AUTOMOTIVE, INC. By: /s/ SCOTT L. THOMPSON ---------------------------------------- Name: Scott L. Thompson Title: Senior Vice President STOCKHOLDER /s/ ROBERT E. HOWARD, II ---------------------------------- Robert E. Howard, II -20- 25 ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Agreement shall have the meanings set forth below unless the context shall otherwise require: "Aboveground Storage Tanks" and "Underground Storage Tanks" shall have the meanings given them in Section 6901 et seq., as amended, of RCRA, or any applicable state or local statute, law, ordinance, code, rule, regulation, order ruling, or decree, as in effect as of the Closing Date, governing Aboveground Storage Tanks or Underground Storage Tanks. "affiliate" shall mean, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. "Agreement" shall mean the Stock Purchase Agreement made and entered into as of December 30, 1997 by and between Group 1and the Stockholder, including any amendments thereto and each Annex (including this Annex A), Exhibit and schedule thereto (including the Schedules). "Assets" shall mean all of the properties and assets owned by the Company, other than the Leased Properties, whether personal or mixed, tangible or intangible, wherever located. "Business Day" means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. "Closing" shall mean a meeting, which shall be held in accordance with Section 2.2, of representatives of the parties to the Agreement at which, among other things, all documents deemed necessary by the parties to the Agreement to evidence the fulfillment or waiver of all conditions precedent to the consummation of the transactions contemplated by the Agreement are executed and delivered. "Closing Date" shall mean the date of the Closing as determined pursuant to Section 2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Company" shall mean Bob Howard Nissan, Inc., an Oklahoma corporation, all predecessor entities of the Company and its successors from time to time. "Common Stock" shall mean the common stock, par value $1.00 per share, of the Company. "control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct -1- 26 or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Environmental Laws" shall mean all federal, state, regional or local statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or ordinances or judicial or administrative interpretations thereof, as in effect on the Closing Date, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste or occupational health and safety, as any of these terms are in such statutes, laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings and changes or ordinances, or judicial or administrative interpretations thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA. "Fixed Assets" shall mean all vehicles, machinery, equipment, tools, supplies, leasehold improvements, furniture and fixtures owned by the Company or set forth on the Interim Balance Sheet or acquired by the Company since the date of the Interim Balance Sheet. "GAAP" shall mean accounting principles generally accepted in the United States as in effect from time to time consistently applied by a specified Person. "Governmental Authority" shall mean any governmental agency or authority (other than a Court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. "Guarantees" shall have the meaning set forth in Section 3.9 herein. "Hazardous Substance" shall mean any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, metals, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires remediation under any Environmental, Health and Safety Laws in effect on the Closing Date, including, without limitation, the United States Department of Transportation Table (49 CFR 172, 101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and any amendments thereto; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended -2- 27 (42 U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state statute or regulations implementing such statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has been or shall be determined or interpreted at any time by any Governmental Authority to be a hazardous or toxic substance regulated under any other statute, law, regulation, order, code, rule, order, or decree. "Intellectual Property" shall mean all patents, trademarks, copyrights and other proprietary rights. "IRS" shall mean the Internal Revenue Service. "Law" shall mean all laws, statutes, ordinances, rules and regulations of the United States, any foreign country, or any domestic or foreign state, and any political subdivision or agency thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Leased Property" and "Leased Properties" have the meaning set forth in Section 3.16 herein. "Licenses" shall mean all licenses, certificates, permits, approvals and registrations. "Lien" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Law of any jurisdiction. "Material Contract" has the meaning set forth in Section 3.9 herein. "Material Leases" shall have the meaning set forth in Section 3.9 herein. "Order" shall mean any judgment, order or decree of any Court or Governmental Authority, federal, foreign, state or local. "Permitted Encumbrances" shall mean the following: (1) liens for taxes, assessments and other governmental charges not delinquent or which are currently being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; (2) mechanics' and materialmen's liens not filed of record and similar charges not delinquent or which are filed of record but are being contested in good faith by appropriate proceedings; provided that, in the latter case, the specified Person shall have set aside on its books adequate reserves with respect thereto; -3- 28 (3) liens in respect of judgments or awards with respect to which the specified Person shall in good faith currently be prosecuting an appeal or other proceeding for review and with respect to which such Person shall have secured a stay of execution pending such appeal or such proceeding for review; provided that such Person shall have set aside on its books adequate reserves with respect thereto; (4) easements, leases, reservations or other rights of others in, or minor defects and irregularities in title to, property or assets of a specified Person; provided that such easements, leases, reservations, rights, defects or irregularities do not materially impair the use of such property or assets for the purposes for which they are held; and (5) any lien or privilege vested in any lessor, licensor or permittor for rent or other obligations of a specified Person thereunder so long as the payment of such rent or the performance of such obligations is not delinquent. "Person" shall mean an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Court or Governmental Authority. "Related Party Agreements" shall have the meaning set forth in Section 3.19 herein. "Release" and "Discharge" shall have the meanings given them in the Environmental, Health and Safety Laws "Reports" shall mean, with respect to a specified Person, all reports, registrations, filings and other documents and instruments required to be filed by the specified Person or any of its Subsidiaries with any Governmental Authority. A "Subsidiary" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. "Tax Returns" shall mean all returns, reports and filings relating to Taxes. "Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, payroll and franchises imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof. -4- 29 "Waste" shall mean toxic agricultural wastes, biomedical wastes, biological wastes, bulky wastes, construction and demolition debris, garbage, household wastes, industrial solid wastes, liquid wastes, recyclable materials, sludge, solid wastes, special wastes, used oils, white goods, and yard trash; provided, however, the term "Waste" shall not include scrap metal. -5- EX-10.53 24 REVOLVING CREDIT AGREEMENT - DATED 12/31/97 1 EXHIBIT 10.53 ================================================================================ REVOLVING CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1997 AMONG GROUP 1 AUTOMOTIVE, INC., ITS SUBSIDIARY BORROWERS LISTED HEREIN THE BANKS LISTED HEREIN, TEXAS COMMERCE BANK NATIONAL ASSOCIATION AS ADMINISTRATIVE AGENT COMERICA BANK AS FLOOR PLAN AGENT, NATIONSBANK OF TEXAS, N.A. AS DOCUMENTATION AGENT AND U. S. BANK AS CO-AGENT ================================================================================ 2 REVOLVING CREDIT AGREEMENT dated as of December 31, 1997, among GROUP 1 AUTOMOTIVE, INC., a Delaware corporation (the "Company"), each of the Subsidiaries of the Company listed on the signature pages hereof and such other Subsidiaries of the Company which hereafter shall become parties to this Agreement (the Company and the Subsidiaries are sometimes referred to herein as, individually, a "Borrower," and collectively, the "Borrowers"), the Banks listed on the signature pages hereof (the "Banks"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the Banks (in such capacity together with any successor in such capacity pursuant to Section 12.6, the "Agent"), COMERICA BANK, a Michigan banking association, as Floor Plan Agent for the Banks (in such capacity together with any successor in such capacity pursuant to Section 12.13, the "Floor Plan Agent"). ARTICLE I CERTAIN DEFINED TERMS, ACCOUNTING TERMS AND CONSTRUCTION SECTION 1.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR Borrowing" means a Borrowing comprised of Alternate Base Rate Loans. "Accounts" means any and all rights of the Company or any of its Subsidiaries to payment for goods and services sold or leased, including any such right evidenced by chattel paper, whether due or to become due, whether or not it has been earned by performance, and whether now or hereafter acquired or arising in the future, including accounts receivable from Affiliates. "Acquisition" means the acquisition by any Borrower of (i) not less than one hundred percent (100%) of the capital stock or other evidence of equity ownership of an Auto Dealer, or (ii) all or substantially all of the assets of an Auto Dealer. "Acquisition Loan" has the meaning specified in Section 3.1. "Acquisition Loan Advance Limit" means as of any Borrowing Date of an Acquisition Loan, for the Company and its Subsidiaries on a consolidated basis, calculated as of the last day of the most recently ended fiscal quarter or year for which financial statements have been delivered under either Section 7.5 or 9.5, an amount equal to the lesser of (i) 2.75 times the difference between Pro Forma EBITDA of the Floor Plan Subsidiaries minus Pro Forma Interest Expense of the Floor Plan Subsidiaries, or (ii) an amount equal to the greater of (y) 1.50 times the difference between Consolidated Pro Forma EBITDA minus Pro Forma Floor Plan Interest Expense or (z) 2.0 times the difference between Pro Forma EBITDA of the Floor Plan Subsidiaries minus Pro Forma Interest Expense of the Floor Plan Subsidiaries. If the purpose of any Borrowing of an Acquisition Loan is to make a Permitted Acquisition, then the foregoing amounts shall be calculated to give effect to such Permitted Acquisition as if such Acquisition had been consummated on or before the last day of the fiscal quarter immediately preceding such Borrowing Date. 3 "Acquisition Loan Commitment" means for each Bank, its obligation to make Acquisition Loans to the Borrowers up to the amount set forth opposite such Bank's name on Schedule I under the caption "Acquisition Loan Commitments" (as the same may be permanently terminated or reduced from time to time pursuant to Section 2.3(g)(iii), 3.5, 5.5, or 11.1 and as such amount may be increased or decreased from time to time by assignment or assumption pursuant to Section 13.3(b)). "Addendum" means the Addendum to Revolving Credit Agreement and Note substantially in the form attached hereto as Exhibit A. "Adjusted Indebtedness" means as of any date of determination, for the Company and its Subsidiaries, on a consolidated basis, the difference between (i) Indebtedness minus (ii) the sum of (x) Floor Plan Loans outstanding, (y) Retail Loan Guaranties, and (z) Subordinated Indebtedness. "Adjustment Period" means the period of time commencing on a Floor Plan Adjustment Date and ending on the next succeeding Floor Plan Adjustment Date. "Administrative Questionnaire" means an Administrative Questionnaire in the form of Exhibit B hereto, which each Bank shall complete and provide to the Agent. "Affiliate" means any Person (including any member of the immediate family of any such natural person) who directly or indirectly beneficially owns or controls five percent (5%) or more of the total voting power of shares of capital stock of the Company having the right to vote for directors under ordinary circumstances, any Person controlling, controlled by or under common control with any such Person (within the meaning of Rule 405 under the Securities Act of 1933) and any director or executive officer of such Person. "Agency Fee" has the meaning specified in Section 5.4(b). "Agent" has the meaning specified in the introduction to this Agreement. "Agent's Letter" has the meaning specified in Section 5.4(b). "Agreement" means this Revolving Credit Agreement. "Alternate Base Rate" means, for any day, a fluctuating rate per annum (rounded upwards to the next highest one-eighth (1/8) of one percent (1%) if not already an integral multiple of one-eighth (1/8) of one percent (1%)) equal to the greater of (a) the Prime Rate in effect on such day, or (b) the Federal Funds Effective Rate in effect on such day plus one-half ( 1/2) of one percent (1%). "Prime Rate" shall mean, as of a particular date, the prime rate most recently announced by TCB and thereafter entered in the minutes of TCB's Loan and Discount Committee, automatically fluctuating upward and downward with and at the time specified in each such announcement without notice to any Borrower or any other Person, which prime rate may not necessarily represent the lowest or best rate actually charged to a customer. "Federal Funds Effective Rate" shall mean, for any day, an interest rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as 2 4 published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, or the Federal Funds Effective Rate, respectively. "Alternate Base Rate Loan" means any Loan with respect to which the Company shall have selected an interest rate based on the Alternate Base Rate in accordance with the provisions of this Agreement. "Applicable Interest Rate" means the LIBO Rate, the Alternate Base Rate, or the Comerica Prime-based Rate, as selected by the Company from time to time subject to the terms and conditions of this Agreement. "Applicable Margin" means, on any date, with respect to Eurodollar Loans which are Acquisition Loans or to Alternate Base Rate Loans, as the case may be, the applicable percentages set forth below based upon the Leverage Ratio as in effect as of such date.
Leverage Eurodollar Alternate Base Ratio Margin Rate Margin --------- ------ ----------- Category 1 x > 1.75 2.75% 1.25% Category 2 1.25 < x > 1.75 2.25% .75% - Category 3 1.00 < x > 1.25 1.75% .25% - Category 4 x < 1.00 1.50% .0% -
Each change in the Applicable Margin shall apply to all Eurodollar Loans that are outstanding at any time during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. "Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of a Comerica Prime Rate Loan and such Bank's Eurodollar Lending Office in the case of a Eurodollar Loan. 3 5 "Assignment and Acceptance" has the meaning specified in Section 13.3(b). "Auto Dealer" means a Person engaged in the sale of new and/or Used Motor Vehicles pursuant to a franchise or licensing agreement with a Manufacturer and related operations. "Banks" has the meaning specified in the introduction to this Agreement, and Bank(s) shall include the Swing Line Bank unless the context otherwise requires. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Book Value" means the wholesale value set forth in the most recent edition of the National Automotive Dealers Association ("N.A.D.A.") Official Used Car Guide Retail Edition. "Borrower" or "Borrowers" has the meaning specified in the introduction to this Agreement. "Borrowing" means a Loan or a group of Loans of a single Type made by the Banks on a single date and as to which a single Interest Period is in effect. "Borrowing Date" means, with respect to each Borrowing, the Business Day upon which the proceeds of such Borrowing are made available to any Borrower. "Business Day" means a day when the Agent and each Bank are open for business, and if the applicable Business Day relates to any Eurodollar Loan, a day on which dealings are carried on in the London interbank market and commercial banks are open for domestic or international business in London, England, in New York City, New York, Detroit, Michigan and in Houston, Texas. "Capital Lease" means any lease required to be accounted for as a capital lease under generally accepted accounting principles. "Cash Collateral Account" has the meaning specified in Section 6.8(a). "Cash Receipted" means, in connection with the sale of a Motor Vehicle, that cash has been received upon the sale thereof. "Closing Date" means the earliest date upon which all of the following shall have occurred: counterparts of this Agreement and all of the Loan Documents shall have been executed by each Borrower, each Bank, the Agent and the Floor Plan Agent and the Agent shall have received counterparts hereof which taken together, bear the signature of all such signatories and all of the other conditions to the initial Borrowing or the issuance of any Letters of Credit set forth in Section 8.1 hereof shall have been satisfied. "Code" means the Internal Revenue Code of 1986 and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed to also refer to any successor sections. 4 6 "Collateral" means the collateral described in each of the Loan Documents including the Security Documents and shall include (a) all of the capital stock and any other equity interests of all Subsidiaries of the Company or other Borrowers, now or hereafter existing (except such capital stock and equity interests which the Company or other applicable Borrower is prohibited by a Manufacturer from pledging), and (b) with respect each of the Borrowers, (i) all inventory, including without limitation, Motor Vehicles, (ii) all Accounts, (iii) all equipment, machinery, furniture and fixtures, and (iv) all real estate owned or leased by any Borrower. "Comerica Alternate Base Rate" shall mean, for any day, an interest rate per annum equal to the Federal Funds Effective Rate in effect on such day, plus one percent (1%). "Comerica Prime-based Rate" shall mean, for any day, that rate of interest which is equal to (a) the greater of (i) the Comerica Prime Rate and (ii) the Comerica Alternate Base Rate minus (b) 0.50%. "Comerica Prime Rate" shall mean the per annum rate of interest announced by the Floor Plan Agent, at its main office from time to time as its "prime rate" (it being acknowledged that such announced rate may not necessarily be the lowest rate charged by the Floor Plan Agent to any of its customers), which rate shall change simultaneously with any change in such announced rate. "Comerica Prime Rate Loan" or "Comerica Prime Rate Borrowing" means any Loan with respect to which the Company shall have selected an interest rate based on the Comerica Prime-based Rate in accordance with the provisions of this Agreement. "Commitment" means (a) for each Bank (or, as to any Person who becomes a Bank after the Closing Date), its obligation to make Loans to the Borrowers up to the amounts of its Pro Rata Share of the Acquisition Loan Commitment and Floor Plan Loan Commitment, respectively, but in any event not to exceed the amount set forth opposite such Bank's name on Schedule I under the caption "Total Commitments," as the same may be permanently terminated or reduced from time to time pursuant to Section 5.5 or 11.1 and as such amount may be increased or decreased from time to time by assignment or assumption pursuant to Section 13.3(b); and (b) for the Swing Line Bank, its obligation to make Swing Line Loans to the Floor Plan Borrowers up to the amount of the Swing Line Commitment as the same may be increased pursuant to the provisions of Section 2.3(g)(iii) or decreased pursuant to the provisions of Section 5.5. "Commitment Fee" has the meaning specified in Section 5.4(a). "Communications" has the meaning specified in Section 13.1. "Company" has the meaning specified in the introduction to this Agreement. "Confidential Information Memorandum" means the Confidential Information Memorandum dated October 29, 1997 furnished by Chase Securities Inc., as Arranger on behalf of the Agent, the Floor Plan Agent and the Banks, relating to the credit facilities evidenced by this Agreement. 5 7 "Consolidated EBITDA" means, for any period for which the amount thereof is to be determined, Consolidated Net Income for such period, plus, to the extent deducted in the determination of Consolidated Net Income and without duplication with items included in the adjustments under generally accepted accounting principles to net income in the determination of Consolidated Net Income, (a) provisions for income taxes, (b) Interest Expense, (c) depreciation and amortization expense, and (d) other non-cash income or charges. "Consolidated Net Income" means for any period for which the amount thereof is to be determined, the Net Income of the Company in accordance with generally accepted accounting principles. "Consolidated Pro Forma EBITDA" means, Pro Forma EBITDA of the Company and its Subsidiaries, determined on a consolidated basis. "Consolidated Tangible Net Worth" means, with respect to the Company, at any time, the total Stockholders' Equity less the total amount of any intangible assets, with all such amounts being calculated for the Company and its Subsidiaries on a consolidated basis in accordance with generally accepted accounting principles applied on a consistent basis. Intangible assets shall include unamortized debt discount and expense, unamortized deferred charges and goodwill. "Current Ratio" means, as of any date of determination, for the Company and its Subsidiaries on a consolidated basis, the quotient of (a) current assets as of such date divided by (b) the sum of (without duplication) current liabilities and the outstanding balance of all Floor Plan Indebtedness as of such date. "Curtailment Date" means (a) with respect to new Motor Vehicles, one year after the date they are Deemed Floored, (b) with respect to Fleet Motor Vehicles, thirty (30) days from the date they are Deemed Floored, (c) with respect to Demonstrators, two hundred ten (210) days from the date they are Deemed Floored, (d) with respect to Used Motor Vehicles, one hundred twenty (120) days from the date they are Deemed Floored and (v) with respect to Program Cars, one hundred eighty (180) days from the date they are Deemed Floored. "Dealer Franchise Agreement" has the meaning specified in Section 7.20. "Deemed Floored" means with respect to a Motor Vehicle, the earlier of (a) the date a Floor Plan Loan Borrowing is deemed by the Floor Plan Agent in its sole discretion to be advanced by the Floor Plan Agent; or (b) thirty (30) days after an advance is made on a Floor Plan Loan with respect to such Motor Vehicle. "Default" means any event or condition which, with the lapse of time or giving of notice or both, would constitute an Event of Default. "Demonstrator" means a new Motor Vehicle with mileage resulting from customer test drives or use of such Motor Vehicle by dealership personnel. "Disposition" means the sale, lease, conveyance or other disposition of property. 6 8 "Dollars" and the symbol "$" mean the lawful currency of the United States of America. "Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" on such Bank's signature page to this Agreement or, as to any Person who becomes a Bank after the Closing Date, on the signature page of the Assignment and Acceptance executed by such Person or such other office of such Bank as such Bank may hereafter designate from time to time as its "Domestic Lending Office" by notice to the Company and the Agent. "Draft" means a draft on a Floor Plan Borrower's account at the Floor Plan Agent made by a Manufacturer in accordance with the terms of a Drafting Agreement by and among the Floor Plan Agent, the Manufacturer and/or any of the Borrowers. "Drafting Agreement" means an agreement (whether or not issued in the form of a letter of credit) by and between the Floor Plan Agent and a Manufacturer, entered into for the account of a Floor Plan Borrower (and in some cases acknowledged or countersigned by a Floor Plan Borrower) under which a Manufacturer is entitled to submit Drafts to the Floor Plan Agent (via ACH electronic transfer or otherwise) for payment of invoices identifying Motor Vehicles delivered or shipped to the applicable Floor Plan Borrower, such agreements to be substantially in the form of the existing Drafting Agreements identified in Schedule II hereto or otherwise on terms and conditions consistent with the usual customs and practices in effect from time to time for the floor plan industry. "EBITDA" means, for any Person, for any period for which the amount thereof is to be determined, Net Income for such period, plus, to the extent deducted in the determination of Net Income and without duplication with items included in the adjustments under generally accepted accounting principles to Net Income in the determination of net income, (a) provisions for income taxes, (b) Interest Expense, (c) depreciation and amortization expense and (d) other non-cash income or charges. "Earnings Available for Fixed Charges" means, for any period for which the amount thereof is to be determined, Consolidated EBITDA plus (a) lease expense of the Company and its Subsidiaries on a consolidated basis minus (b) the cash income taxes of the Company and its Subsidiaries, determined on a consolidated basis as reported in the annual audited and the quarterly unaudited financial statements. "Eligible Assignee" means (a) any Bank or any Affiliate of any Bank (b) a commercial bank organized under the laws of the United States, or any state there of, and having total assets in excess of One Billion Dollars ($1,000,000,000) or its equivalent in any other currency and having deposits that rated in either of the two highest generic letter rating categories (without regard to subcategories) from either S&P or Moody's or a comparable nationally recognized national or international rating agency; (c) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of One Billion Dollars ($1,000,000,000) or its equivalent in any other currency, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (d) the central bank of any country which is a member of the 7 9 OECD; or (e) any other financial institution approved by the Agent and the Company, (if such consent is required pursuant to Section 13.3) whose consent shall not be unreasonably withheld. "ERISA" means the Employee Retirement Income Security Act of 1974, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. "ERISA Affiliate" means any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Code or section 4001 of ERISA. "Eurodollar Borrowing" means a Borrowing comprised of Eurodollar Loans. "Eurodollar Lending Office" means, with respect to each Bank, the branches or Affiliates of such Bank which such Bank has designated as its "Eurodollar Lending Office" on such Bank's signature page to this Agreement or, as to any Person who becomes a Bank after the Closing Date, on the signature page of the Assignment and Acceptance executed by such Person or such other office of such Bank as such Bank may hereafter designate from time to time as its "Eurodollar Lending Office" by notice to the Company and the Agent. "Eurodollar Loan" means any Loan with respect to which the Company shall have selected an interest rate based on the LIBO Rate in accordance with the provisions of this Agreement. "Event of Default" has the meaning specified in Section 11.1. "Excess/Payments in Process" means as of any date of determination the funds transferred from any Floor Plan Borrower to the Floor Plan Agent in payment of Floor Plan Loans which have at such time not yet been applied on a VIN specific basis. "Federal Funds Effective Rate" has the meaning specified in the definition of "Alternate Base Rate." "Fixed Charges" means, for any period for which the amount thereof is to be determined, the sum of Interest Expense, lease expense, principal payments, cash dividends, and capital expenditures, in each case, for the Company and its Subsidiaries, determined on a consolidated basis. "Fixed Charge Coverage Ratio" means the quotient of (a) Earnings Available for Fixed Charges divided by (b) Fixed Charges. "Fleet Motor Vehicle" means one of a large group of new Motor Vehicles sold to a purchaser (e.g., a rental car agency) which purchases vehicles for short term use. "Floor Plan Adjustment Date" means (a) the last Business Day of each calendar month, or (b) any Business Day designated by the Swing Line Bank upon at least two (2) Business Days prior written notice to the Agent requesting therein a Floor Plan Adjustment Date. 8 10 "Floor Plan Advance Limit" means (a) with respect to new Motor Vehicles and Demonstrators, the wholesale purchase price charged by a Manufacturer as reflected in the invoice to the Company or any other Floor Plan Borrower for such Motor Vehicles, and (b) with respect to Used Motor Vehicles and Program Cars, the cost of such Motor Vehicles to the Company or any other Floor Plan Borrower; provided, however, with respect to Demonstrators, Used Motor Vehicles and Program Cars, (x) the aggregate amount of Floor Plan Loans outstanding at any time in connection with Used Motor Vehicles may not exceed an amount equal to fifty-five percent (55%) of the aggregate Book Value of all Used Motor Vehicles of the Floor Plan Borrowers, as reflected in their current Manufacturer/Dealer Statement, (y) the aggregate amount of Floor Plan Loans outstanding at any time in connection with Used Motor Vehicles and Program Cars may not exceed Fourteen Million Five Hundred Thousand Dollars ($14,500,000), and (z) the aggregate amount of Floor Plan Loans outstanding at any time in connection with Demonstrators may not exceed Nine Million Five Hundred Thousand Dollars ($9,500,000). "Floor Plan Agency Fee" has the meaning specified in Section 5.4(c). "Floor Plan Borrowers" shall mean the Company and/or any Floor Plan Subsidiaries. "Floor Plan Indebtedness" means (without duplication) all Indebtedness of the Borrowers secured by Motor Vehicles. "Floor Plan Interest Expense" means that component of the Company's aggregate Interest Expense, determined on a consolidated basis, attributable to Floor Plan Indebtedness. "Floor Plan Loan" has the meaning specified in Section 2.1. "Floor Plan Loan Commitment" means for each Bank, its obligation to make Floor Plan Loans to the Floor Plan Borrowers up to the amount set forth opposite such Bank's name on Schedule I under the caption "Floor Plan Loan Commitments" (as the same may be increased pursuant to the provisions of 2.3(g)(iii) or permanently terminated or reduced from time to time pursuant to Section 5.5 or 11.1 and as such amount may be increased or decreased from time to time by assignment or assumption pursuant to Section 13.3(b)). "Floor Plan Subsidiary" means any Subsidiary of the Company which has granted a general Lien to the Agent for the benefit of the Banks on substantially all of its assets in the manner required by the Loan Documents and which does not have any Third Party Floor Plan Financing. "Fronting Fees" has the meaning specified in Section 6.7(b). "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. 9 11 "Guaranties" by any Person means all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including all obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (b) to advance or supply funds (a) for the purchase or payment of such Indebtedness or obligation, (b) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, (c) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or perform such obligation, or (d) otherwise to assure the owner of the Indebtedness or the obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Highest Lawful Rate" means, as to any Bank, the maximum nonusurious rate of interest, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the aggregate principal amount of all Loans under the laws of the United States of America and/or the laws of the State of Texas as may be applicable thereto that are presently in effect or, to the extent allowed under such applicable law, which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable law now allows. To the extent, if any, that the maximum non-usurious rate is determined with reference to the laws of the State of Texas, the Highest Lawful Rate shall be the "weekly" rate ceiling as defined in Chapter 1D of Subtitle 1 of Title 79, Texas Revised Civil Statutes (as amended) (the "Act"), calculated on the basis of a 365/366 day year; provided, however, that to the extent permitted by the Act, the Agent may at its election or at the request of the Required Banks substitute for the "weekly" rate ceiling the "annual" or "quarterly" ceiling, as those terms are defined in the Act, upon the giving of notices provided for by the Act and effective upon the giving of such notices. "Honor Date" has the meaning specified in Section 6.3(b). "Indebtedness" of any Person means, without duplication: 10 12 (a) any obligation of such Person for borrowed money, including any obligation of such Person evidenced by bonds, debentures, notes or other similar debt instruments, and (b) any obligation of such Person on account of deposits or advances, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, (d) any obligation of such Person for the deferred purchase price of any property or services, except accounts payable arising in the ordinary course of such Person's business, (e) rentals in respect of Capital Leases of such Person, (f) Guaranties by such Person to the extent required pursuant to the definition thereof, (g) any Indebtedness of another Person secured by a Lien on any asset of such first Person, whether or not such Indebtedness is assumed by such first Person, and (h) any Indirect Indebtedness of such Person. "Indemnitee" has the meaning specified in Section 13.4(b). "Indirect Indebtedness" means preferred stock of a Person having a mandatory redemption prior to the Maturity Date. "Insolvency Proceeding" means (a) any case, action or proceeding relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangements in respect of its creditors generally or any substantial portion of a Person's creditors, undertaken under federal. "Interest Coverage Ratio" means for any period the quotient of (a) Consolidated EBITDA for such period divided by (b) Interest Expense of the Company for such period. "Interest Expense" means, for any Person, determined on a consolidated basis, the sum of all interest on Indebtedness paid or payable (including the portion of rents payable under Capital Leases allocable to interest, but excluding interest allowances from Manufacturers). "Interest Payment Date" means, (a) with respect to Floor Plan Loans (other than Swing Line Loans and Swing Line Overdraft Loans), the last day of the Interest Period applicable to each such Loan (and, in addition, in the case of any Interest Period more than 30 days' duration, the day that would have been the Interest Payment Date of such Interest Period if such Interest Period had been of one month or 30 days' duration), (b) with respect to Acquisition Loans which are Eurodollar 11 13 Loans, the last day of the Interest Period applicable to each such Loan (and in addition, in the case of any Interest Period of six months or 180 days' duration, the day that would have been the Interest Payment Date of such Interest Period if such Interest Period had been of three months' or 90 days' duration), (c) with respect to Alternate Base Rate Loans, on the first Business Day of each January, April, July and October of each year, commencing January 1, 1998 and with respect to Swing Line Loans, Swing Line Overdraft Loans and Comerica Prime Rate Loans, on the fifth (5th) Business Day of each month. "Interest Period" means: with respect to: (a) Floor Plan Loans and Swing Line Loans (i) as to any Eurodollar Loan, the period commencing on the date of such Eurodollar Loan and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is fourteen (14) days or one month thereafter, as the Company may elect, and (ii) as to any Comerica Prime Rate Loan, the period commencing on the date of such Comerica Prime Rate Loan and ending on the date such Loan is repaid; or converted into a Eurodollar Loan in accordance with the terms of Section 5.15(b); provided, however, that (A) if any Interest Period would end on a day that shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (B) no Interest Period shall end later than the Maturity Date and (C) interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period; and (b) Acquisition Loans (i) as to any Eurodollar Loan, the period commencing on the date of such Eurodollar Loan and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is one, two, three or six months thereafter, as the Company may elect and (ii) as to any Alternate Base Rate Loan, a period commencing on the date of such Loan and ending on the date such Loan is repaid or converted into a Eurodollar Loan in accordance with the terms of Section 5.15(a); provided, however, that (A) if any Interest Period would end on a day that shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (B) no Interest Period shall end later than the Maturity Date and (C) interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Inventory Detail Report" means a report delivered pursuant to Section 9.5(f) by the Company and the other Floor Plan Borrowers (on an individual and consolidated basis) which breaks out in detail the new Motor Vehicles, Used Motor Vehicles, Demonstrators, and Program Vehicles held by such Floor Plan Borrower as reflected in its Manufacturer/Dealer Statements. "Investment" means, as to any Person, any investment so classified under generally accepted accounting principles made by stock purchase, capital contribution, loan or advance or by purchase 12 14 of property or otherwise, but in any event shall include as an investment in any other Person the amount of all Indebtedness owed by such other Person and all Accounts from such other Person which are not current assets or did not arise from services rendered or sales to such other Person in the ordinary course of business. "IPO" means the initial public offering of stock of the Company. "Issue" means, with respect to any Letter of Credit, to issue or to extend the expiration date of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding meanings. "Issuing Bank" means Texas Commerce Bank National Association in its capacity as issuer of one or more Letters of Credit hereunder, together with any successor letter of credit issuer and any replacement letter of credit issuer. "Leasehold Mortgage" has the meaning specified in Section 8.1(c)(iv). "Letter of Credit" means any letter of credit issued by the Issuing Bank pursuant to Article VI. "Letter of Credit Advance" means each Bank's participation in any Letter of Credit Borrowing in accordance with its Pro Rata Share. "Letter of Credit Application" and "Letter of Credit Amendment Application" means an application form for Issuance of, and for amendment of, Letters of Credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "Letter of Credit Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made from proceeds of a Borrowing of Acquisition Loans under Section 6.3(b). "Letter of Credit Commitment" means the commitment of the Issuing Bank to Issue, and the commitment of the Banks severally to participate in, Letters of Credit from time to time Issued or outstanding under Article VI in an aggregate amount not to exceed on any date the amount of Five Million Dollars ($5,000,000); provided that the Letter of Credit Commitment is a part of the combined Acquisition Loan Commitment, rather than a separate, independent commitment. "Letter of Credit Fees" has the meaning specified in Section 6.7(a). "Letter of Credit Obligations" means at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding Letter of Credit Borrowings. "Letter of Credit-Related Documents" means the Letters of Credit, the Letter of Credit Applications, the Letter of Credit Amendment Applications and any other document relating to any 13 15 Letter of Credit, including any of the Issuing Bank's standard for documents for Letter of Credit Issuances. "Letter of Credit Termination Date" has the meaning provided in Section 6.1(a). "Leverage Ratio" means as of any date of determination, for the Company, the quotient of (a) Adjusted Indebtedness as of such date divided by (b) (y) Consolidated Pro Form EBITDA as of such date, minus (z) Pro Forma Floor Plan Interest Expense of the Company and its Subsidiaries, determined on a consolidated basis and after having given effect to any proposed Acquisition, as of such date. "LIBO Rate" means with respect to a Borrowing the rate (rounded to the nearest one-eighth (1/8) of one percent (1%) or, if there is no nearest one-eighth (1/8) of one percent (1%), the next higher one-eighth (1/8) of one percent (1%) at which dollar deposits approximately equal in principal amount of such Borrowing and for a maturity equal to the applicable Interest Period are offered in immediately available funds to the principal office of the Agent in London, England (or if the Agent does not at the time any such determination is made, maintain an office in London, England, the principal office of any Affiliate of the Agent in London, England) by leading banks in the London interbank market for Eurodollars at approximately 11:00 A.M., LONDON, ENGLAND TIME, two Business Days prior to the commencement of such Interest Period. "Lien" means any mortgage, pledge, hypothecation, judgment lien or similar legal process, title retention lien, or other lien or security interest, including the interest of a vendor under any conditional sale or other title retention agreement and the interest of a lessor under any Capital Lease. "Loan" means an Alternate Base Rate Loan, a Comerica Prime Rate Loan, a Eurodollar Loan, an Acquisition Loan, a Floor Plan Loan, a Swing Line Loan, or a Swing Line Overdraft Loan; and "Loans" means all such Loans made pursuant to this Agreement "Loan Documents" means this Agreement, the Notes, the Security Documents, the Agent's Letter and all other documents and instruments executed by the Borrowers or any other Person in connection with this Agreement and the Loans. "Manufacturer" means the manufacturer of a Motor Vehicle. "Manufacturer/Dealer Statement" means a financial statement prepared by a Floor Plan Borrower for a Manufacturer and delivered to the Manufacturer on a monthly basis. "Manufacturer's Certificate" means any Manufacturer's Statement of Origin, Manufacturer's Certificate, MSO, Certificate of Origin or any other document evidencing the ownership or transfer of ownership of a new Motor Vehicle from a Manufacturer to any Borrower. "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), 14 16 (i) a material adverse effect on the financial condition, business, operations, assets or prospects of the Company and its Subsidiaries, on a consolidated basis, (ii) a material impairment of the ability of the Company and its Subsidiaries on a consolidated basis or the Floor Plan Subsidiaries as a group, to perform their Obligations under the Loan Documents or (iii) a material impairment of the validity or enforceability of the Loan Documents. "Maturity Date" means December 31, 2000, or the earlier termination of the Commitments under Sections 5.5 and 11.1. "Maximum Permissible Rate" has the meaning specified in Section 13.8. "Mortgage" means a mortgage or deed of trust substantially in the form of Exhibit D covering each parcel of real estate owned by any Borrower (other than real estate securing Non-Recourse Real Estate Debt that cannot be subordinately mortgaged), executed by the respective Borrower in favor of the Agent for the benefit of the Banks. "Motor Vehicle" means an automobile, truck, van or any other motor vehicle, including, without limitation, new Motor Vehicles, Used Motor Vehicles, Program Cars, Fleet Motor Vehicles, and Demonstrators. "Net Income" means for any Person for any period for which the amount thereof is to be determined the net income (or net losses) of such Person and its Subsidiaries on a consolidated basis as determined in accordance with generally accepted accounting principles after deducting, to the extent included in computing said net income and without duplication, (i) the income (or deficit) of any Person (other than a Subsidiary) in which such Person or any of its Subsidiaries has any ownership interest, except to the extent that any such income has been actually received by such Person or such Subsidiary in the form of cash dividends or similar cash distribution, (ii) any income (or deficit) of any other Person accrued prior to the date it becomes a Subsidiary of such Person or merges into or consolidates with such entity, (iii) the gain or loss (net of any tax effect) resulting from the sale of any capital assets, (iv) any gains or losses or other income which is non-recurring, extraordinary or attributable to discontinued operations, (v) income resulting from the write-up of any assets, and (vi) any portion of the net income of any Subsidiaries which is not available for distribution. "Non-Recourse Real Estate Debt" means Indebtedness of a Subsidiary of the Company existing as of the Closing Date and described in Schedule XII or incurred in connection with an Acquisition, provided that such Indebtedness is non-recourse to such Borrower and secured solely by real estate of such Borrower used in the day-to-day operations of its business. "Note" and "Notes" mean each of the Promissory Notes substantially in the form of Exhibit C-1 duly executed by all of the Borrowers each payable and delivered to each of the respective Banks in the principal face amount of the respective Bank's Commitment. "Obligations" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by any Borrower to any Bank, the Agent, the Floor Plan Agent, 15 17 the Swing Line Bank, or the Issuing Bank, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "OECD" means the Organization for Economic Cooperation and Development. "Other Activities" has the meaning specified in Section 12.3. "Other Financings" has the meaning specified in Section 12.3. "Other Taxes" has the meaning specified in Section 5.14(b). "Out of Balance" means (i) with respect to a Motor Vehicle, the outstanding balance of the Floor Plan Loan pursuant to which such Motor Vehicle was purchased exceeds the Floor Plan Advance Limit and (ii) with respect to a Floor Plan Loan, the outstanding balance thereof has not been paid in accordance with the terms of this Agreement; provided, however, that so long as the outstanding balance of (y) Cash Receipted Motor Vehicles shall have been received within five (5) days of the sale thereof and (z) Sale Dated Motor Vehicles shall have been received within ten (10) days of the sale thereof, such Loans shall not be considered Out of Balance. "Out of Balance Amount" has the meaning specified in Section 9.12(b). "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Performance Letter of Credit" has the meaning specified in Section 6.2. "Permitted Acquisition" means (a) in connection with an Acquisition by the Company pursuant to which (i) the total consideration (exclusive of stock or other equity consideration) is less than or equal to Ten Million Dollars ($10,000,000), (ii) when combined with the total consideration (exclusive of stock or other equity consideration) paid or payable in connection with all other Acquisitions completed within the immediately preceding twelve (12) calendar months is less than or equal to Twenty-five Million Dollars ($25,000,000) and (iii) not less than one hundred percent (100%) of the capital stock or other evidence of equity ownership of the target entity is acquired, and that satisfies all the requirements for a Permitted Acquisition set forth in Section 9.16(a)(i)(ii)(v)(vi)(viii)(ix) and Section 9.16(b); and (b) in connection with an Acquisition by the Company pursuant to which (i) the total consideration (exclusive of stock or other equity consideration) is greater than Ten Million Dollars ($10,000,000), (ii) when combined with the total consideration (exclusive of stock or other equity consideration) paid or payable in connection with all other Acquisitions completed within the immediately preceding twelve (12) calendar months is greater than Twenty-five Million Dollars ($25,000,000) and (iii) not less than one hundred percent (100%) of the capital stock or other evidence of equity ownership of the target entity is acquired, and that satisfies all the requirements for a Permitted Acquisition set forth in Section 9.16(a) and Section 9.16(b). "Permitted Acquisition Notice" has the meaning specified in Section 9.16(a)(ii). 16 18 "Permitted Liens" means those Liens described in Section 10.2. "Person" means any natural person, corporation, business trust, association, company, limited liability company, joint venture, partnership or government or any agency or political subdivision thereof. "Plan" means a "pension plan," as such term is defined in ERISA, established or maintained by the Company or any of its Subsidiaries or any ERISA Affiliate or as to which the Company or any of its Subsidiaries or any ERISA Affiliate contributes or is a member or otherwise may have any liability. "Pledge Agreement" means a Pledge Agreement substantially in the form of Exhibit E attached hereto, executed by the Company and certain other Borrowers in favor of the Agent for the benefit of the Banks covering all of the capital stock and other equity interests of the Company's direct and indirect Subsidiaries. "Prime Rate" has the meaning specified in the definition of the term "Alternate Base Rate." "Pro Forma EBITDA" means, for any Person, as of any date of determination, based upon the immediately preceding four fiscal quarters, for any period for which the amount thereof is to be determined, EBITDA of such Person plus (or minus), without duplication, the EBITDA for such four quarter period of any Person acquired during such period. "Pro Forma Floor Plan Interest Expense" means, for any Person, as of any date of determination, based upon the immediately preceding four fiscal quarters of such Person, Floor Plan Interest Expense of such Person plus (or minus), without duplication, the Floor Plan Interest Expense for such period of any Person acquired during such period. "Pro Forma Interest Expense" means Pro Forma Floor Plan Interest Expense plus pro forma Interest Expense of other permitted Indebtedness of the Borrowers. "Program Car" means a Motor Vehicle in the current or immediately preceding model year in readily saleable condition, previously used by a car rental company as a part of its rental fleet or previously driven by an executive of a Manufacturer before being offered for sale to the Company or any other Floor Plan Borrower at a Manufacturer sponsored auction. "Pro Rata Share" shall mean, at any time, with respect to any Bank, the percentage corresponding to the fraction the numerator of which shall be the amount of the Commitment of such Bank and the denominator of which shall be the aggregate amount of the Commitments of all of the Banks. "Quoted Rate" shall mean the lesser of (i) rate of interest per annum offered by Swing Line Bank in its sole discretion with respect to a Swing Line Loan or a Swing Line Overdraft Loan, such rate to be derived from the LIBO Rate (or other cost of funds, as selected by Swing Line Bank) on the applicable date of determination, plus 1.5% and (ii) the Highest Lawful Rate. "Refunded Swing Line Loans" has the meaning specified in Section 4.5(a). "Register" has the meaning specified in Section 13.3(d). 17 19 "Retail Loan Guarantees" means any Guaranty by the Company or any of its Subsidiaries in favor of any Person of retail installment contracts or other retail payment obligations in respect of Motor Vehicles sold to a customer. "Sale Dated" means, in connection with the sale of a Motor Vehicle, that closing of the sale of such Motor Vehicle is pending financing or other contingencies. "Security Agreement" means a Security Agreement substantially in the form of Exhibit G attached hereto, executed by each of the Borrowers in favor of the Agent for the benefit of the Banks covering all assets of the Borrowers described therein. "Security Documents" means this Agreement, the Pledge Agreement, the Security Agreements, the agreements or instruments described or referred to in Section 8.1(c) and any and all other agreements or instruments now or hereafter executed and delivered by any Borrower or any other Person in connection with, or as security for, the payments or performance of any of the Obligations. "Stockholders' Equity" means the consolidated stockholders' equity of the Company and its Subsidiaries after eliminating all intercompany items and after deducting from stockholders' equity such portion thereof as is properly attributable to minority interests in such Subsidiaries. "Subordinated Indebtedness" means Indebtedness of any Borrower having maturities and terms, and which is subordinated to payment of the Notes in a manner, approved in writing by the Agent and the Required Banks and which in the aggregate, is less than Ten Million Dollars ($10,000,000). "Subsidiary" means any Person of which or in which any other Person (the "Parent") and the other Subsidiaries of the Parent own directly or indirectly fifty percent (50%) or more of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation; (b) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity; or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization. The term Subsidiary (or Subsidiaries), as used in the introduction to this Agreement, means a Subsidiary (or the Subsidiaries) of the Company. "Swing Line Bank" means Comerica Bank and its successors and assignees as provided in this Agreement. 19 20 "Swing Line Commitment" means, for the Swing Line Bank, its obligation to make Swing Line Loans to the Floor Plan Borrowers up to the amount equal to the Floor Plan Loan Commitment, as in effect from time to time; provided that, subject to the provisions of Article IV, the Swing Line Commitment is a part of the Floor Plan Loan Commitment rather than a separate, independent commitment. "Swing Line Loan" has the meaning specified in Section 4.1. "Swing Line Minimum Amount" means the amount of Swing Line Loans which in the mutual determination of the Borrowers and the Floor Plan Agent shall remain outstanding as of each Floor Plan Adjustment Date, which amount may change from time to time as the Borrowers and the Floor Plan Agent shall mutually agree; provided, however, the Swing Line Minimum Amount shall in any event not be in excess of Ten Million Dollars ($10,000,000). "Swing Line Note" means the Swing Line Note substantially in the form of Exhibit C-2, duly executed by all of the Floor Plan Borrowers and payable to and delivered to the Swing Line Bank, in the principal face amount of the Swing Line Commitment. "Swing Line Overdraft Borrowing Request" has the meaning specified in Section 2.3(g)(iii). "Swing Line Overdraft Loan" has the meaning specified in Section 2.3(g)(iii). "Taxes" has the meaning specified in Section 5.14(a). "TCB" means Texas Commerce Bank National Association and its successors and assigns as permitted in this Agreement. "Third Party Floor Plan Financing" means a floor plan credit facility by and among certain of the Borrowers that are not Floor Plan Borrowers and third party lenders, which facilities are in existence on the date hereof and are set forth in Schedule III or which are hereafter in effect with respect to a Subsidiary acquired in connection with a Permitted Acquisition. "Total Commitment" means, at any time, the aggregate amount of the Commitments, as in effect at such time. "Transferee" has the meaning specified in Section 5.14(a). "Type" means any type of Loan determined with respect to the interest option applicable thereto, i.e., a Eurodollar Loan, an Alternate Base Rate Loan or Comerica Prime Rate Loan. "UCC" means the Uniform Commercial Code as adopted and in effect in the State of Texas from time to time. "Used Motor Vehicle" means a Motor Vehicle in the current or any of the four preceding model years which is in readily saleable condition. 20 21 "Wholly-Owned Subsidiary" means any Person of which the Company or its other Wholly-Owned Subsidiaries own directly or indirectly one hundred percent (100%) of: (a) the issued and outstanding shares of stock (except shares required as directors' qualifying shares and shares constituting less than two percent (2%) of the issued and outstanding shares); (b) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity; or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization. SECTION 1.2 Accounting Terms. Except as otherwise herein specifically provided, each accounting term used herein shall have the meaning given it under generally accepted accounting principles as in effect, as of the applicable date of determination thereof, from time to time as set forth in the opinions, statements and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board and applied on a consistent basis. SECTION 1.3 Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, provided that nothing in this clause (iv) is intended to authorize any assignment not otherwise permitted by this Agreement; (v) reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, and reference to any Note includes any note issued pursuant hereto in extension or renewal thereof and in substitution or replacement therefor; 21 22 (vi) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (vii) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (viii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding"; and (ix) reference to any law means such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (b) The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. ARTICLE II THE FLOOR PLAN LOANS SECTION 2.1 Floor Plan Loan Commitments. Subject to the terms and conditions and relying upon the representations and warranties of the Borrowers herein set forth, each Bank severally and not jointly agrees, on the terms and conditions set forth herein, to make revolving credit loans (each such loan, a "Floor Plan Loan") to any Floor Plan Borrower from time to time on any Business Day during the period from the Closing Date to the Maturity Date in an aggregate amount not to exceed at any time outstanding such Bank's Floor Plan Loan Commitment; provided, however, that after giving effect to all Floor Plan Loans and Swing Line Loans requested on any date, the aggregate principal amount of all outstanding Floor Plan Loans, all outstanding Swing Line Loans, all outstanding Acquisition Loans, and all outstanding Letter of Credit Obligations shall not at any time exceed the Total Commitment within the limits of each Bank's Commitment and subject to the other terms and conditions hereof, any Floor Plan Borrower may borrow, prepay and reborrow Floor Plan Loans under this Section 2.1. SECTION 2.2 Floor Plan Loans. (a) Each Floor Plan Loan Borrowing made to any of the Floor Plan Borrowers by the Banks on the Closing Date or on any Floor Plan Adjustment Date shall be in the minimum aggregate principal amount of One Million Dollars ($1,000,000) and in integral multiples of One Million Dollars ($1,000,000; provided that a Comerica Prime Rate Loan or a Floor Plan Loan resulting from a Draft may be in any amount) and shall consist of Floor Plan Loans of the same Type made ratably by the Banks in accordance with their respective Floor Plan Loan Commitments; 22 23 provided, however, that the failure of any Bank to make any Floor Plan Loan shall not relieve any other Bank of its obligation to lend hereunder. (b) Each Floor Plan Loan Borrowing shall be a Comerica Prime Rate Borrowing or a Eurodollar Borrowing as any of the Floor Plan Borrowers may request pursuant to Section 2.3. Each Bank may fulfill its obligation to make Floor Plan Loans with respect to any Eurodollar Loan by causing, at its option, any domestic or foreign branch or Affiliate of such Bank to make such Loan, provided that the exercise of such option shall not affect the obligation of the applicable Floor Plan Borrower to repay such Loan in accordance with the terms of the applicable Note. (c) Not later than 10:00 A.M., HOUSTON, TEXAS TIME on the Closing Date any one or more of the Floor Plan Borrowers shall deliver a Request for Borrowing to the Floor Plan Agent. Not later than 11:00 A.M. HOUSTON, TEXAS TIME of the same day, the Floor Plan Agent shall notify the Agent of the Type of Borrowing requested and the aggregate amount of Floor Plan Loans being requested by the Floor Plan Borrowers as of the Closing Date, less an amount equal to the initial Swing Line Loan Minimum Amount. Upon receipt of such notice, the Agent shall notify each Bank of the contents thereof and of such Bank's Pro Rata Share of such Borrowing. (d) Each Bank shall, upon request from the Agent, from time to time as herein provided, make its Pro Rata Share of the amount of such Floor Plan Loan Borrowing to the Agent by paying the amount required to the Agent in U.S. Dollars and in immediately available funds on the same day not later than 3:00 P.M., HOUSTON, TEXAS TIME, and, subject to satisfaction of the conditions set forth in Article VIII, and the terms, provisions and conditions set forth in Section 2.3 and Section 4.3, the Agent shall promptly and in any event on the same day, credit the amounts so received to the account of the Floor Plan Agent, or, if a Floor Plan Loan Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. Upon receipt of such funds the Floor Plan Agent shall promptly and in any event on the same day, credit the amount so received to the account of the applicable Borrower. (e) Unless the Agent shall have received notice from a Bank prior to the date of any such Floor Plan Loan Borrowing that such Bank will not make available to the Agent such Bank's portion of such Borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such Floor Plan Loan Borrowing in accordance with this Section 2.2(e) and the Agent may, in reliance upon such assumption, make available to the Floor Plan Agent on such date a corresponding amount. If, and to the extent that such Bank shall not have made such portion available to the Agent, such Bank and the applicable Floor Plan Borrowers severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Floor Plan Agent until the date such amount is repaid to the Agent (i) in the case of the Floor Plan Borrowers, at the Applicable Interest Rate at the time to the Loans comprising such Borrowing and (ii) in the case of such Bank, at the Federal Funds Effective Rate. If such Bank shall repay to the Agent such corresponding amount, such amount shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. 23 24 (f) A Floor Plan Subsidiary shall not be entitled to request a Floor Plan Borrowing hereunder until it (i) has executed and delivered to the Banks, as aforesaid, the Notes, and to the Swing Line Bank, a Swing Line Note, (ii) has become a party to this Agreement by execution and delivery of an Addendum, and (iii) has become a party to the Security Documents, accompanied in each case by authority documents, legal opinions and other supporting documents as required by Agent, Floor Plan Agent and the Required Banks hereunder and has otherwise complied with the provisions of Section 9.15. SECTION 2.3 Floor Plan Borrowing Procedure. Any Floor Plan Borrower may request a Floor Plan Loan, (i) subject to Sections 2.8 through 2.12, inclusive, in the case of a Draft by a Manufacturer, if such Draft is delivered in accordance with the express terms of a Drafting Agreement and (ii) in the case of Floor Plan Loans requested directly by a Floor Plan Borrower, only after delivery to the Floor Plan Agent of a written Request for Borrowing executed by a Person authorized by such Floor Plan Borrower to make such requests on behalf of such Floor Plan Borrower. Floor Plan Loan Borrowings are subject to the following and to the remaining provisions hereof: (a) each such Request for Borrowing shall set forth the following information: (i) the proposed date of such Borrowing, which must be a Business Day; (ii) the aggregate amount of such requested Borrowing; (iii) whether such Floor Plan Borrowing is to be a Comerica Prime Rate Loan or a Eurodollar Loan, or in the case of a Swing Line Loan, a Loan at the Quoted Rate (provided, however, that all Drafts shall be deemed to be requested at the Quoted Rate) and, except in the case of a Eurodollar Loan, the Interest Period applicable thereto; (iv) a description of the Motor Vehicle(s) purchased or to be purchased with the proceeds of such Borrowing, including for each Motor Vehicle, its vehicle identification number, make, model and purchase price, and whether such Motor Vehicle is a new Motor Vehicle, Used Motor Vehicle, Program Car or Demonstrator; and (v) if requested by the Floor Plan Agent, in the case of a Request for Borrowing requested directly by a Floor Plan Borrower to fund the purchase of Used Motor Vehicles, such Borrower shall deliver a current Manufacturer/Dealer Statement with appropriate inventory breakout as required by the Floor Plan Agent with the first such Request for Borrowing in any month. (b) each such Request for Borrowing shall be delivered to the Floor Plan Agent (i) in the case of a Draft by a Manufacturer, by 11:00 A.M., HOUSTON, TEXAS TIME one (1) Business Day prior to the Borrowing Date of a proposed Borrowing, (ii) in the case of a Eurodollar Borrowing, not later than 10:00 A.M., HOUSTON, TEXAS TIME, three (3) Days prior to the Borrowing 24 25 Date of a proposed Borrowing, and (iii) in the case of a Comerica Prime Rate Borrowing, not later than 11:00 A.M., HOUSTON, TEXAS TIME on the Borrowing Date of a proposed Borrowing. (c) the aggregate principal amount of such Borrowing shall not exceed the aggregate Floor Plan Advance Limit for the Motor Vehicles described in such Request for Borrowing; (d) subject to Section 2.3(g) hereof, the aggregate principal amount of such requested Borrowing, plus the principal amount of all Floor Plan Loans then outstanding plus the aggregate principal amount of all Swing Line Loans then outstanding shall not exceed the Floor Plan Loan Commitment; (e) the aggregate principal amount of such requested Borrowing, plus the principal amount of all Floor Plan Loans then outstanding hereunder plus the aggregate principal amount of all Swing Line Loans (but minus the amount of any Swing Line Advances to be refunded with the proceeds of such Borrowing) then outstanding plus the aggregate principal amount of all Acquisition Loans then outstanding plus all outstanding Letter of Credit Obligations shall not exceed the Total Commitment; (f) each Request for Borrowing shall be irrevocable and shall constitute a certification as to itself by the applicable Floor Plan Borrower as of the date thereof that: (i) both before and after such Borrowing, the obligations of the Company and its Subsidiaries under this Agreement and the other Loan Documents to which it is a party, as applicable, are valid, binding, and enforceable obligations of such Person; (ii) to the best knowledge of the Company and the applicable Borrower, all conditions to such Borrowing have been satisfied; (iii) there is no Default or Event of Default in existence, and none will exist upon the making of such Floor Plan Loan; (iv) the representations and warranties contained in this Agreement and the other Loan Documents are true and correct in all material respects and shall be true and correct in all material aspects as of and immediately after the making of such Floor Plan Loan; and (v) such Borrowing will not violate the material terms and conditions of any material contract, agreement or other Borrowing of the Company and such applicable Borrower, or any of its Subsidiaries. (g) Notwithstanding the foregoing, (i) if the Floor Plan Agent has, at the request of the Required Banks or acting in its discretion according to the terms hereof, taken action to suspend or 25 26 terminate Drafts pursuant to one or more Drafting Agreements and such Drafting Agreements have in fact been suspended or terminated in accordance with their respective terms, then subject to the terms of any such Drafting Agreements, the Floor Plan Agent shall not fund the amount of such Draft; and (ii) if on any day the requirements set forth in Section 2.3(f) have been satisfied and the aggregate principal amount of a Request for Borrowing of a Floor Plan Loan, plus (A) the aggregate principal amount of all other Floor Plan Loans then outstanding plus (B) the aggregate principal amount of all Swing Line Loans (but minus the amount of any Swing Line Loans to be refunded with the proceeds of such Borrowing) then outstanding exceeds the aggregate principal amount of such Loans outstanding as of the immediately preceding Floor Plan Adjustment Date and is less than the Swing Line Commitment, then such Request for Borrowing shall be deemed for all purposes a Request for Borrowing of a Swing Line Loan and the Borrowing to be disbursed in connection therewith shall constitute a Swing Line Loan, and shall be disbursed in accordance with the provisions of Article IV hereof; and (iii) if on any day the requirements set forth in Section 2.3(f) have been satisfied and the aggregate principal amount of a Request for Borrowing of a Floor Plan Loan consists of a Draft, the payment of which would cause (A) the aggregate principal amount of all Floor Plan Loans then outstanding, plus (B) the aggregate principal amount of all Swing Line Loans then outstanding, plus (C) the aggregate principal amount of all Requests for Borrowings of Floor Plan Loans outstanding as of such day to exceed the Floor Plan Loan Commitment, as of such day, and the Company fails to either immediately reduce any pending Request for a Borrowing of a Floor Plan Loan which does not consist of a Draft or make a payment of principal on Floor Plan Loans and/or Swing Line Loans in an amount which would prevent the aggregate amounts described in (A), (B) and (C) above from exceeding such Floor Plan Loan Commitment, then, in such event: (1) to the extent that the Company has availability under the Acquisition Loan Commitment and is able to comply with all conditions to funding an Acquisition Loan, the Company may deliver a Request for Borrowing of an Acquisition Loan, the proceeds of which shall be used to fund such Draft; or (2) pursuant to Section 5.5(b), the Company may request an increase in the Floor Plan Loan Commitment and such Request for Borrowing shall be funded to the extent of the increased Floor Plan Loan Commitment (if any), or (3) if the Company does not elect to act under clause (1) or (2) above and if pursuant to Section 3.4 there is a Reserve Commitment available, then the Floor Plan Loan Commitment shall be deemed to be irrevocably increased by the amount of such Reserve Commitment, and the Request for Borrowings of Floor Plan Loans 26 27 shall be funded to the extent of the Floor Plan Loan Commitment as increased by the Reserve Commitment, or (4) if there is no Reserve Commitment available, such Request for Borrowing shall be deemed for all purposes a Swing Line Overdraft Loan Borrowing Request (each a "Swing Line Overdraft Borrowing Request") and such Borrowing shall constitute a Swing Line Overdraft Loan (each, a "Swing Line Overdraft Loan") to be disbursed and subject to the provisions of Section 4.6. (h) The Floor Plan Agent, acting on behalf of the Banks, may, at its option make Loans under this Article II upon the irrevocable telephone request of a duly authorized officer of any Floor Plan Borrower and, in the event the Floor Plan Agent, acting on behalf of the Banks, makes any such Loan upon a telephone request, the requesting officer of such Floor Plan Borrower shall, if so requested by the Floor Plan Agent, deliver (including via fax) to the Floor Plan Agent, on the same day as such telephone request, a written Request for Borrowing. Each of the Floor Plan Borrowers hereby authorizes the Floor Plan Agent to disburse Floor Plan Loans under this Section 2.3 pursuant to the telephone instructions of any Person purporting to be a Person identified by name on a written list of Persons authorized by each such Floor Plan Borrower to make a Request for Borrowing for Floor Plan Loans on behalf of such Borrower(s). Notwithstanding the foregoing, each of the Floor Plan Borrowers acknowledges and agrees that the applicable Floor Plan Borrower shall bear all risk of loss resulting from disbursements made upon any telephone request. Each Request for Floor Plan Loan Borrowing made via telephone as hereunder provided shall constitute a certification of the matters set forth in Section 2.3(f) of this Agreement. (i) If at any time during an Adjustment Period the payment of all of a Swing Line Loan would cause the outstanding balance of all Swing Line Loans to be fully repaid, the Company may elect to cause such funds to be invested in overnight funds or other securities held by Comerica Securities, Inc. and acceptable to the Floor Plan Agent and the Banks, which investments shall be subject to the first priority security interest of the Floor Plan Agent to secure the outstanding balance of Swing Line Loans and Swing Line Overdraft Loans. The Floor Plan Agent and any of the Floor Plan Borrowers may enter into an agreement from time to time to facilitate the investment of such funds. SECTION 2.4 Notice of Types of Floor Plan Loans and Interest Periods. (a) On or before 10:00 A.M. HOUSTON, TEXAS TIME, three (3) Business Days prior to each Floor Plan Adjustment Date, the Company shall provide written (including via fax) Request for Borrowing to the Floor Plan Agent designating the Type of Floor Plan Loans which will be outstanding commencing on the Floor Plan Adjustment Date immediately following such notice until the next succeeding Floor Plan Adjustment Date. If, for any reason, the Company does not deliver the Request for Borrowing as herein provided, including, without limitation providing for three (3) Business Days' notice, the Company shall be deemed to have delivered the Request for Borrowing and requested that on the Floor Plan Adjustment Date all Floor Plan Loans be Comerica Prime Rate Borrowings. 27 28 (b) On or before 11:00 A.M. HOUSTON, TEXAS TIME on each Floor Plan Adjustment Date, the Floor Plan Agent shall provide written (including via fax) notice to the Agent of the amount of (i) Floor Plan Loans outstanding, plus (ii) Swing Line Loans (plus Swing Line Overdraft Loans, if any) outstanding in excess of the Swing Line Minimum Amount (if any), plus (iii) the amount of Floor Plan Loans being requested pursuant to any Request for Borrowing of Floor Plan Loans, as of 10:00 A.M., HOUSTON, TEXAS TIME on such date. Upon receipt of such notice, the Agent shall provide written (including via fax) notice to the Banks advising them (A) that the amount of Floor Plan Loans required pursuant to (i), (ii) and (iii) above is greater than the amount required as of the immediately preceding Floor Plan Adjustment Date and, with respect to each Bank, the amount of additional Floor Plan Loans to be advanced by such Bank, (B) that the amount of Floor Plan Loans has decreased since the immediately preceding Floor Plan Adjustment Date and, with respect to each Bank, the amount of such repayment to be made to such Bank, or (C) that the Floor Plan Loans outstanding as of such date are not greater than the amount as on the immediately preceding Floor Plan Adjustment Date. Such notice shall also advise the Banks of the Type of Floor Plan Loans the Floor Plan Borrowers have selected for the period of time from the next Floor Plan Adjustment to the next succeeding Floor Plan Adjustment Date. (c) On each Floor Plan Adjustment Date (i) if Swing Line Loans (plus Swing Line Overdraft Loans, if any) outstanding are greater than the Swing Line Minimum Amount, the Swing Line Overdraft Loans shall be repaid and the Swing Line Loans shall be reduced to the Swing Line Minimum Amount with proceeds advanced by the Banks pursuant to notices from the Floor Plan Agent given to the Agent as provided in Section 2.2(e) hereof; in such event the Agent shall remit the proceeds of such Floor Plan Loans to the Floor Plan Agent for application to the Swing Line Loans (and to the Swing Line Overdraft Loans, if any) outstanding in excess of the Swing Line Minimum Amount, or (ii) if Swing Line Loans are less than the Swing Line Minimum Amount, the Swing Line Bank shall make a Swing Line Loan to the Floor Plan Borrowers in an amount required to cause the total amount of Swing Line Loans outstanding to equal the Swing Line Minimum Amount; in such event the Floor Plan Agent shall remit the proceeds of such Swing Line Loan to the Agent, and the Agent shall remit such proceeds to the Banks. SECTION 2.5 Payments. (a) Subject to the provisions of Section 2.3(i), each Floor Plan Borrower shall, on the Curtailment Date of a Motor Vehicle, pay in full the Floor Plan Advance Limit with respect to such Motor Vehicle. (b) Subject to the provisions of Section 2.3(i), upon the sale of any Motor Vehicle by a Floor Plan Borrower, such Floor Plan Borrower shall pay in full the Floor Plan Advance Limit with respect to such Motor Vehicle (i) with respect to Cash Receipted Motor Vehicles, immediately upon receipt of payment, (ii) with respect to Sale Dated Motor Vehicles, within ten (10) days of the date of such Motor Vehicle was sold and (iii) with respect to Fleet Motor Vehicles, within thirty (30) days of the date of sale. (c) Subject to the provisions of Section 2.3(i) and Section 4.6(c), payments required to be made by any Floor Plan Borrower as set forth in Sections 2.5(a) and 2.5(b) shall be applied first to the outstanding principal balance of Swing Line Overdraft Loans, next to the 28 29 outstanding principal balance of Swing Line Loans and then, only if no Swing Line Overdraft Loans or Swing Line Loans are then outstanding, to the outstanding principal balance of Floor Plan Loans. (d) Each Floor Plan Borrower shall cause all proceeds from the sale of Motor Vehicles to be deposited directly into an account of the applicable Borrower with its local financial institution which proceeds shall be transferred to the Excess/Payments in Process for payment of the Loans as provided in Section 2.5(b). SECTION 2.6 Title Documents. All original Manufacturer's invoices and title documents evidencing the Floor Plan Borrowers' ownership of all of their Motor Vehicles, including, without limitation, the Manufacturer's Certificate, shall be maintained in safekeeping by the Floor Plan Borrowers in a manner acceptable to the Floor Plan Agent, unless and until an Event of Default has occurred and is continuing, within three (3) Business Days of the request by the Floor Plan Agent, the Floor Plan Borrowers shall deliver or cause to be delivered all such original Manufacturer's invoices and title documents whether at the time of such request or thereafter, to the Floor Plan Agent and the Floor Plan Agent shall retain or hold all such original Manufacturer's invoices and title documents received by the Floor Plan Agent after such request. Thereafter, for so long as such Event of Default shall be continuing, all original Manufacturer's Certificates and title documents shall remain in the Floor Plan Agent's possession until the Floor Plan Loan Borrowing in connection therewith or such ratable portion thereof in respect of a Motor Vehicle sold by any Floor Plan Borrower in the ordinary course of business has been paid and performed in full; provided that, upon the happening of an Event of Default and during the continuance thereof, the Floor Plan Agent may transfer, as applicable, title documents delivered to it pursuant to this Section 2.6 in connection with the sale of Motor Vehicles in accordance with its rights provided for in this Agreement or the other Loan Documents. SECTION 2.7 Power of Attorney. For the purpose of expediting the financing of Motor Vehicles under the terms of this Agreement and for other purposes relating to such financing transaction, each of the Floor Plan Borrowers irrevocably constitutes and appoints the Floor Plan Agent and any of its officers, and each of them, severally, as its true and lawful attorneys-in-fact or attorney-in-fact with full authority to act on behalf of, and in the name of, place, and stead of, each such Floor Plan Borrower, regardless of whether or not an Event of Default shall have occurred hereunder, to prepare, execute, and deliver any and all instruments, documents, and agreements required to be executed and delivered by each such Floor Plan Borrower necessary to evidence Floor Plan Loan Borrowings (and if outstanding, Swing Line Overdraft Loans) hereunder and/or after the occurrence and during the continuance of an Event of Default, to evidence, perfect, or realize upon the security interest granted by this Agreement, and/or any of the Loan Documents, including, without limitation, the Notes, requests for advances, security agreements, financing statements, other instruments for the payment of money, receipts, manufacturer's certificates of origin, certificates of origin, certificates of title, applications for certificates of title, other basic evidences of ownership, dealer reassignments of any of the foregoing, affidavits, and acknowledgments. The foregoing power of attorney shall be coupled with an interest, and shall be irrevocable so long as this Agreement remains in effect, any Drafting Agreement remains in effect or any Obligations (including Letter of Credit Obligations and Swing Line Overdraft Loans) remain outstanding under this Agreement or any of the Notes. Each of said attorneys-in-fact shall have the power to act hereunder with or without the other. The Floor Plan Agent may, but shall not be obligated to, notify the Floor 29 30 Plan Borrowers of any such instruments or documents the Floor Plan Agent has executed on any Borrower's behalf prior to such execution. SECTION 2.8 Issuance of Drafting Agreements. Subject to the terms and conditions of this Agreement, Floor Plan Agent shall, at any time and from time to time from and after the Closing Date until thirty (30) Business Days prior to the Maturity Date, upon the written request of the Company or the applicable Floor Plan Borrower, countersigned by the Company, accompanied by applications, letter of credit agreements and/or such other documentation related thereto as the Floor Plan Agent may require, issue Drafting Agreements for the account of the applicable Floor Plan Borrower. SECTION 2.9 Conditions to Issuance. The Floor Plan Agent shall not be obligated to enter into or issue a Drafting Agreement unless, as of the date of issuance of such Drafting Agreement: (a) the Company or the applicable Floor Plan Borrower requesting the Drafting Agreement shall have delivered to the Floor Plan Agent not less than ten (10) Business Days prior to the requested date for issuance (or such shorter time as the Floor Plan Agent in its sole discretion may permit), a written application and such other documentation (including without limitation a letter of credit agreement if the Drafting Agreement is to be issued in the form of a letter of credit) and the terms of such documents and of the proposed Drafting Agreement shall satisfy the terms hereof and otherwise be satisfactory to Floor Plan Agent; (b) the obligations of the Company and its Subsidiaries set forth in this Agreement and the other Loan Documents to which each is a party are valid, binding and enforceable obligations of such parties and the valid, binding and enforceable nature of this Agreement and the other Loan Documents has not been disputed by any of the Company or any of its Subsidiaries; (c) the representations and warranties contained in this Agreement or any other Loan Documents are true in all material respects as if made on such date (unless limited to an earlier date), and both immediately before and immediately after issuance of the Drafting Agreement so requested, no Default or Event of Default has occurred and is continuing; (d) No order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Floor Plan Agent from entering into or issuing such Drafting Agreement; no Requirement of Law applicable to the Floor Plan Agent and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Floor Plan Agent shall prohibit the Floor Plan Agent, or request that the Floor Plan Agent refrain, from issuing or entering into Drafting Agreements generally or such Drafting Agreement in particular or shall impose upon the Floor Plan Agent with respect to such Drafting Agreement any restriction, reserve or capital requirement (for which the Floor Plan Agent is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Floor Plan Agent any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Floor Plan Agent in good faith deems material to it (relating to Drafts and Drafting Agreements); and 30 31 (e) The Floor Plan Agent does not receive written notice from any Bank, the Agent or any Floor Plan Borrower, on or prior to the Business Day prior to the requested date of issuance or entry into such Drafting Agreement that one or more of the applicable conditions contained in Article VIII (or in this Section 2.9) has not been satisfied or that a Default or Event of Default has occurred and is continuing. Each application for a Drafting Agreement issued by a Borrower hereunder shall constitute certification by each of the Company of the matters set forth in subparagraphs (a) through (d) hereof, and Floor Plan Agent shall be entitled to rely on such certification without any duty of inquiry. Immediately upon the issuance or entering into by the Floor Plan Agent of each Drafting Agreement (except in respect of any Drafting Agreement issued or entered into by the Floor Plan Agent after it has obtained actual knowledge that an Event of Default has occurred and is continuing), each Bank shall be deemed to, and subject to Section 4.6 (relating to a Swing Line Overdraft Loan) hereby irrevocably and unconditionally agrees to purchase from the Floor Plan Agent a participation in such Drafting Agreement and each Draft thereunder in an amount equal to the product of (i) the Pro Rata Share of such Bank and (ii) the amount of each Draft presented by a Manufacturer. Notwithstanding the foregoing, the Floor Plan Agent shall take such action as necessary to terminate and suspend all Drafting Agreements effective ten days prior to the Maturity Date then in effect. SECTION 2.10 Notice of Issuance of or entering into Manufacturers Drafting Letters. The Floor Plan Agent shall give notice, substantially in the form attached to this Agreement as Exhibit H, to each Bank of the issuance of or entering into each Drafting Agreement not later than five (5) Business Days after issuance of or entering into each such Drafting Agreement, attaching a copy of such Drafting Agreement, as issued or entered into. SECTION 2.11 Drafts Under Manufacturers Drafting Letters. (a) In accordance with Sections 2.3, 4.3 and 4.6 hereof, each Draft submitted by a Manufacturer pursuant to a Drafting Agreement shall constitute a Request for Borrowing of a Floor Plan Loan, a Swing Line Loan, or a Swing Line Overdraft Loan, as the case may be, and upon the funding of each Draft presented by a Manufacturer under a Drafting Agreement, the Floor Plan Agent shall be deemed to have disbursed or on behalf of the applicable Floor Plan Borrower and the applicable Floor Plan Borrower shall be deemed to have elected to substitute for its respective reimbursement obligations in respect of such Draft, an advance of a Floor Plan Loan, a Swing Line Loan, or a Swing Line Overdraft Loan, as the case may be, bearing interest at the Applicable Interest Rate. Each of the Floor Plan Borrowers shall be irrevocably obligated to reimburse Floor Plan Agent on demand for the amount of any Draft presented by a Manufacturer under the terms of any Drafting Agreement; provided however that such reimbursement obligation shall be deemed satisfied by the funding of a Loan in respect thereto. (b) Notwithstanding the obligation (if any) of the Floor Plan Agent to fund a Draft drawn under a Drafting Agreement, (i) if at any time any of the Floor Plan Borrowers has failed to satisfy the conditions precedent for the Floor Plan Agent to make a Floor Plan Loan, or the Swing Line Bank to make a Swing Line Loan or a Swing Line Overdraft Loan, (ii) if at any time the amount of such Draft would cause the aggregate amount of Floor Plan Loans to exceed the Floor 31 32 Plan Loan Commitment, or (iii) after a Default or an Event of Default has occurred and is continuing, then in any such event, the funding of such Draft shall not constitute a waiver of any such condition, commitment, Default or Event of Default or otherwise any manner whatsoever affect the rights, and remedies available to the Floor Plan Agent, the Agent, the Swing Line Bank or any of the Banks hereunder. In any such event, the Floor Plan Borrowers shall remain obligated to pay the amount of any Swing Line Overdraft Loan forthwith as set forth herein and shall have all other duties and obligations applicable to the Floor Plan Borrowers under this Agreement. Notwithstanding anything to the contrary contained herein, each of the Floor Plan Borrowers shall bear all risk of loss resulting from the payment of any Draft, or any resulting disbursements of the Floor Plan Loans, Swing Line Loans or Swing Line Overdraft Loans, as the case may be, whether or not due to the gross negligence, willful misconduct or fraud of any Manufacturer. (c) Subject to Section 4.6 hereof, each Bank shall be obligated to fund Floor Plan Loans resulting from the presentation of Drafts by Manufacturers under the Drafting Agreements, by making available their respective Pro Rata Shares of the amounts so advanced, all in accordance with Section 2.2 hereof; provided, however, that if for any reason the Floor Plan Agent is prohibited from making a Floor Plan Loan in respect of any such Draft, each such Bank shall be deemed to and unconditionally agrees to purchase from the Floor Plan Agent a participation interest in the amount of such Draft (in the amount of its Pro Rata Share), subject only to Section 4.6 hereof. Not withstanding the amount of the Floor Plan Loan Commitment in effect from time to time, except with respect to the notices terminating or suspending drafting privileges to be given pursuant Section 4.6(d) or Section 11.1 hereof or any other notices given by the Floor Plan Agent in response to the written direction of the Required Banks, the Floor Plan Agent shall not be obligated to terminate or suspend the drafting privileges of any Manufacturer under the Drafting Agreements even though the aggregate amount of Drafts which may be presented by Manufacturers under the Drafting Agreements may exceed the amount of the Floor Plan Loan Commitment in effect from time to time. Furthermore, (i) any limitations contained in any of the Drafting Agreements (whether in respect of daily Drafts to be presented or otherwise) are for informational purposes only and Floor Plan Agent shall not be obligated to monitor or limit the amount of Drafts presented or honored on the basis of any such limitations and (ii) any right of the Floor Plan Agent, acting in its discretion and not at the direction or with the concurrence of the Required Banks, to terminate or suspend drafting privileges of any Manufacturer or otherwise exercise any right or remedy shall be for the sole benefit and protection of the Floor Plan Agent, and Floor Plan Agent shall not owe any duty to any of the other Banks with respect to such rights or remedies or be required to exercise such rights or remedies to protect any of the other Banks. SECTION 2.12 Obligations Absolute. The Obligations of the Floor Plan Borrowers under this Agreement and any of the other Loan Documents to reimburse the Floor Plan Agent for Drafts presented by a Manufacturer under a Drafting Agreement, and to repay any Swing Line Loans, the Floor Plan Loans or the Swing Line Overdraft Loans, as the case may be, funded to pay a Draft shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other Loan Document under all circumstances, including the following: (a) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of any Borrower in respect of any Draft or any Drafting Agreement or any other amendment or waiver of or any consent to departure from all or any of the applicable/related Loan 32 33 Documents; (c) the existence of any claim, set-off, defense or other right that any Floor Plan Borrower may have at any time against any Manufacturer or any other beneficiary or transferee of any Drafting Agreement (or any Person for whom any such beneficiary or such transferee may be acting), the Floor Plan Agent or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the related Loan Documents or any unrelated transaction other than the defense of payment or claims arising out of the gross negligence, bad faith or willful misconduct of the Floor Plan Agent or the Swing Line Bank; (d) any Draft, demand, certificate or other document presented under a Drafting Agreement proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a Draft under any Drafting Agreement; (e) any payment by the Floor Plan Agent under any Drafting Agreement against presentation of a draft or certificate that does not strictly comply with the terms of any Drafting Agreement; or any payment made by the Floor Plan Agent under any Drafting Agreement to any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver or other representative of a successor to any beneficiary or any transferee of any Drafting Agreement, including any arising in connection with any Insolvency Proceeding; (f) any exchange, release or non-perfection of any Collateral, or any release or amendment or waiver of or consent to departure from all or any of the Obligations of any Borrower in respect of any Drafting Agreement; or (g) any other circumstance that might otherwise constitute a defense available to, or discharge of, any Borrower other than the defense of payment or claims arising out of the gross negligence, bad faith or willful misconduct of the Floor Plan Agent or the Swing Line Bank. ARTICLE III ACQUISITION LOANS SECTION 3.1 Subject to the terms and conditions and relying upon the representations and warranties of the Company herein set forth, each Bank severally and not jointly agrees on the terms and conditions set forth herein to make revolving credit loans to Company, (each such loan, an "Acquisition Loan") from time to time on any Business Day during the period from the Closing Date to the Maturity Date in an aggregate amount not to exceed at any time outstanding such Bank's Pro Rata Share the lesser of (a) the Acquisition Loan Advance Limit, or (b) the aggregate amount of the Acquisition Loan Commitments of all the Banks; provided, however, that, after giving effect to any Acquisition Loan Borrowing, the aggregate amount of all outstanding Acquisition Loans, all outstanding Floor Plan Loans, all outstanding Swing Line Loans and all outstanding Letter of Credit Obligations, shall not at any time exceed the Total Commitment within the limits of each Bank's Commitment and subject to the other terms and conditions hereof, the Company may borrow, prepay and reborrow Acquisition Loans under this Section 3.1. SECTION 3.2 Acquisition Loans. (a) Each Acquisition Loan Borrowing made by the Banks to a Borrower on any Borrowing Date shall be in the minimum aggregate principal amount of One Million Dollars ($1,000,000) (or the amount of a Letter of Credit Borrowing or the remaining balance of the aggregate Acquisition Loan Commitments, if less) and an integral multiple of One Million Dollars ($1,000,000) and shall consist of Acquisition Loans of the same Type made ratably by the Banks in 33 34 accordance with their respective Commitments; provided, however, that the failure of any Bank to make any Acquisition Loan shall not relieve any other Bank of its obligation to lend hereunder. (b) Each Acquisition Loan Borrowing shall be an ABR Borrowing or a Eurodollar Borrowing as the Company may request in a Request for Borrowing delivered to the Agent in accordance with Section 3.3. Each Bank may fulfill its Commitment with respect to any Eurodollar Loan by causing, at its option, any domestic or foreign branch or Affiliate of such Bank to make such Loan, provided that the exercise of such option shall not affect the obligation of the Company to repay such Loan in accordance with the terms hereof. Subject to the provisions of Section 3.3 and Section 5.9, Acquisition Loan Borrowings of more than one Type may be outstanding at the same time. (c) Each Bank shall make its Pro Rata Share of the amount of each Acquisition Loan Borrowing to the Company hereunder on the proposed Borrowing Date thereof by paying the amount required to the Agent in Houston, Texas in U.S. Dollars and in immediately available funds not later than 1:00 P.M., HOUSTON, TEXAS TIME, and, subject to satisfaction of the conditions set forth in Article VIII, the Agent shall promptly and in any event on the same day, credit the amounts so received to the general deposit account of the Company, with the Agent, or such other depository account as shall be designated by the Company or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. Unless the Agent shall have received notice from a Bank prior to the date of any Acquisition Loan Borrowing that such Bank will not make available to the Agent such Bank's portion of such Acquisition Loan Borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such Acquisition Borrowing in accordance with this Section 3.2 and the Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount. If, and to the extent that such Bank shall not have made such portion available to the Agent, such Bank and the Company jointly and severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is repaid to the Agent (i) in the case of the Company at the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Bank, at the Federal Funds Effective Rate. If such Bank shall repay to the Agent such corresponding amount, such amount shall constitute such Banks' Pro Rata Share of the Acquisition Loan as part of such Acquisition Loan Borrowing for purposes of this Agreement. SECTION 3.3 Notice of Acquisition Loan Borrowings. (a) In order to obtain an Acquisition Loan, the Company shall make an irrevocable written request therefor (or irrevocable telephone notice thereof, confirmed as soon as practicable by written request) to the Agent, in the form of a Request for Borrowing (i) in the case of an ABR Borrowing, not later than 11:00 A.M., HOUSTON, TEXAS TIME, one (1) Business Day before the Borrowing Date of a proposed Acquisition Loan Borrowing, and (ii) in the case of a Eurodollar Borrowing, not later than 11:00 A.M., HOUSTON, TEXAS TIME, three (3) Business Days before the Borrowing Date of a proposed Acquisition Loan Borrowing. Each Request for Loan Borrowing shall be irrevocable and shall in each case refer to this Agreement and specify (1) whether the Request for Borrowing then being requested is to be an ABR Borrowing or a Eurodollar Borrowing, 34 35 (2) the Borrowing Date of such Acquisition Loan Borrowing (which shall be a Business Day) and (3) the aggregate amount thereof (which shall not be less than One Million Dollars ($1,000,000) or an integral multiple of One Million Dollars ($1,000,000) in excess thereof), and (4) the Interest Period or Interest Periods with respect thereto. If no election as to the Type of Acquisition Loan Borrowing is specified in any such Request for Borrowing by the Company, such Acquisition Loan Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Borrowing is specified in any such Request for Borrowing, the Company shall be deemed to have selected an Interest Period of one (1) month's duration. The Agent shall promptly advise the Banks of any Request for Borrowing given by the Company pursuant to this Section 3.3 and of each Bank's portion of the requested Acquisition Loan Borrowing. (b) No more than five (5) Acquisition Loans may be outstanding at any time. For purposes of the foregoing, Borrowings comprised of Acquisition Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. SECTION 3.4 Reserve Commitment; Suspension of Acquisition Loans. Notwithstanding the foregoing provisions of this Article III, in the event that on any day the aggregate outstanding principal amount of all (a) Floor Plan Loans, plus (b) Swing Line Loans, plus (c) Requests for Floor Plan Loan Borrowings exceeds ninety-five percent (95%) of the Floor Plan Loan Commitment as of such date, then (i) a portion of the Acquisition Loan Commitment (the "Reserve Commitment") in an amount equal to the lesser of (ii) Five Million Dollars ($5,000,000) and (iii) the entire remaining unused portion of the Acquisition Loan Commitment as of such date shall be reserved and shall no longer be available for funding Acquisition Loans, and (d) no further Acquisition Loan Borrowings (after giving effect to the Reserve Commitment in clause (a) hereof) shall be available to the Borrowers until the next Business Day on which such condition no longer exists. ARTICLE IV SWING LINE LOANS SECTION 4.1 Swing Line Commitments. The Swing Line Bank shall, on the terms and subject to the conditions hereinafter set forth (including Section 4.3), make one or more advances (each such advance being a "Swing Line Loan") to any Floor Plan Borrower from time to time on any Business Day during the period from the Closing Date to the Maturity Date in an aggregate principal amount not to exceed at any time (not including Swing Line Overdraft Loans) the aggregate amount of the Floor Plan Loan Commitments of all the Banks; provided, however, that after giving effect to all Borrowings of Swing Line Loans and all Floor Plan Loans requested on any date, the sum of the aggregate principal amount of all outstanding Floor Plan Loans and Swing Line Loans (but excluding Swing Line Overdraft Loans) shall not exceed the aggregate amount of the then applicable aggregate Floor Plan Loan Commitments. All Swing Line Loans (including the Swing Line Overdraft Loans) shall be evidenced by the Swing Line Note, under which advances, repayments and readvances may be made, subject to the terms and conditions of this Agreement. Each Swing Line Loan shall mature and the principal amount thereof shall be due and payable by the applicable Floor Plan Borrower, as the case may be, on the last day of the Interest Period applicable thereto. In no event whatsoever shall any outstanding Swing Line Loan be deemed to 35 36 reduce, modify or affect any Bank's commitment to make Floor Plan Loans based upon its Pro Rata Share of the Floor Plan Loan Commitment. SECTION 4.2 Accrual of Interest; Margin Adjustments. Each Swing Line Loan shall, from time to time after the date of such Loan, bear interest at its Applicable Interest Rate. The amount and date of each Swing Line Loan, its Applicable Interest Rate, its Interest Period, and the amount and date of any repayment shall be noted on the Swing Line Bank's records, which records will be conclusive evidence thereof, absent manifest error; provided, however, that any failure by the Swing Line Bank to record any such information shall not affect the obligations of the applicable Floor Plan Borrower with respect thereto in accordance with the terms of this Agreement and the Loan Documents. SECTION 4.3 Requests for Swing Line Loans. (a) On the Closing Date, subject to the terms and conditions hereunder set forth, the Swing Line Bank shall make a Swing Line Loan to one or more of the Floor Plan Borrowers pursuant to a Request for Borrowing given by such Floor Plan Borrowers in the manner specified in Section 4.3(b) and at the Applicable Interest Rate in the aggregate amount of the Swing Line Minimum Amount. (b) On any day that a Request for Borrowing constitutes a Request for Borrowing of a Swing Line Loan pursuant to Section 2.3(g)(ii), the applicable Floor Plan Borrower shall be deemed to have delivered to Swing Line Bank a Request for Borrowing in connection therewith, subject to the following and to the remaining provisions of this Section 4.3: (i) the aggregate principal amount of such requested Swing Line Loan Borrowing, plus the aggregate principal amount of all other Swing Line Loans then outstanding shall not exceed the Swing Line Commitment; (ii) each such Request for Borrowing of a Swing Line Loan once delivered to the Swing Line Bank, shall not be revocable by the applicable Floor Plan Borrower, as the case may be, and shall constitute and include a certification to the extent applicable, by the Company of the provisions of Section 2.3(f); and (iii) the Swing Line Bank may, at its option, make Swing Line Loans under this Section 4.3 upon the irrevocable telephone request of a duly authorized officer of any Floor Plan Borrower and, in the event the Swing Line Bank makes any such Swing Line Loan upon a telephone request, the requesting officer of such Floor Plan Borrower shall, if so requested by the Swing Line Bank, deliver (including via fax) to the Swing Line Bank on the same day as such telephone request, a written Request for Borrowing of a Swing Line Loan. Each of the Floor Plan Borrowers hereby authorizes the Swing Line Bank to disburse Swing Line Loans pursuant to the telephone instructions of any Person purporting to be a Person identified by name on a written list of Persons authorized by each such Floor Plan Borrower to make Requests for Borrowings of Swing Line Loans on behalf of such Floor Plan Borrowers. Notwithstanding the foregoing, each of the Floor Plan Borrowers 36 37 acknowledges and agrees that such Floor Plan Borrower shall bear all risk of loss resulting from disbursements made upon any telephone request. Each telephone request for a Swing Line Loan Borrowing shall constitute a certification of the matters set forth in Section 2.3(f) of this Agreement. SECTION 4.4 Disbursement of Swing Line Loans. Subject to receipt by the Swing Line Bank of a Request for Borrowing of a Swing Line Loan by any Floor Plan Borrower without exceptions noted in the compliance certifications in connection therewith, and to the other terms and conditions of this Agreement, the Swing Line Bank shall make available to any Floor Plan Borrower the amount so requested, in same day funds, not later than 1:00 P.M., HOUSTON, TEXAS TIME on the Borrowing Date of such Swing Line Loan, by credit to an account of the applicable Floor Plan Borrower maintained with the Swing Line Bank or to such other account or third party as such Floor Plan Borrower may reasonably direct. The Swing Line Bank shall promptly notify the Floor Plan Agent of any Swing Line Loan by telephone or telecopier. SECTION 4.5 Refunding of or Participation Interest in Swing Line Loans. (a) On any Floor Plan Adjustment Date or upon the occurrence and continuance of an Event of Default, the Swing Line Bank in its sole and absolute discretion, may on behalf of any Floor Plan Borrower (each of whom hereby irrevocably directs the Swing Line Bank to act on its behalf) make a written (including via fax) request to the Floor Plan Agent, requesting each Bank (including the Swing Line Bank in its capacity as a Bank) to make a Floor Plan Loan in an amount equal to such Bank's Pro Rata Share of the outstanding principal amount of the Swing Line Loans (including, only if an Event of Default shall have occurred and is continuing, the portion thereof which constitutes the Swing Line Minimum Amount and excluding Swing Line Overdraft Loans, to the extent that, after giving effect to such request, such Bank's Pro Rata Share of the outstanding principal amount of all Floor Plan Loans plus all Swing Line Loans would exceed such Bank's Floor Plan Loan Commitment) (the "Refunded Swing Line Loans") on the date such request is made; provided however, unless an Event of Default has occurred and is continuing, Refunded Swing Line Loans shall not be subject to the indemnification provisions of Section 5.10, and no losses, costs or expenses may be assessed by the Swing Line Bank against the applicable Floor Plan Borrower or the other Banks as a consequence thereof. Unless an Event of Default described in Section 11.1(f) or 11.1(g) shall have occurred (in which event the procedures of paragraph (b) of this Section 4.5 shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Floor Plan Loan are then satisfied, each Bank shall upon request by the Agent in the manner specified in Section 2.4 thereof make the proceeds of its Floor Plan Loan available to the Floor Plan Agent for the benefit of the Swing Line Bank. (b) If, prior to the Banks' making of Floor Plan Loans pursuant to the provisions in paragraph (a) of this Section 4.5, an Event of Default described in Section 11.1(f) or 11.1(g) shall have occurred, each Bank shall, in the manner provided in Section 2.4 (b), on the date such Floor Plan Loan was to have been made, purchase from the Swing Line Bank a participation interest in the Refunded Swing Line Loan in an amount equal to its Pro Rata Share of such Refunded Swing Line Loan. 37 38 (c) Each Bank's obligation to make Floor Plan Loans and to purchase participation interests in accordance with Section 4.5(a) and Section 4.5(b) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff counterclaim, recoupment, defense or other right which such Bank may have against the Swing Line Bank, any Floor Plan Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of any Default or Event of Default; (iii) any adverse change in the condition (financial or otherwise) of any Floor Plan Borrower or any other Person; (iv) any breach of this Agreement by any Floor Plan Borrower or any other Person; (v) any inability of any Floor Plan Borrower to satisfy the conditions precedent to a Borrowing set forth in this Agreement on the date upon which such participating interest is to be purchased; or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Bank does not make available to the Floor Plan Agent the amount required pursuant to Section 4.5(a) or Section 4.5(b), as the case may be, the Swing Line Bank shall be entitled to recover such amount on demand from such Bank, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Effective Rate. SECTION 4.6 Swing Line Overdraft Loans. (a) On any day that a Request for Borrowing of a Floor Plan Loan constitutes a Swing Line Overdraft Borrowing Request pursuant to Section 2.3(g)(iii), the applicable Floor Plan Borrower shall be deemed to have delivered to the Swing Line Bank a Swing Line Overdraft Borrowing Request, and each such Swing Line Overdraft Borrowing Request shall not be revocable by the applicable Floor Plan Borrower, as the case may be, and shall constitute and include a certification as to itself and its Subsidiaries, to the extent applicable, by such Floor Plan Borrower of the provisions of Section 2.3(f). (b) Each Swing Line Overdraft Loan shall bear interest at the Applicable Interest Rate. The amount and date of each Swing Line Overdraft Loan, the Applicable Interest Rate, the Interest Period, and the amounts and dates of any repayment shall be noted on the Swing Line Bank's records, which records will be conclusive evidence thereof, absent manifest error; provided however, that any failure by the Swing Line Bank to record any such information shall not affect the applicable Floor Plan Borrower's obligation under the terms of this Agreement and the Loan Documents. (c) Swing Line Overdraft Loans shall be made only by the Swing Line Bank, solely for its own account and shall not be subject to the provisions of Section 4.5; provided, however, at any time a Swing Line Overdraft Loan is outstanding, the payment of principal and interest with respect to all Loans shall be subordinated in right of payment and priority to the prior payment in full of the Swing Line Overdraft Loans and the Floor Plan Agent, the Agent and the Banks, as the case may be, shall remit to the Swing Line Bank, and the Swing Line Bank shall have the right to receive, all payments of principal and interest made by any Borrower in respect of any Loan and all other proceeds of Collateral securing the Loans for application and reduction of the aggregate principal amount of outstanding Swing Line Overdraft Loans. (d) If at any time the aggregate outstanding principal amount of all (i) Floor Plan Loans, plus (ii) Swing Line Loans, plus (iii) Swing Line Overdraft Loans, plus (iv) Requests 38 39 for Borrowings of Floor Plan Loans exceeds (A) one hundred ten percent (110%) of the aggregate Floor Plan Loan Commitments as of such date and such condition exists for two (2) consecutive Business Days or (B) the aggregate Floor Plan Loan Commitments by any amount for any fifteen (15) days out of any thirty (30) day period, then, in such event, the Floor Plan Agent acting in its sole discretion may, and upon the election of the Required Banks shall (y) take any and all actions reasonably necessary to suspend and/or terminate Drafts pursuant to the Drafting Agreements and (z) elect by written notice to the Company to terminate the Commitments and to deem such occurrence as constituting an Event of Default. ARTICLE V ALL LOANS SECTION 5.1 Notes: Repayment of Loans. (a) All Loans made hereunder shall be evidenced by the Notes or the Swing Line Note, as the case may be, shall be payable as therein provided, dated the Closing Date, and shall be in a principal amount equal to the Commitments on such date. All Borrowers agree, jointly and severally, to pay the outstanding principal balance of such Loans and all interest thereon and all the obligations, as evidenced by the Notes, in accordance with the terms and provisions of this Agreement and on the Maturity Date. Each Note shall bear interest from its date on the outstanding principal balance thereof as provided in Section 5.2. (b) Each Bank, the Agent or the Floor Plan Agent and the Swing Line Bank, on its behalf, and the Swing Line Bank shall, and is hereby authorized by each Borrower to, endorse on the schedule attached to the Notes delivered to each Bank (or a continuation of such schedule attached to such Notes and made a part thereof), or otherwise record in such Bank's internal records, an appropriate notation evidencing the date and amount of each Loan, as well as the date and amount of each payment and prepayment with respect thereto; provided, however, that the failure of any Bank, Agent or the Floor Plan Agent, or the Swing Line Bank to make such a notation or any error in such a notation shall not affect the obligations of all Borrowers hereunder or under the Notes or the Swing Line Note. SECTION 5.2 Interest on Loans. (a) Subject to the provisions of Section 5.3, each Alternate Base Rate Loan shall bear interest at a rate per annum, equal to the lesser of (i) the Alternate Base Rate plus the Applicable Margin for ABR Loans and (ii) the Highest Lawful Rate (if the Alternate Base Rate is based on the Prime Rate, computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be; or if the Alternate Base Rate is based on the Federal Funds Effective Rate, computed on the basis of the actual number of days elapsed over a year of 360 days). (b) Subject to the provisions of Section 5.3, each Comerica Prime Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the lesser of (i) the Comerica Prime-based Rate for the Interest Period in effect for such Loan and (ii) the Highest Lawful Rate. 39 40 (c) Subject to the provisions of Section 5.3, (i) each Eurodollar Loan which is an Acquisition Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the lesser of (1) the LIBO Rate for the Interest Period in effect for such Loan plus the Applicable Margin for Eurodollar Acquisition Loans and (2) the Highest Lawful Rate; and (ii) each Eurodollar Loan which is a Floor Plan Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the lesser of (1) the LIBO Rate for the Interest Period in effect for such Loan plus 1.50% and (2) the Highest Lawful Rate. (d) Interest on each Acquisition Loan and each Floor Plan Loan shall be payable in arrears on each Interest Payment Date applicable to such Loan except as otherwise provided in this Agreement. Interest on each Swing Line Loan and Swing Line Overdraft Loan shall be payable in arrears on each Interest Payment Date applicable to such Loan except as otherwise provided in this Agreement. The applicable LIBO Rate, and the Alternate Base Rate shall be determined by the Agent, and the Comerica Prime Rate shall be determined by the Floor Plan Agent, and such determination shall be conclusive absent demonstrable error. The Agent shall promptly advise the Borrowers and each Bank of each such determination. SECTION 5.3 Interest on Overdue Amounts. If any Borrower shall default in the payment of the principal of or interest on any Loan or any other amount due hereunder, by acceleration or otherwise, such Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (computed on the basis of the actual number of days elapsed over a period of 360 days) equal to the lesser of (a) the Highest Lawful Rate and (b) the Alternate Base Rate plus two percent (2%) per annum. SECTION 5.4 Fees. (a) The Company shall pay each Bank, through the Agent, on the last day of each March, June, September and December, and on the Maturity Date, in immediately available funds, a commitment fee (such Bank's "Commitment Fee") equal to twenty-five-one-hundredths of one percent (0.25%) per annum times the average unused amount of the Commitment of such Bank, during the immediately preceding fiscal quarter (or shorter portion thereof) just ended. All Commitment Fees under this Section 5.4(a) shall be computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as the case may be. The Commitment Fee due to each Bank shall commence on the Closing Date cease to accrue on the earlier of the Maturity Date or the termination of the Commitment of such Bank pursuant to Section 5.5 or 13.3 (b). (b) The Company shall pay the Agent and Chase Securities Inc. the fees (the "Agency Fees") in such amount and on such dates as may be agreed between the Company, the Agent and Chase Securities Inc. pursuant to that certain letter agreement dated September 22, 1997, herewith among the Company, the Agent, and Chase Securities Inc. (the "Agent's Letter"). (c) The Company shall pay the Floor Plan Agent a Floor Plan Agency Fee ("Floor Plan Agency Fee") in such amount on such dates as may be agreed between the Company 40 41 and the Floor Plan Agent pursuant to that certain letter agreement of even date herewith between the Company and the Floor Plan Agent (the "Floor Plan Agent's Letter"). (d) The Company shall pay the Agent for the benefit of the Banks, according to their Pro Rata Share, a fee in the amount of $750.00 for each day any Swing Line Overdraft Loan is outstanding; and such amount (if any) shall be payable on the last Business Day of each month. SECTION 5.5 Termination and Reduction of Commitments. The Commitment of a Bank shall be deemed "unused" to the extent and in the amount such Bank is obligated to fund future Loans or Letter of Credit Obligations of any Borrower. (a) Subject to Section 3.5, upon at least ten (10) Business Days' prior written notice to the Agent, the Company may at any time in whole permanently terminate, or from time to time permanently reduce, the Total Commitment, ratably among the Banks in accordance with their respective Commitments; provided, however, that any partial reduction of the Total Commitment shall be in minimum increments of Five Million Dollars ($5,000,000) and the Total Commitment may not be reduced to less than Fifty Million Dollars ($50,000,000) unless the Commitment is terminated in whole; and (ii) no reduction shall reduce the amount of the Acquisition Loan Commitment to an amount which is less than the Letter of Credit Obligations outstanding at such time; provided however that the Floor Plan Agent in its sole discretion may, or at the direction of the Required Banks, shall suspend and/or terminate all or any portion of the then outstanding Drafting Agreements. (b) At any time there exists any unused portion of the Acquisition Loan Commitment, the Company may irrevocably request the Agent to convert such unused portion of the Acquisition Loan Commitment to the Floor Plan Loan Commitment and thereafter each Bank's Pro Rata Share of the Acquisition Loan Commitment shall be in an aggregate amount equal to (i) the sum of all Acquisition Loans then outstanding, plus (ii) all Letter of Credit Obligations then outstanding, plus (iii) the remaining unused portion of the Acquisition Loan Commitment after subtracting the amount thereof converted to the Floor Plan Loan Commitment; in such event, the Floor Plan Loan Commitment shall, upon such request, be irrevocably increased by the amount so requested by the Company, such amount together with the Acquisition Loan Commitment not to exceed the Total Commitment. (c) At the time the Commitments of any Bank are terminated or reduced pursuant to Section 5.5, the Floor Plan Company shall pay to the Agent for the account of each such Bank, the Commitment Fees on the amount of the Commitments so terminated or reduced owed through the date of such termination or reduction. (d) Each of the Commitments shall automatically and permanently terminate on the Maturity Date. SECTION 5.6 Alternate Rate of Interest. In the event, and on each occasion, that on the day two (2) Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing, the Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that: (a) dollar deposits in the amount set forth in such request for Borrowing 41 42 are not generally available in the London interbank market, or that the rate at which dollar deposits are being offered will not adequately and fairly reflect the cost to any Bank or the Swing Line Bank of making or maintaining the principal amount of its Eurodollar Loan comprising such Borrowing during such Interest Period, or (b) reasonable means do not exist for ascertaining the LIBO Rate, then the Agent shall as soon as practicable thereafter give written notice of such determination to the Company, the Banks and/or the Swing Line Bank; and any request by a Borrower for the making of a Eurodollar Borrowing shall, until the circumstances giving rise to such notice no longer exist, be deemed to be a request for a Borrowing to be comprised of (i) if such Borrowing is a Floor Plan Loan Borrowing, Comerica Prime Rate Loans, and (ii) if such Borrowing is an Acquisition Loan Borrowing, Alternate Base Rate Loans. Each determination of the Agent hereunder shall be conclusive absent demonstrable error. SECTION 5.7 Prepayment of Loans; Mandatory Reduction of Indebtedness. (a) So long as no Swing Line Overdraft Loans are outstanding, each Acquisition Loan Borrowing and each Floor Plan Loan Borrowing may be prepaid at any time and from time to time, in whole or in part, subject to the requirements of Section 5.10, but otherwise without premium or penalty, upon at least thee (3) Business Days' prior written or telex notice to the Agent. (b) On the date of any termination or reduction of the Total Commitment pursuant to Section 5.5(a), each shall prepay so much of its Loans (up to the amount by which the Commitment is so terminated or reduced) as shall be necessary in order that the aggregate principal amount of the Loans and Letter of Credit Obligations outstanding will not exceed the Total Commitment following such termination or reduction. All prepayments under this paragraph shall be subject to Section 5.10. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Loan (or portion thereof) to be prepaid, which notice shall be irrevocable and shall commit the Borrower making such notice to prepay such Loan by the amount stated therein on the date stated therein. All prepayments shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. (d) Subject to the provisions of Section 2.3(g)(iii), at any time and for any reason: (i) the aggregate principal amount of all (y) Floor Plan Loans outstanding, plus (z) Swing Line Loans outstanding shall exceed the amount of Floor Plan Loan Commitment at such time, or (ii) the aggregate principal amount of all (y) Acquisition Loans, plus (z) Letter of Credit Obligation's shall exceed the amount of the Acquisition Loan Commitment, or (iii) the aggregate principal amount of all (w) Floor Plan Loans outstanding, (x) Swing Line Loans outstanding, plus (y) Acquisition Loans 42 43 outstanding, plus (z) Letter of Credit Obligations outstanding shall exceed the Total Commitment, the Borrowers shall immediately pay to the Agent (for application in the manner directed by the Company) an amount of such Obligations equal to such excess, provided, however, that Borrowers shall have the right to direct such repayment first to prepay such portion of the Indebtedness not subject to the indemnification provisions of this Agreement in Section 5.10. SECTION 5.8 Reserve Requirements; Change in Circumstances. (a) It is understood that the cost to each Bank of making or maintaining any of the Eurodollar Loans may fluctuate as a result of the applicability of reserve requirements imposed by the Board at the ratios provided for in Regulation D on the date hereof. The Borrowers agree to pay to each of the Banks from time to time such amounts as shall be necessary to compensate such Bank for the portion of the cost of making or maintaining Eurodollar Loans resulting from any increase in such reserve requirements provided for in Regulation D from those as in effect on the date hereof, it being understood that the rates of interest applicable to Eurodollar Loans have been determined on the assumption that no such reserve requirements exist or will exist and that such rates do not reflect costs imposed on the Banks in connection with such reserve requirements. (b) Notwithstanding any other provision herein, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Bank of the principal of or interest on any Eurodollar Loan made by such Bank or any other fees or amounts payable hereunder (other than taxes imposed on the overall net income of such Bank by the jurisdiction in which such Bank has its principal office or is located or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, such Bank or shall impose on such Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Bank and the result of any of the foregoing shall be to increase the cost to such Bank of making or maintaining any Eurodollar Loan or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) in respect thereof, by an amount deemed by such Bank in its sole discretion to be material, then the Borrowers shall pay as required in Section 5.8(d) such additional amount or amounts as will compensate such Bank for such additional costs or reduction will be paid to such Bank with respect to the Eurodollar Loans. (c) If any Bank shall have determined that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards," or the adoption after the date hereof of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any lending office of such Bank) or any Bank's holding company with 43 44 any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital or on the capital of such Bank's holding company, if any, as a consequence of this Agreement or the Loans made by such Bank pursuant hereto to a level below that which such Bank or such Bank's holding company could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies and the policies of such Bank's holding company with respect to capital adequacy) by an amount deemed by such Bank to be material, then the Borrowers shall pay as required to Section 5.8(d) to such Bank such additional amount or amounts as will compensate such Bank or such Bank's holding company for any such reduction suffered. (d) A certificate of each Bank setting forth in reasonable detail calculations (together with the basis and assumptions therefor) to establish such amount or amounts as shall be necessary to compensate such Bank (or participating banks or other entities pursuant to Article XIII) as specified in paragraph (a), (b) or (c) above shall be delivered to the Agent which shall promptly deliver the same to the Company and such certificate shall be rebuttably presumptive evidence of the amount or amounts which such Bank is entitled to receive. The Borrowers shall pay such Bank the amount shown as due on any such certificate within ten (10) days after its receipt of the same. (e) Any demand for compensation pursuant to this Section 5.8 must be made on or before one (1) year after the Bank incurs the expense, cost or economic loss referred to or such Bank shall be deemed to have waived the right to such compensation. The protection of this Section 5.8 shall be available to each Bank regardless of any possible contention of the invalidity or inapplicability of any law, regulation or other condition which shall give rise to any demand by such Bank for compensation. (f) Nothing in this Section 5.8 shall entitle any Bank to receive interest at a rate per annum in excess of the Highest Lawful Rate. (g) The term "Bank" or "Banks" as used in this Section 5.8 shall include the Swing Line Bank and the provisions hereof, when applicable, shall apply to the Swing Line Bank. SECTION 5.9 Change in Legality. (a) Notwithstanding anything to the contrary herein contained, if any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Bank to make or maintain any Eurodollar Loan or to give effect to its obligations in respect of any Eurodollar Borrowing contemplated hereby, then, by written notice to the Agent, such Bank may: (i) declare that Eurodollar Loans will not thereafter be made by such Bank hereunder, whereupon any request by any Borrower for a Eurodollar Borrowing shall, as to such Bank only, be deemed a request for an Alternate Base or the Comerica Prime Rate, as applicable, Rate Loan unless such declaration shall be subsequently withdrawn; and 44 45 (ii) require that all outstanding Eurodollar Loans made by it be converted to Alternate Base Rate Loans, in which event all such Eurodollar Loans shall be automatically converted to Alternate Base Rate Loans if Acquisition Loans and to Comerica Prime Rate Loans if Floor Plan Loans, as of the effective date of such notice as provided in paragraph (b) below. In the event any Bank shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Bank or the converted Eurodollar Loans of such Bank shall instead be applied to repay the Alternate Base Rate Loans if Acquisition Loans and to Comerica Prime Rate Loans if Floor Plan Loans, made by such Bank in lieu of, or resulting from the conversion of, such Eurodollar Loans; provided, however, the Alternate Base Rate Loans or Comerica Prime Rate Loans resulting from the conversion of such Eurodollar Loans shall be prepayable only at the times the converted Eurodollar Loans would have been prepayable, notwithstanding the provisions of Section 5.7(a). (b) For purposes of Section 5.9(a), a notice to the Agent by any Bank shall be effective as to each Eurodollar Loan, if lawful, on the last day of the then-current Interest Period or, if there are then two (2) or more current Interest Periods, on the last day of each such Interest Period, respectively; otherwise, such notice shall be effective on the date of receipt by the Agent. (c) The term "Bank" or "Banks" as used in this Section 5.9 shall include the Swing Line Bank and the provisions hereof, when applicable, shall apply to the Swing Line Bank. SECTION 5.10 Indemnity. (a) The Borrowers shall indemnify each Bank against any loss or expense which such Bank may sustain or incur as a consequence of (i) any failure by any Borrower to fulfill on the date of any Borrowing hereunder the applicable conditions set forth in Article VIII, (ii) any failure by any Borrower to borrow, convert or continue hereunder after delivery of a Request for Borrowing or a notice of conversion or continuation has been given pursuant to Sections 2.4, 3.3 and 5.15, (iii) any payment, prepayment or conversion of a Eurodollar Loan required by any other provision of this Agreement or otherwise made on a date other than the last day of the applicable Interest Period, (iv) any default in payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by irrevocable notice of prepayment or otherwise), or (v) the occurrence of any Event of Default, including, but not limited to, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by each Bank of (A) its cost of obtaining the funds for the Loan being paid, prepaid or converted or not borrowed (based on the LIBO Rate applicable thereto) for the period from the date of such payment, prepayment or conversion or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date of such failure to borrow) over (B) the amount of interest (as reasonably determined by such Bank) that could be realized by such Bank in reemploying during such period the funds so paid, prepaid 45 46 or converted or not borrowed. A certificate of each Bank setting forth in reasonable detail calculations (together with the basis and assumptions therefore) to establish any amount or amounts which such Bank is entitled to receive pursuant to this Section 5.10 shall be delivered to the Agent which shall promptly deliver the same to the Company and such certificate shall be rebuttably presumptive evidence of the amount or amounts which such Bank is entitled to receive. Nothing in this Section 5.10 shall entitle any Bank to receive interest at a rate per annum in excess of the Highest Lawful Rate. (b) The provisions of this Section 5.10 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any Note, or any investigation made by or on behalf of any Bank; provided demand for compensation pursuant to Section 5.08 must be made on or before one (1) year after the Bank incurs the expense, cost or economic loss referred to or such Bank shall be deemed to have waived the right to such compensation. All amounts due under this Section 5.10 shall be payable within ten (10) days after receipt of demand therefor. (c) The term "Bank" or "Banks" as used in this Section 5.10 shall include the Swing Line Bank and the provisions hereof, when applicable, shall apply to the Swing Line Bank. SECTION 5.11 Pro Rata Treatment. Subject to Section 4.6(c) hereof, and except as permitted under Section 5.8, each Borrowing, each payment or prepayment of principal of the Notes, each payment of interest on such Notes, each other reduction of the principal or interest outstanding under such Notes, however achieved, each payment of the Commitment Fees and each reduction of the Commitments shall be made pro rata among the Banks in the proportions that their respective Commitments bear to the Total Commitment. SECTION 5.12 Payments. (a) The Company and/or any of the Borrowers shall make all payments of principal and interest on any Swing Line Loan and any Swing Line Overdraft Loan, any curtailment payment, and payments of the proceeds of the sale of any Motor Vehicle to the Floor Plan Agent on the date when due in dollars to the Floor Plan Agent at its offices in Detroit Michigan, and except as otherwise provided in this Agreement, the Company and/or any of the Borrowers shall make all payments (including principal of or interest on any Borrowing, Agency Fee, or any other fees or other amounts) payable hereunder and under any other Loan Document not later than 1:00 P.M., HOUSTON, TEXAS TIME, on the date when due in dollars to the Agent at its offices at 707 Travis Street, Houston, Texas 77002, in immediately available funds, without setoff or counterclaim. (b) Subject to the provisos contained in subclauses (A) of the definition of "Interest Period", whenever any payment (including principal of or interest on any Borrowing or any fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, if applicable. 46 47 SECTION 5.13 Sharing of Setoffs. Except as otherwise provided in Section 4.6(c) in connection with the payment of Swing Line Overdraft Loans, each Bank agrees that if it shall, in any manner, including through the exercise of a right of banker's lien, setoff or counterclaim against any Borrower, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Bank under any Insolvency Proceeding or otherwise, obtain payment (voluntary or involuntary) in respect of the Note held by it as a result of which the unpaid principal portion of the Note held by it shall be proportionately less than the unpaid principal portion of the Note held by any other Bank, it shall be deemed to have simultaneously purchased from such other Bank a participation in the Note held by such other Bank, so that the aggregate unpaid principal amount of the Note and participations in Notes held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Notes then outstanding as the principal amount of the Note held by it prior to such exercise of banker's lien, setoff or counterclaim was to the principal amount of all Notes outstanding prior to such exercise of banker's lien, setoff or counterclaim; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 5.13 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrowers expressly consent to the foregoing arrangements and agree that any Person holding a participation in a Note under this Section 5.13 deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by any such Borrower to such Bank as fully as if such Bank had made a Loan directly to such Borrower in the amount of such participation. SECTION 5.14 Payments Free of Taxes. (a) Any and all payments by the Borrowers hereunder shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on the Agent's, the Floor Plan Agent's, the Swing Line Bank's or any Bank's or any transferee's or assignee's, excluding a participation holder's (any such entity a "Transferee") net income and franchise taxes imposed on the Agent, the Floor Plan Agent, the Swing Line Bank or any Bank (or Transferee) by the United States or any jurisdiction under the laws of which it is organized or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Banks (or any Transferee), the Agent, the Floor Plan Agent or the Swing Line Bank (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 5.14) such Bank (or Transferee) or the Agent, the Floor Plan Agent or the Swing Line Bank (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant taxing authority or other governmental authority in accordance with applicable law. (b) In addition, the Borrowers agree to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with 47 48 respect to, this Agreement or any other Loan Document which are not excluded under Section 5.14(a) (hereinafter referred to as "Other Taxes"). (c) The Borrowers will indemnify each Bank (or Transferee), the Swing Line Bank, the Agent and/or the Floor Plan Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 5.14) paid by such Bank (or Transferee), the Swing Line Bank, the Agent and/or the Floor Plan Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other Governmental Authority. Such indemnification shall be made within thirty (30) days after the date any such Person indemnified hereunder makes written demand therefor, such demand to contain a certificate setting forth the calculations (including all assumptions and the basis therefor) to establish the amount for which indemnity is claimed. If a Bank (or Transferee), the Agent, the Swing Line Bank, and/or the Floor Plan Agent shall become aware that it is entitled to receive a refund in respect of Taxes or Other Taxes, it shall promptly notify the Company of the availability of such refund and shall, within thirty (30) days after receipt of a request by the Borrowers, apply for such refund at the Company's expense. If any Bank (or Transferee), the Swing Line Bank, the Agent and/or the Floor Plan Agent receives a refund in respect of any Taxes or Other Taxes for which such Person has received payment from any of the Borrowers, it shall promptly notify the Company of such refund and shall, within thirty (30) days after receipt of a request by any of the Borrowers (or promptly upon receipt, if any of the Borrowers has requested application for such refund pursuant hereto), repay such refund to the Company, net of all out-of-pocket expenses of such Person and without interest; provided that the Borrowers, upon the request of such Person, agree to return such refund (plus penalties, interest or other charges) to such Person in the event such Person is required to repay such refund. (d) Within thirty (30) days after the date of any payment of Taxes or Other Taxes withheld by the Borrowers in respect of any payment to any Bank (or Transferee) the Swing Line Bank, the Agent, and/or the Floor Plan Agent, the Borrowers will furnish to such Person, at its address referred to in Section 13.1, the original or a certified copy of a receipt evidencing payment thereof to the extent available. (e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 5.14 shall survive the payment in full of the principal of and interest on all Loans made hereunder. (f) The Agent, the Floor Plan Agent, each Bank, the Swing Line Bank and each Transferee each represents that is either (i) a corporation organized under the laws of the United States of America or any state thereof or (ii) it is entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made to it pursuant to this Agreement (y) under an applicable provision of a tax convention to which the United States of America is a party or (z) because it is acting through a branch, agency or office in the United States of America and any payment to be received by it hereunder is effectively connected with a trade or business in the United States of America. Each Bank (or Transferee) which is organized outside the United States shall, on the date it becomes a signatory hereto, deliver to the Company such certificates, documents or other evidence, as required by the Code or Treasury 48 49 Regulations issued pursuant thereto, including Internal Revenue Service Form 1001 or Form 4224 and any other certificate or statement of exemption required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Bank (or Transferee) establishing such payments to it are (i) not subject to withholding under the Code because such payment is effectively connected with the conduct by such Bank (or Transferee) of a trade or business in the United States or (ii) totally exempt from United States tax under a provision of an applicable tax treaty. Unless the Company and the Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under the Notes are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrowers, the Agent, the Swing Line Bank and/or the Floor Plan Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Bank (or Transferee) or assignee organized under the laws of a jurisdiction outside the United States. (g) The Borrowers shall not be required to pay any additional amounts to any Bank (or Transferee) in respect of United States withholding tax pursuant to paragraph (a) or (c) above if the obligation to pay such additional amounts would not have arisen but for the failure of the representation in Section 5.14(f) to be true or a failure by such Bank (or Transferee) to comply with the provisions of paragraph (f) above unless such failure results from (i) a change in applicable law, regulation or official interpretation thereof or (ii) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the Closing Date (and, in the case of a Transferee, after the date of assignment or transfer). (h) Any Bank (or Transferee) claiming any additional amounts payable pursuant to this Section 5.14 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Company or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole determination of such Bank, be otherwise disadvantageous to such Bank (or Transferee). (i) If any Bank (or Transferee) requests compensation pursuant to this Section 5.14, the Company may give notice to such Bank (with a copy to the Agent) that they wish to seek one or more Eligible Assignees (which may be one or more of the Banks) to assume the Commitments of such Bank and to purchase its outstanding Loans and Note. Each Bank (or Transferee) requesting compensation pursuant to this Section 5.14 hereto agrees to sell all of its Commitments, its Loans and its Note pursuant to Section 13.3 to any such Eligible Assignee for an amount equal to the sum of the outstanding unpaid principal of and accrued interest on such Loans and Note plus all Commitment Fees and other fees and amounts due such Bank (or Transferee) hereunder calculated, in each case, to the date such Commitment, Loans and Note are purchased, whereupon such Bank (or Transferee) shall thereafter have no other Commitments or other obligation to the Floor Plan Borrowers hereunder or under any Note. SECTION 5.15 Conversion and Continuation of Acquisition Loan Borrowings and Floor Plan Borrowings. 49 50 (a) The Company shall have the right with respect to Acquisition Loan Borrowings, on behalf of any Borrower, at any time upon prior irrevocable notice to the Agent (a) not later than 10:00 A.M., HOUSTON, TEXAS TIME, on the date of conversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 11:00 A.M., HOUSTON, TEXAS TIME, three Business Days prior to conversion or continuation, to convert all or any portion of any ABR Borrowing into a Eurodollar Borrowing or to continue all or any portion of any Eurodollar Borrowing of any Borrower as a Eurodollar Borrowing for an additional Interest Period, and (c) not later than 11:00 A.M., HOUSTON, TEXAS TIME, three Business Days prior to conversion, to convert all or any portion of the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Banks, in accordance with the respective principal amounts of the Acquisition Loans comprising the converted or continued Acquisition Loan Borrowing; (ii) if less than all the outstanding principal amount of any such Acquisition Loan Borrowing shall be converted or continued, the aggregate principal amount of such Acquisition Loan Borrowing converted or continued shall be an integral multiple of One Million Dollars ($1,000,000) and not less than One Million Dollars ($1,000,000); (iii) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Company shall pay, upon demand, any amounts due, if any, to the Banks under Section 5.10; (iv) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (v) any portion of a Eurodollar Borrowing which cannot be converted into or continued as a Eurodollar Borrowing by reason of clause (iv) above shall be automatically converted at the end of the Interest Period in effect for such Acquisition Loan Borrowing into an ABR Borrowing; (vi) no Interest Period may be selected for any Eurodollar Borrowing that would end later than the Maturity Date; and (vii) accrued interest on an Acquisition Loan (or portion thereof) being converted or continued shall be paid by the Company at the time of conversion or continuation. Each notice pursuant to this Section 5.15(a) shall be irrevocable and shall refer to this Agreement and specify (w) the identity and amount of the Acquisition Loan Borrowing that the Company requests to be converted or continued, (x) whether such Acquisition Loan Borrowing is to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing, (y) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (z) if such Acquisition Loan Borrowing is to be converted to or continued as a Eurodollar Borrowing, the 50 51 Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Company shall be deemed to have selected an Interest Period of one (1) month's duration. The Agent shall promptly advise the other Banks of any notice given pursuant to this Section 5.15(a) and of each Bank's Pro Rata Share of any converted or continued Borrowing. If the Company shall not have given written notice in accordance with this Section 5.15(a) to continue any Eurodollar Borrowing into a subsequent Interest Period (and shall not otherwise have given written notice in accordance with this Section 5.15(a) to convert such Acquisition Loan Borrowing), such Acquisition Loan Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be converted into as an ABR Borrowing. (b) The Company shall have the right with respect to Floor Plan Loan Borrowings, on behalf of any Floor Plan Borrower, at any time upon prior irrevocable notice to the Agent (a) not later than 10:00 A.M., HOUSTON, TEXAS TIME, on the date of conversion, to convert any Eurodollar Borrowing into a Comerica Prime Rate Borrowing, (b) not later than 11:00 A.M., HOUSTON, TEXAS TIME, three Business Days prior to conversion or continuation, to convert all or any portion of any Comerica Prime Rate Borrowing into a Eurodollar Borrowing or to continue all or any portion of any Eurodollar Borrowing of any Floor Plan Borrower as a Eurodollar Borrowing for an additional Interest Period, and (c) not later than 11:00 A.M., HOUSTON, TEXAS TIME, three Business Days prior to conversion, to convert all or any portion of the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Banks, in accordance with the respective principal amounts of the Floor Plan Loans comprising the converted or continued Floor Plan Loan Borrowing; (ii) if less than all the outstanding principal amount of any such Floor Plan Loan Borrowing shall be converted or continued, the aggregate principal amount of such Floor Plan Loan Borrowing converted or continued shall be an integral multiple of One Million Dollars ($1,000,000) and not less than One Million Dollars ($1,000,000); (iii) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Company shall pay, upon demand, any amounts due, if any, to the Banks under Section 5.10; (iv) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (v) any portion of a Eurodollar Borrowing which cannot be converted into or continued as a Eurodollar Borrowing by reason of clause (iv) above shall be automatically converted at the end of the Interest Period in effect for such Floor Plan Loan Borrowing into a Comerica Prime Rate Borrowing; (vi) no Interest Period may be selected for any Eurodollar Borrowing that would end later than the Maturity Date; and 51 52 (vii) accrued interest on an Floor Plan Loan (or portion thereof) being converted or continued shall be paid by the Company at the time of conversion or continuation. Each notice pursuant to this Section 5.15(b) shall be irrevocable and shall refer to this Agreement and specify (w) the identity and amount of the Floor Plan Loan Borrowing that the Company requests to be converted or continued, (x) whether such Floor Plan Loan Borrowing is to be converted to or continued as a Eurodollar Borrowing or a Comerica Prime Rate Borrowing, (y) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (z) if such Floor Plan Loan Borrowing is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Company shall be deemed to have selected an Interest Period of one (1) month's duration. The Agent shall promptly advise the other Banks of any notice given pursuant to this Section 5.15(b) and of each Bank's Pro Rata Share of any converted or continued Borrowing. If the Company shall not have given written notice in accordance with this Section 5.15(b) to continue any Eurodollar Borrowing into a subsequent Interest Period (and shall not otherwise have given written notice in accordance with this Section 5.15(b) to convert such Floor Plan Loan Borrowing), such Floor Plan Loan Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be converted into a Comerica Prime Rate Borrowing. SECTION 5.16 Extension of Maturity Date. (a) Provided that no Default or Event of Default has occurred and is continuing, the Company may, by written notice to Agent (with sufficient copies for each Bank) (which notice shall be irrevocable and which shall not be deemed effective unless actually received by Agent) prior to November 1, but not before October 1, of each fiscal year, request that the Banks extend the then applicable Maturity Date to a date that is one year later than the Maturity Date, then in effect (each such request, a "Request"). Each Bank shall, not later than November 30th of such fiscal year, give written notice to the Agent stating whether such Bank is willing to extend the Maturity Date as requested. If Agent has received the aforesaid written approvals of such Request from each of the Banks, then, effective upon the date of Agent's receipt of all such written approvals from the Banks, as aforesaid, the Maturity Date shall be so extended for an additional one year period, the term Maturity Date shall mean such extended date and Agent shall promptly notify the Company that such extension has occurred. (b) If (i) any Bank gives the Agent written notice that it is unwilling to extend the Maturity Date as requested or (ii) any Bank fails to provide written approval to Agent of such a Request on or before November 30th of such fiscal year, the (w) the Banks shall be deemed to have declined to extend the Maturity Date, (x) the then- current Maturity Date shall remain in effect (with no further right on the part of the Company to request extensions thereof under this Section 2.9), and (y) the commitments of the Banks to make Floor Plan Loans or Acquisition Loans hereunder shall terminate on the Maturity Date then in effect, the Floor Plan Agent shall take such action as necessary to terminate and suspend all Drafting Agreements effective ten (10) days prior to the Maturity Date then in effect, and Agent shall promptly notify Company thereof. 52 53 ARTICLE VI LETTERS OF CREDIT SECTION 6.1 (a) On the terms and conditions set forth herein (i) the Issuing Bank agrees from time to time on any Business Day during the period from the Closing Date to the last Business Day thirty (30) days prior to the Maturity Date (the "Letter of Credit Termination Date") to issue Letters of Credit for the account of any Borrower, and to amend or renew Letters of Credit previously issued by it, in accordance with Section 6.2; and (ii) the Banks severally agree to participate in Letters of Credit Issued for the account of the Borrowers; provided, that the Issuing Bank shall not be obligated to Issue, and no Bank shall be obligated to participate in, any Letter of Credit if, as of the date of request of such Letter of Credit, after giving effect to the maximum amount payable under such Letter of Credit, (y) the aggregate principal amount of all Letter of Credit Obligations outstanding shall at any time exceed Five Million Dollars ($5,000,000) or (z) the aggregate principal amount of Acquisition Loans outstanding plus the Letter of Credit Obligations outstanding as of such day shall exceed the Acquisition Loan Commitment; further, the aggregate principal amount of all Letter of Credit Obligations outstanding, plus the aggregate principal amount of all Acquisition Loans outstanding, plus the aggregate principal amount of all Swing Line Loans outstanding plus the aggregate principal amount of all Floor Plan Loans outstanding shall not at any time exceed the Total Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the ability of the Borrowers to obtain Letters of Credit shall be fully revolving, and, accordingly, the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Issuing Bank is under no obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit Issuing Bank, or request that the Issuing Bank refrain, from the Issuance of Letters of Credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Bank in good faith deems material to it; (ii) the Issuing Bank has received written notice from any Bank, the Agent or any Borrower, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article VIII is not then satisfied; (iii) the expiration date of any requested Letter of Credit is more than one (1) year from the date of Issuance thereof or after the Maturity Date; (iv) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Bank, or the Issuance of a Letter of Credit is for an amount less than One Hundred Thousand Dollars ($100,000) or to be denominated in a currency other than U.S. Dollars. 53 54 SECTION 6.2 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter of Credit shall be issued upon the irrevocable written request of the Company received by the Issuing Bank (with a copy sent by the Company to the Agent) at least three (3) days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of Issuance. Each such request for Issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of a Letter of Credit Application, and shall specify in form and detail satisfactory to the Issuing Bank such matters as the Issuing Bank may require. Each Letter of Credit (i) will be for the account of such Borrower, (ii) will be a (A) nontransferable standby letter of credit to support certain performance obligations of such Borrower, or (B) non-transferable standby letter of credit to support certain payment obligations of such Borrower that are not prohibited by this Agreement, (iii) will be for purposes reasonably satisfactory to the Issuing Bank and (iv) will contain such terms and provisions as may be customarily required by the Issuing Bank. (b) Prior to the Issuance of any Letter of Credit, the Issuing Bank will confirm with the Agent (by telephone or in writing) that the Agent has received a copy of the Letter of Credit Application or Letter of Credit Amendment Application from any Borrower and, if not, the Issuing Bank will provide the Agent with a copy thereof. Unless the Issuing Bank has received notice prior to its Issuance of a requested Letter of Credit from the Agent (i) directing the Issuing Bank not to Issue such Letter of Credit because such Issuance is not then permitted under this Section 6.2, or (ii) that one or more conditions specified in Article VIII are not then satisfied or waived; then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, Issue a Letter of Credit for the account of such Borrower in accordance with the Issuing Bank's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Letter of Credit Termination Date, the Issuing Bank will, upon the written request of any Borrower received by the Issuing Bank (with a copy sent by the Borrower to the Agent) at least three (3) days (or such shorter time as the Issuing Bank may agree in particular instance in its sole discretion) prior to the proposed date of amendment or extension, amend any Letter of Credit Issued by it or extend the expiry date. Each such request for amendment or extension of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, made in such form as the Issuing Bank shall require. The Issuing Bank shall be under no obligation to amend or extend the expiry date any Letter of Credit if: (i) the Issuing Bank would have no obligation at such time to Issue such Letter of Credit in its amended form under the terms of this Agreement; or (ii) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. (d) Upon receipt of notice from the Issuing Bank, the Agent will promptly notify the Banks of the Issuance of a Letter of Credit and any amendment or extension thereto. (e) If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed, the Issuing Bank shall be permitted to allow such Letter of Credit to renew, and the Borrowers and the Banks hereby authorize such renewal. The Issuing Bank 54 55 shall not be obligated to allow such Letter of Credit to renew if the Issuing Bank would have no obligation at such time to Issue or amend such Letter of Credit under the terms of this Agreement. (f) The Issuing Bank may, at its election (or as required by the Agent at the direction of the Required Banks), deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiration date of any Letter of Credit to be a date not later than the Maturity Date. (g) This Agreement shall control in the event of any conflict with any Letter of Credit- Related Document. (h) The Issuing Bank will also deliver to the Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment or extension to a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit, amendment, or extension to a Letter of Credit. SECTION 6.3 Risk Participations, Drawings and Reimbursements. (a) Immediately upon the Issuance of each Letter of Credit, each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Pro Rata Share of such Bank, and (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing respectively. Each Issuance of a Letter of Credit shall be deemed to utilize the Acquisition Loan Commitment of each Bank by an amount equal to the amount of such participation. (b) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly notify the Company. In the case of Letters of Credit under which drawings are payable one or more Business Days after the drawing is made, the Issuing Bank will give such notice to the Company at least one Business Day prior to the Honor Date. The Company shall reimburse the Issuing Bank prior to 11:00 A.M., HOUSTON, TEXAS TIME, on each date that any amount is paid by the Issuing Bank under any Letter of Credit (each such date, an "Honor Date") in an amount equal to the amount so paid by the Issuing Bank. In the event the Company fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 11:00 A.M., HOUSTON, TEXAS TIME, on the Honor Date, the Issuing Bank will promptly notify the Agent and the Agent will promptly notify each Bank thereof, and the Company shall be deemed to have requested an Alternate Base Rate Loan be made by the Banks to be disbursed on the Honor Date under such Letter of Credit, subject to the amount of the unutilized portion of the Acquisition Loan Commitment and subject to the conditions set forth in Article VIII. Any notice given by the Issuing Bank or the Agent pursuant to this Section 6.3(b) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (c) Each Bank shall upon any notice pursuant to Section 6.3(b) make available to the Agent for the account of the Issuing Bank an amount in Dollars and in immediately available 55 56 funds equal to its Pro Rata Share of the amount of the drawing, whereupon the participating Banks shall each be deemed to have made an Acquisition Loan consisting of an Alternate Base Rate Loan to the applicable Borrower in that amount. If any Bank so notified fails to make available to the Agent for the account of the Issuing Bank the amount of such Bank's Pro Rata Share of the amount of the drawing by no later than 12:00 NOON, HOUSTON, TEXAS TIME, on the Honor Date, then interest shall accrue on such Bank's obligation to make such payment, from the Honor Date to the date such Bank makes such payment, at the rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Agent will promptly give notice to each Bank of the occurrence of the Honor Date, but failure of the Agent to give any such notice on the Honor Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligations under this Section 6.3. (d) With respect to any unreimbursed drawing that is not converted into an Alternate Base Rate Loan to the Company in whole or in part, because of failure of the Company to satisfy the conditions set forth in Article VIII or for any other reason, the Company shall be deemed to have incurred from the Issuing Bank a Letter of Credit Borrowing in the amount of such drawing, which Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Alternate Base Rate plus two percent (2%) per annum, and each Bank's payment to the Issuing Bank pursuant to Section 6.3(b) shall be deemed payment in respect of its participation in such Letter of Credit Borrowing and shall constitute a Letter of Credit Advance from such Bank in satisfaction of its participation obligation under this Section 6.3. (e) Each Bank's obligation in accordance with this Agreement to make Acquisition Loans or Letter of Credit Advances, as contemplated by this Section 6.3, as a result of a drawing under the Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Bank and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Issuing Bank, any Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default, an Event of Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided, however, that each Bank's obligation to make Acquisition Loans under this Section 6.3 is subject to the conditions set forth in Article VIII. SECTION 6.4 Repayment of Participation. (a) When the Agent receives (and only if the Agent receives), for the account of the Issuing Bank, immediately available funds from the Borrowers (i) in respect of which any Bank has paid the Agent for the account of the Issuing Bank for such Bank's participation in the Letter of Credit Advance pursuant to Section 6.3 or (ii) in payment of interest thereon, the Agent will pay to each Bank, in the same funds as those received by the Agent for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share of such funds and the Issuing Bank shall receive and retain the amount of the Pro Rata Share of such funds of any Bank that did not so pay the Agent for the account of the Issuing Bank. 56 57 (b) If the Agent or the Issuing Bank is required at any time to return to the Borrowers or to a trustee, receiver, liquidator, custodian, or any official in an Insolvency Proceeding, any portion of the payments made by the Borrowers to the Agent for the account of the Issuing Bank pursuant to Section 6.4(a) in reimbursement of a payment made under the Letter of Credit Advance or interest thereon, each Bank shall, on demand of the Agent, forthwith return to the Agent or the Issuing Bank the amount of its Pro Rata Share of any amounts so returned by the Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. SECTION 6.5 Role of the Issuing Bank. (a) Each Bank and each Borrower agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft, certificates and other documents, if any, expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) Neither the Issuing Bank nor any of its correspondents, participants or assignees shall be liable to any Bank for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Banks (including the Required Banks, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any Letter of Credit-Related Document. (c) The Borrowers hereby assume all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude any Borrower from pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement or assume risks or losses arising out of the gross negligence, bad faith or wilful misconduct of the Issuing Bank. Neither the Issuing Bank, nor any correspondents, participants or assignees of the Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 6.6; provided, however, that any Borrower may have a claim against the Issuing Bank, and the Issuing Bank may be liable to such Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered or incurred by such Borrower(s) which are caused by the Issuing Bank's willful misconduct or gross negligence (i) in failing to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft, certificate(s) and any other documents, if any, strictly complying with the terms and conditions of such Letter of Credit, (ii) in its paying under a Letter of Credit against presentation of a sight draft, certificate(s) or other documents not complying with the terms of such Letter of Credit or (iii) its failure to comply with the obligations imposed upon it, as an issuing bank, under applicable state law; provided, however, that (y) the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and (z) the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, provided that any such instrument appears on its face to be in order. 57 58 SECTION 6.6 Obligations Absolute. The Obligations of the Borrowers under this Agreement and any Letter of Credit-Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to repay any Letter of Credit Borrowing and any drawing under a Letter of Credit converted into an Acquisition Loan, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other Letter of Credit-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any Letter of Credit-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of any Borrower in respect of any Letter of Credit, (iii) the existence of any claim, set-off, defense or other right that any Borrower may have at any time against any beneficiary or any such transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the Letter of Credit-Related Documents or any unrelated transaction other than the defense of payment or claims arising out of the gross negligence, bad faith or wilful misconduct of the Floor Plan Agent or the Swing Line Bank; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Issuing Bank under any Letter of Credit to any trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of a successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any Collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the Obligations of any Borrower in respect of any Letter of Credit; or (vii) any other circumstance that might otherwise constitute a defense available to, or discharge of, any Borrower. SECTION 6.7 Letter of Credit Fees. (a) Letter of Credit Fees. The Company shall pay to the Agent for the account of each of the Banks a letter of credit fee (the "Letter of Credit Fees") with respect to outstanding Letters of Credit equal to the Applicable Margin for Eurodollar Loans which are Acquisition Loans by the average daily maximum amount available to be drawn on such outstanding Letters of Credit. (b) Fronting Fees. The Company shall pay to the Issuing Bank for its own account a letter of credit fronting fee (the "Fronting Fees") for each Letter of Credit Issued by the Issuing Bank equal to one hundred twenty-five-one-thousandths percent (0.125%) per annum multiplied by the average daily maximum amount available to be drawn on such outstanding Letters of Credit. (c) Calculation of Fees. The Letter of Credit Fees and the Fronting Fees each shall be computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon Letters of Credit outstanding for that quarter as calculated by the Agent (computed on the basis of the actual number of days elapsed over a year of 360 days). Such fees shall be due and 58 59 payable quarterly in arrears on the last Business Day of each calendar quarter during which Letters of Credit are outstanding, commencing on the first such quarterly date to occur after the Closing Date, through the Maturity Date, with the final payment to be made on the Maturity Date. (d) Other. The Company shall pay to the Issuing Bank from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges of the Issuing Bank relating to Letters of Credit as from time to time in effect. SECTION 6.8 Cash Collateralization. (a) If any Event of Default shall occur and be continuing, or the Acquisition Loan Commitment is terminated or reduced to an amount insufficient to fund the outstanding Letter of Credit Obligations, the Company agrees that it shall on the Business Day it receives notice from the Agent, acting upon instructions of the Required Banks, deposit in an account (the "Cash Collateral Account") held by the Agent, for the benefits of the Banks, an amount of cash equal to the Letter of Credit Obligations as of such date. Such deposit shall be held by the Agent as Collateral for the payment and performance of the Obligations. The Agent shall have exclusive dominion and control, including exclusive right of withdrawal, over such account. Cash Collateral shall be held in a blocked, interest- bearing account held by the Agent upon such terms and in such type of account as customary at the depository institution. The Company shall pay any fees charged by the Agent which fees are of the type customarily charged by such institution with respect to such accounts. Moneys in such account shall (i) be applied by the Agent to the payment of Letter of Credit Borrowings and interest thereon, (ii) be held for the satisfaction of the reimbursement Obligations of the Borrowers in respect of Letters of Credit, and (iii) in the event the maturity of the Loans has been accelerated, with the consent of the Required Banks, be applied to satisfy the Obligations. If the Company shall provide Cash Collateral under this Section 6.08(a) or shall prepay any Letter of Credit and thereafter either (i) drafts or other demands for payment complying with the terms of such Letters of Credit are not made prior to the respective expiration dates thereof, or (ii) such Event of Default shall have been waived or cured, then the Agent, the Floor Plan Agent, the Swing Line Bank and the Banks agree that the Agent is hereby authorized, without further action by any other Person, to release the Lien in such cash and will direct the Agent to remit to the Company amounts for which the contingent obligations evidenced by such Letters of Credit have ceased. (b) As security for the payment of all Obligations, each Borrower hereby grants, conveys, assigns, pledges, sets over and transfers to the Agent, and creates in the Agent's favor a Lien on, and security interest in, all money, instruments and securities at any time held in or acquired in connection with the Cash Collateral Account, together with all proceeds thereof. At any time and from time to time, upon the Agent's request, each Borrower promptly shall execute and deliver any and all such further instruments and documents as may be reasonably necessary, appropriate or desirable in the Agent's judgment to obtain the full benefits (including perfection and priority) of the security interest created or intended to be created by this Section 6.8(b) and of the rights and powers herein granted. 59 60 ARTICLE VII REPRESENTATIONS AND WARRANTIES The Company, as to itself and as to all of the other Borrowers and each of the Borrowers other than the Company, as to itself and its Subsidiaries only, represent and warrant to the Agent, the Floor Plan Agent, the Swing Line Bank and the Banks as follows: SECTION 7.1 Organization; Corporate Powers. The Company and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the state of its respective incorporation or organization, has the requisite power and authority, governmental licenses, consents and approvals to own its property and assets and to carry on its business as now conducted and is qualified to do business in every jurisdiction where such qualification is required and is in compliance with all Requirements of Law except where the failure to so qualify or comply could not reasonably be expected to have a Material Adverse Effect. Each Borrower and each of their Subsidiaries has the corporate power to execute, deliver and perform its Obligations under this Agreement and the other Loan Documents to which it is a party, to borrow hereunder and to execute and deliver the Notes and the Swing Ling Note. SECTION 7.2 Authorization. The execution, delivery and performance of this Agreement and the Loan Documents, the Borrowings hereunder, and the execution and delivery of the Notes and the Swing Line Note by the Borrowers, the issuance of Letters of Credit and Drafting Agreements hereunder and the use of the proceeds of the Borrowings (a) have been duly authorized by all requisite corporate and, if required, stockholder action on the part of the Company and each Subsidiary and (b) will not (i) violate (A) any provision of law, statute, rule or regulation or the certificate of incorporation or the bylaws of the Company or any Subsidiary, (B) any order of any court, or any rule, regulation or order of any other agency of government binding upon the Company or any Subsidiary or (C) any provisions of any indenture, agreement or other instrument to which the Company or any of its Subsidiaries is a party, or by which the Company or any Subsidiary or any of their respective properties or assets are or may be bound (other than with respect to the granting or filing of Liens in favor of the Agent for the benefit of the Banks on Collateral owned by SMC Luxury Cars, Inc. and Southwest Toyota Inc, respectively, in which Toyota Motor Credit Corporation has a first priority Lien and has not consented in writing to the granting or filing by the Agent of a Lien on such Collateral) which violation could reasonably be expected to have a Material Adverse Effect, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in (b)(i)(C) above which violation could reasonably be expected to have a Material Adverse Effect or (iii) result in the creation or imposition of any Lien whatsoever upon any property or assets of the Company or any of its Subsidiaries. SECTION 7.3 Governmental Approval. No registration with, or consent or approval of, or other action by, any federal, state or other Governmental Authority is or will be required in connection with the execution, delivery and performance of this Agreement, any other Loan Document, the execution and delivery of the Notes and the Swing Line Note or repayment of the Borrowings hereunder. 60 61 SECTION 7.4 Enforceability. This Agreement and each of the Loan Documents have been duly executed and delivered by each of the Borrowers and each of their Subsidiaries which is a party thereto and constitute legal, valid and binding obligations of the Borrowers and such Subsidiaries, and the Notes, and the Swing Line Note, when duly executed and delivered by each applicable Borrower, will constitute legal, valid and binding Obligations of such Borrower(s), in each case enforceable in accordance with their respective terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally and general principles of equity). SECTION 7.5 Financial Statements. (a) The audited consolidated financial statements of the Company and each of its Subsidiaries, as at December 31, 1996, copies of which have been furnished to the Banks, have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year, and present fairly the financial condition of the Company and each of its Subsidiaries, as at such date and the consolidated results of the operations of the Company and each of its Subsidiaries for the period then ended. (b) The Form S-1 of the Company dated October 29, 1997, copies of which have been furnished to the Banks, have been prepared in accordance with all applicable rules, regulations and guidelines of the Securities and Exchange Commission and present fairly the financial condition of the Company and each of its Subsidiaries, as at such dates and the results of their operations for the periods then ended, subject to year-end audit adjustments. SECTION 7.6 No Material Adverse Change. There has been no material adverse change in the businesses, assets, operations, prospects or condition, financial or otherwise, as determined on a consolidated basis, of the Company or any of its Subsidiaries, since December 31, 1996. SECTION 7.7 Title to Properties; Security Documents. (a) Each Borrower and each of their respective Subsidiaries has good and marketable title to, or valid leasehold interests in, all its properties and assets, including, without limitation, those properties and assets which constitute real property as specified in Schedule IV (which Schedule specifies the owner of, current leases (if any) of, and general description of each individual property or asset listed therein), except for (i) such properties as are no longer used or useful in the conduct of its business or as have been disposed of in the ordinary course of business, (ii) Liens permitted by Section 7.16 and Section 10.2, and (iii) minor defects in title that do not interfere with the ability of such Borrower or such Subsidiary to conduct its business as now conducted. (b) The Security Documents contain descriptions of the Collateral sufficient to grant to the Agent for the benefit of Banks, perfected Liens therein pursuant to applicable law and the terms, provisions and conditions of this Agreement. 61 62 SECTION 7.8 Litigation; Compliance with Laws; Etc. (a) There are no actions, suits or proceedings, except as specified in Schedule V, at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of any of the Borrowers or any of their respective Subsidiaries, threatened against or affecting any of the Borrowers or any of their respective Subsidiaries or the business, assets or rights of any of the Borrowers or any of their respective Subsidiaries as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, could, individually or in the aggregate, reasonably to be expected to have a Material Adverse Effect. (b) None of the Borrowers and none of their respective Subsidiaries is (i) in violation of any law, the breach or consequence of which could reasonably be expected to have a Material Adverse Effect and to the best knowledge of the Company and its Subsidiaries after due investigation, the Company and each of its Subsidiaries are in material compliance with all statutes and governmental rules and regulations applicable to them, or (ii) in default under any material order, writ, injunction, award or decree of any Governmental Authority binding upon it or its assets or any material indenture, mortgage, contract, agreement or other undertaking or instrument to which it is a party or by which any of its properties may be bound, (other than with respect to the granting or filing of Liens in favor of the Agent for the benefit of the Banks on Collateral owned by SMC Luxury Cars, Inc. and Southwest Toyota, Inc., respectively, in which Toyota Motor Credit Corporation has a first priority Lien and has not consented in writing to the granting or filing by the Agent of a Lien on such Collateral) which default could reasonably be expected to have a Material Adverse Effect, and nothing has occurred which would materially and adversely affect the ability of any Borrower to carry on its business as now conducted or perform its obligations under any such order, writ, injunction, award or decree or any such material indenture, mortgage, contract, agreement or other undertaking or instrument. SECTION 7.9 Agreements; No Default. (a) None of the Borrowers and none of their respective Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction reasonably to be expected to have a Material Adverse Effect. (b) No Event of Default has occurred and is continuing. SECTION 7.10 Federal Reserve Regulations. (a) Neither the Company nor any of its Subsidiaries is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (b) No part of the proceeds of the Loans will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or carry Margin Stock or to extend credit to others for the purpose of purchasing or carrying Margin Stock or to refund 62 63 indebtedness originally incurred for such purpose, or (ii) for any purpose which entails a violation of, or which is inconsistent with, the provisions of the Regulations of the Board, including Regulations G, T, U or X; provided, however, the Company may acquire Margin Stock if, upon the acquisition of such Margin Stock, twenty-five percent (25%) or less of the Company's total assets subject to the restrictions set forth in Section 10.1 would then be composed of Margin Stock, and the Company shall furnish to the Agent upon its request, a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U. SECTION 7.11 Taxes. The Company and each of its Subsidiaries has filed all tax returns which are required to have been filed and has paid, or made adequate provisions for the payment of, all of its taxes which are due and payable, except such taxes, if any, as are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by generally accepted accounting principles have been maintained. Neither the Company nor any of its Subsidiaries is aware of any proposed assessment against it for additional taxes (or any basis for any such assessment) which might be material to the Company or such Subsidiary. SECTION 7.12 Pension and Welfare Plans. Each Plan complies in all respects with all applicable statutes and governmental rules and regulations except where the failure to comply could not reasonably be expected to have a Material Adverse Effect, and: (a) no Reportable Event has occurred and is continuing with respect to any Plan, (b) since December 31, 1996, neither the Company nor any ERISA Affiliate has withdrawn from any Plan or instituted steps to do so, except as listed on Schedule VI and (c) since December 31, 1996, no steps have been instituted to terminate any Plan, except as listed on Schedule VI. No condition exists or event or transaction has occurred in connection with any Plan which could result in the incurrence by the Company or any ERISA Affiliate of any liability, fine or penalty which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any ERISA Affiliate is a member of, or contributes to, any multiple employer Plan as described in Section 4064 of ERISA. None of the Borrowers has any contingent liability with respect to any post-retirement "welfare benefit plans," as such term is defined in ERISA. SECTION 7.13 No Material Misstatements. Neither this Agreement, the other Loan Documents, the Confidential Information Memorandum nor any other document delivered by or on behalf of the Company or any Subsidiary in connection with any Loan Document or included therein contained or contains any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. SECTION 7.14 Investment Company Act; Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries is an "investment company" or company "controlled" by an investment company as defined in, or subject to regulation under, the Investment Company Act of 1940. Neither the Company nor any of its Subsidiaries is a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. 63 64 SECTION 7.15 Maintenance of Insurance. The Company and each of its Subsidiaries agree to maintain insurance to such extent and against such hazards and liabilities as is commonly maintained by companies similarly situated. SECTION 7.16 Existing Liens. None of the assets of the Company or any Subsidiary is subject to any Lien, except: (a) Liens for current taxes not delinquent or taxes being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by generally accepted accounting principles are being maintained; (b) carriers', warehousemen's, mechanics', materialmen's and other like statutory Liens arising in the ordinary course of business securing obligations which are not overdue for a period of more than ninety (90) days or which are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by generally accepted accounting principles are being maintained; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, and other obligations of a like nature incurred in the ordinary course of business, and Liens securing reimbursement obligations created by open letters of credit for the purchase of inventory; (e) Liens granted by a Subsidiary of the Company to secure such Subsidiary's Indebtedness to the Company or to any other Subsidiary of the Company; (f) Liens, if any, disclosed in the financial statements referred to in Section 7.5; and (g) Liens listed on Schedule VII as permitted by Section 10.2. SECTION 7.17 Environmental Matters. Each Borrower has complied in all respects with all applicable federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental regulation or control except where the failure to comply could not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has received notice of any failure so to comply which alone or together with any other such failure could reasonably be expected to have a Material Adverse Effect. Neither the Company, any of its Subsidiaries nor any of its facilities manages any hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants, as those terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act or the Clean Water Act, in violation of any regulations promulgated pursuant thereto or in any other applicable law where such violation could 64 65 reasonably be expected to have, individually or together with other violations, a Material Adverse Effect. SECTION 7.18 Subsidiaries. As of the Closing Date, the Company has no Subsidiaries, and no Subsidiary has a Subsidiary other than those specifically disclosed in part (a) of Schedule VIII, and neither the Company nor any Subsidiary has any equity investments in any other corporation or entity other than those specifically disclosed in part (b) of Schedule VIII. The state of incorporation, address, principal place of business and a list of other business locations for each Subsidiary is specified in part (a) of Schedule VIII. The Company and/or each of its Subsidiaries is the owner, directly or indirectly, free and clear of all Liens (except for Liens in favor of the Agent and the Banks and transfer restrictions contained in the Dealer Franchise Agreements), of all of the issued and outstanding voting stock of each Subsidiary disclosed on Schedule VIII (except where ownership of less than one hundred percent (100%) is indicated on Schedule VIII). All shares of such stock have been validly issued and are fully paid and nonassessable, and no rights to subscribe to additional shares have been granted or exist. SECTION 7.19 Engaged in Motor Vehicle Sales. The Floor Plan Borrowers are engaged in the business of selling new and/or Used Motor Vehicles; all such Motor Vehicles consist solely of goods held by the Borrowers for sale; no sales or other transactions involving such Motor Vehicles are and will not become subject to set-off, counterclaim, defense, allowance, or adjustment (other than warranty claims, the aggregate amount of which shall not be material); except as set forth in Schedule VII, as of the Closing Date, there is no financing statement, or similar statement or instrument of registration under the laws of any jurisdiction, covering or purporting to cover any interest of any kind in all such Motor Vehicles or their proceeds on file or registered in any public office other than a financing statement in favor of the Agent for the benefit of the Banks covering all such Motor Vehicles; except as set forth in Schedule VII, as of the Closing Date, there is no other floor plan or other financing arrangement with any party other than the Agent for the benefit of the Banks with respect to all such Motor Vehicles; and except as set forth in Schedule VII, as of the Closing Date, none of the Borrowers has made any other verbal or written contract or arrangement of any kind, the performance of which by the other party thereto would give rise to a Lien against any such Motor Vehicle, or the proceeds thereof; all such Motor Vehicles are free from damage caused by fire or other casualty, unless covered by insurance, subject to customary deductibles. The locations (and addresses) set forth in Schedule IV are the locations at which the Company and its Subsidiaries keep the Motor Vehicles held as inventory, except when such Motor Vehicles may be in transit between locations, in transit for 'dealer swaps' or being test driven by potential customers. The addresses set forth in Schedule IV are each Floor Plan Borrower's place of business if such Person has only one such place of business; or a Floor Plan Borrower's chief executive office if it has more than one place of business. All of each Floor Plan Borrower's books and records with regard to all Motor Vehicles are maintained and kept at the address(es) of such Floor Plan Borrower set forth in Schedule IV. SECTION 7.20 Dealer Franchise Agreements. As of the Closing Date, none of the Borrowers is a party to any dealer franchise agreements ("Dealer Franchise Agreements") other than those specifically disclosed in Schedule IX, which schedule shows the Manufacturer and the Borrower which is a party to each such agreement, the date such agreement was entered into and the expiration date (if any) of each such agreement. Each of the Dealer Franchise Agreements is 65 66 currently in full force and effect, and no Borrower has received any notice of termination with respect to any such agreements; and, except as disclosed on Schedule IX, no Borrower is aware of any event which with notice, lapse of time, or both would allow any Manufacturer which is a party to any of the Dealer Franchise Agreements to terminate any such agreements. There exists no actual or threatened termination, cancellation, or limitation of, or any modification or change in, the business relationship between any Borrower and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of such Borrower, or with any material Manufacturer, and there exists no present condition or state of facts or circumstances which could reasonably be expected to have a Material Adverse Effect. ARTICLE VIII CONDITIONS OF LENDING SECTION 8.1 Conditions Precedent to Closing Date. The Closing Date shall be deemed to have occurred when the following conditions precedent shall have occurred and the Agent shall have received on or before such date the following, each dated (unless otherwise indicated) the Closing Date and, with respect to all such documents referred to in Section 8.1(a), Section 8.1(c), Section 8.1(d), Section 8.1(e), Section 8.1(f), Section 8.1(g), Section 8.1(h) and Section 8.1(i) in sufficient copies for each Bank: (a) A counterpart of this Agreement (to which all of the Exhibits and Schedules have been attached) executed by the Borrowers, the Agent, the Floor Plan Agent, the Swing Line Bank and the Banks. (i) (1) Notes of the Borrowers dated the Closing Date, properly executed by the Borrowers to the order of the Banks, respectively. (ii) The Swing Line Note, dated the Closing Date, properly executed by the Floor Plan Borrowers to the order of the Swing Line Bank. (b) Counterparts of each of the following: (i) a Security Agreement in the form set forth in Exhibit G; (ii) a Pledge Agreement in the form set forth in Exhibit E; (iii) Mortgages in the form set forth in Exhibit D, with respect to each parcel or tract of real property required by the Agent to be encumbered by a Lien in favor of the Agent for the benefit of the Banks; (iv) Leasehold Mortgage in the form set forth in Exhibit I, covering the same property referenced in 8.1(c)(iii); (v) Landlord Estoppel Agreements in the form set forth in Exhibit J, with respect to all real property leased by any of the Borrowers; 66 67 (vi) First Lienholder Estoppel Agreements in the form set forth in Exhibit K, with respect to all real property subject to Non-Recourse Real Estate Debt; and (vii) Any other necessary Security Documents in the form satisfactory to the Agent and its Counsel; each of which, if required by this Agreement, shall be duly executed by the parties thereto. (c) The Banks shall have received from each Borrower, a certificate dated as of the Closing Date (i) a copy of the certificate of incorporation of the Company and each of its Subsidiaries, and a certificate as to the good standing of and charter documents filed by the Company and each of its Subsidiaries from such Secretary of State; (ii) a copy of the certificate of authority to do business as a foreign corporation in each state in which the Company or such Subsidiary maintains activities which require such certification, certified by the Secretary of State of such state and a certificate as to the good standing of the Company and/or each such Subsidiary from the Comptroller or other official state official responsible for the delivery of such certification; (iii) a certificate of the Secretary or an Assistant Secretary of the Company and each of its Subsidiaries, dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of its articles and bylaws as in effect on the date of such certificate,(B) that attached thereto is a true and complete copy of resolutions or unanimous consent duly adopted by its Board of Directors authorizing the execution, delivery and performance of the Agreement, Notes, the Swing Line Note and/or Loan Documents to which it is a party, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, and (C) as to the incumbency and specimen signature of each officer of each Borrower executing this Agreement, the Notes, the Swing Line Note, any of the Loan Documents or any other document delivered in connection herewith or therewith; (iii) a certificate of another officer of each Borrower, which is a party to this Agreement, the Notes, the Swing Line Note and/or any of the Loan Documents as to the incumbency and specimen signature of the Secretary or such Assistant Secretary of such Person; and (iv) such other documents as Jackson Walker L.L.P., special counsel for the Agent, may reasonably request. (d) A certificate of a Senior Vice President, an Executive Vice President or a Vice President of each Borrower dated the Closing Date certifying (i) the truth of the representations and warranties made by such Borrower in this Agreement, and (ii) the absence of the occurrence and continuance of any Default or Event of Default. (e) The Agent shall have received the Agent's Letter duly executed by the Company. (f) The Floor Plan Agent shall have received the Floor Plan Agent's Letter duly executed by the Company. (g) The opinion of counsel to the Borrowers and any Subsidiary which signs any of the Loan Documents, dated the initial Borrowing Date, addressed to the Agent and the Banks and in the form of Exhibit L hereto. 67 68 (h) An Administrative Questionnaire completed by each Bank and, if required, the tax forms set forth in Section 5.14. (i) The fees and disbursements required to be paid by Section 13.4 on the Closing Date shall have been paid. (j) The Company shall have filed its S-1 in substantial compliance with all rules and regulations of the Securities and Exchange Commission. SECTION 8.2 Conditions Precedent to Initial Borrowing. (a) The date on which the obligation of each Bank to make the initial Acquisition Loans, or of the Issuing Bank to issue any Letter of Credit (the "Acquisition Funding Date")to the Company shall be deemed to have occurred and is subject to the conditions precedent that: (i) Each document (including, without limitation, any UCC financing statement) required by the Security Documents or under law or requested by Agent to be filed, registered or recorded in order to create, in favor of Agent, for the benefit of Banks, a perfected first Lien (subject to any Permitted Liens) on the Collateral owned by the Company shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested, and the Agent, as herein provided, shall have received an acknowledgment copy, or other evidence satisfactory to it, of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto; and (ii) Such other and further conditions shall have been fulfilled as the Agent, or its counsel shall have reasonably determined. (b) The date on which the obligation of each Bank to make the initial Floor Plan Loans or of the Swing Line Bank to make the initial Swing Line Loan, or of the Floor Plan Agent to issue any Drafting Agreement ("each, a Floor Plan Funding Date") to any Floor Plan Borrower shall be deemed to have occurred and is subject to the condition precedent that : (i) Each document (including, without limitation, any UCC financing statement) required by the Security Documents or under law or requested by Agent or the Floor Plan Agent to be filed, registered or recorded in order to create, in favor of Agent, for the benefit of Banks, a perfected first Lien on the Collateral owned by such Floor Plan Borrower shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested, and the Agent or Floor Plan Agent, as herein provided, shall have received an acknowledgment copy, or other evidence satisfactory to it, of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto; (ii) The Floor Plan Agent shall have completed to its' satisfaction any and all audits of Motor Vehicles owned by or in transit to each such Floor Plan Borrower; and 68 69 (iii) The Company shall have delivered to the Agent copies of substantially all Dealer Franchise Agreements between Manufacturers and its Subsidiaries, which Dealer Franchise Agreements have been duly executed between a Manufacturer and such Subsidiary. For purposes of this subsection, the term "substantially all" shall mean that the Agent and the Floor Plan Agent shall be satisfied in their sole determination that a sufficient amount of duly executed Dealer Franchise Agreements have been delivered by the Company. (c) Such other and further conditions shall have been fulfilled as the Agent, the Floor Plan Agent or its counsel shall have reasonably determined. SECTION 8.3 Conditions Precedent to Each Borrowing. The obligation of each Bank to make a Loan on the occasion of any Borrowing (including the initial Acquisition Borrowing and the initial Floor Plan Borrowing) and the obligation of the Issuing Bank to issue Letters of Credit and the obligation of the Floor Plan Bank to issue Drafting Agreements shall be subject to the further conditions precedent that on the Borrowing Date of such Borrowing or Issuance the following statements shall be true (and the acceptance by any Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Company that on the date of such Borrowing such statements are true): (a) The representations and warranties contained in Article VII are correct on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; (b) No event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, which constitutes either a Default or an Event of Default; and (c) Following the making of such Borrowing or Issuance of any Letter of Credit and all other Borrowings to be made on the same day under this Agreement, except as may otherwise be permitted hereunder (i) if such Borrowing is a Floor Plan Loan Borrowing, the aggregate principal amount of all Floor Plan Loans outstanding plus all Swing Line Loans outstanding shall not exceed the Floor Plan Loan Commitment, (ii) if such Borrowing is an Acquisition Loan Borrowing, the aggregate principal amount of all Acquisition Loans outstanding plus Letters of Credit Obligations outstanding shall not exceed the Acquisition Loan Commitment, (iii) if such Borrowing is a Swing Line Loan Borrowing, the aggregate principal amount of all Swing Line Loans outstanding shall not exceed the Swing Line Commitment, (iv) if a Letter of Credit is issued, the total amount of Letter of Credit outstanding plus the aggregate principal amount of all Acquisition Loans outstanding shall not exceed the Acquisition Loan Commitment, and (v) the aggregate principal amount of all Loans and Letter of Credit Obligations then outstanding shall not exceed the Total Commitment. SECTION 8.4 Conditions Precedent to Conversions and Continuations. The obligation of the Banks to convert any existing Borrowing into a Eurodollar Borrowing or to continue any existing Borrowing as a Eurodollar Borrowing is subject to the condition precedent that on the date of such conversion or continuation no Default or Event of Default shall have occurred and be continuing or would result from the making of such conversion or continuation. The acceptance of 69 70 the benefits of each such conversion and continuation shall constitute a representation and warranty by the Company to each of the Banks that no Default or Event of Default shall have occurred and be continuing or would result from the making of such conversion or continuation. ARTICLE IX AFFIRMATIVE COVENANTS So long as this Agreement shall remain in effect or the principal of or interest on any Note, the Swing Line Note, any Commitment Fee or any other fee, expense or amount payable hereunder shall be unpaid and until the Commitments of the Banks shall expire or terminate, until no Letter of Credit Obligations are outstanding, and until all Drafting Agreements are terminated, the Company, as to itself and as to all of the other Borrowers and each of the Borrowers other than the Company, as to itself and its Subsidiaries only, covenant and agree with the Agent, the Floor Plan Agent, the Swing Line Bank and each Bank that: SECTION 9.1 Existence. The Company will maintain and preserve, and except as permitted by Section 10.3, will cause each Subsidiary to maintain and preserve, its respective existence and good standing under the laws of its state of jurisdiction, as a corporation or other form of business organization, as the case may be, and all rights, privileges, licenses, patents, patent rights, copyrights, trademarks, trade names, franchises and other authority to the extent material and necessary for the conduct of their respective businesses in the ordinary course as conducted from time to time. SECTION 9.2 Repair. The Company will maintain, preserve and keep, and will cause each of its Subsidiaries to maintain, preserve and keep, all of its properties in good repair, working order and condition (ordinary wear and tear excepted), and the Company will make, and will cause each of the Subsidiaries to make, all necessary and proper repairs, renewals, replacements, additions, betterments and improvements thereto so that at all times the efficiency thereof shall be fully preserved and maintained; the Company will at all times do or cause to be done all things necessary to preserve, renew and keep in full force and effect, and will cause each Subsidiary to do or cause to be done all things necessary to preserve, renew and keep in full force and effect, the rights, licenses, permits, franchises, patents, copyrights, trademarks and trade names material to the conduct of its businesses; the Company and each of its Subsidiaries will maintain and operate such businesses in substantially the manner in which they are presently conducted and operated (subject to changes in the ordinary course of business); the Company and each of its Subsidiaries will comply with all laws and regulations applicable to the operation of such businesses whether now in effect or hereafter enacted and with all other applicable laws and regulations except where the failure to comply could not reasonably be expected to have a Material Adverse Effect; and the Company and each of its Subsidiaries will take all action which may be required to obtain, preserve, renew and extend all licenses, permits and other authorizations which may be material to the operation of such businesses. SECTION 9.3 Insurance. The Company will maintain, on a consolidated basis, insurance to such extent and against such hazards and liabilities as is commonly maintained by companies similarly situated or as may be required in the Security Documents including, without limitation with 70 71 respect to Motor Vehicles owned by Floor Plan Borrowers, naming the Agent, for the benefit of the Banks, as Mortgagee (in connection with any real estate), lender loss payee and additional loss payee. WARNING UNLESS EACH BORROWER PROVIDES THE AGENT WITH EVIDENCE OF THE INSURANCE COVERAGE AS REQUIRED BY THE AGREEMENT OR ANY OTHER LOAN DOCUMENT, THE AGENT (AT ITS DISCRETION, OR ACTING AT THE REQUEST OF THE FLOOR PLAN AGENT) MAY PURCHASE INSURANCE AT THE BORROWER'S EXPENSE TO PROTECT THE BANKS' INTEREST. THIS INSURANCE MAY, BUT NEED NOT, ALSO PROTECT THE BORROWER'S INTEREST. IF THE COLLATERAL BECOMES DAMAGED, THE COVERAGE THE AGENT PURCHASES MAY NOT PAY ANY CLAIM ANY BORROWER MAKES OR ANY CLAIM MADE AGAINST THE BORROWER. EACH BORROWER MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT THE BORROWER HAS OBTAINED PROPERTY COVERAGE ELSEWHERE. EACH BORROWER IS RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY THE AGENT. THE COST OF THIS INSURANCE MAY BE ADDED TO THE OBLIGATIONS. IF THE COST IS ADDED TO THE OBLIGATIONS, THE INTEREST RATE PROVIDED IN SECTION 5.3 SHALL APPLY TO SUCH ADDED AMOUNT. THE EFFECTIVE DATE OF COVERAGE MAY BE THE DATE ANY BORROWER'S PRIOR COVERAGE LAPSED OR THE DATE THE BORROWER FAILED TO PROVIDE PROOF OF COVERAGE. THE COVERAGE THE AGENT PURCHASES MAY BE CONSIDERABLY MORE EXPENSIVE THAN INSURANCE ANY BORROWER CAN OBTAIN ON ITS OWN AND MAY NOT SATISFY ANY NEED FOR PROPERTY DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE REQUIREMENTS IMPOSED BY APPLICABLE LAW. SECTION 9.4 Obligations and Taxes. The Company will pay and discharge and will cause each of its Subsidiaries to pay and discharge, when due, all taxes, assessments and governmental charges or levies imposed upon the Company or such Subsidiary, as the case may be, as well as all lawful claims for labor, materials and supplies or otherwise unless and only to the extent that the Company or such Subsidiary, as the case may be, is contesting such taxes, assessments and governmental charges, levies or claims in good faith and by appropriate proceedings and the Company or such Subsidiary has set aside on its books such reserves or other appropriate provisions therefor as may be required by generally accepted accounting principles. SECTION 9.5 Financial Statements; Reports. The Company will furnish to the Agent and each Bank: (a) Annual Audit Reports. Within 120 days after the end of each fiscal year of the Company, a copy of the annual audit report of the Company and its Subsidiaries prepared on a consolidated basis in conformity with generally accepted accounting principles consistently applied 71 72 and certified by Arthur Andersen or another independent certified public accountant of recognized national standing; (b) Quarterly Financial Statements. Within 60 days after the end of each quarter (except the last quarter) of each fiscal year of the Company, a copy of the Form 10-Q of the Company, for such quarter, prepared in accordance with the rules, regulations and guidelines of the Securities and Exchange Commission, subject to normal year end audit adjustments; (c) Officer's Certificate. Together with the financial statements furnished by the Company under the preceding clauses (a) and (b), a certificate of the Company's Chief Financial Officer or Vice President and Treasurer dated the date of such annual audit report or such quarterly financial statement, as the case may be, to the effect that no Event of Default or Default, has occurred or is continuing, or if there is any such event, describing it and the steps, if any, being taken to cure it; (d) SEC and Other Reports. Copies of each filing and report made by the Company or any of its Subsidiaries with or to any securities exchange or the Securities and Exchange Commission and each communication from the Company or any of its Subsidiaries to shareholders generally, promptly upon the making thereof; (e) Manufacturer/Dealer Statements. As soon as available, but in any event within thirty (30) days after the end of each month, copies of each Manufacturer/Dealer Statement of each Floor Plan Borrower delivered during such month; (f) Inventory Detail Report. Upon request of the Floor Plan Agent, the Agent or any Bank, copies of the Inventory Detail Report of each Floor Plan Borrower individually and on a consolidated basis; and (g) Requested Information. Promptly, from time to time, such other reports or information as the Agent, the Floor Plan Agent or any Bank may reasonably request. SECTION 9.6 Litigation and Other Notices. The Company will notify the Agent and the Banks in writing of any of the following immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (a) Judgment. The entry of any judgment or decree against the Company and/or any of its other Subsidiaries if the aggregate amount of such judgment or decree exceeds $500,000 (after deducting the amount with respect to which the Company or such Subsidiary is insured and with respect to which the insurer has assumed responsibility in writing); (b) Suits and Proceedings. The filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court or any Governmental Authority as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; 72 73 (c) Default. The occurrence of any Event of Default or Default; (d) Material Adverse Change. The occurrence of any event which could reasonably be expected to have a Material Adverse Effect. (e) Pension and Welfare Plans. The occurrence of a Reportable Event with respect to any Plan; the institution of any steps by the Company, any of its Subsidiaries or any ERISA Affiliate, the PBGC or any other Person to terminate any Plan; the institution of any steps by the Company, or any of its Subsidiaries or any ERISA Affiliate to withdraw from any Plan; or the incurrence of any material increase in the contingent liability of the Company or any of its Subsidiaries with respect to any post-retirement welfare benefits; and (f) Other Events. The occurrence of such other events as the Agent or the Required Banks may reasonably specify from time to time. SECTION 9.7 ERISA. Each Borrower will comply with the applicable provisions of ERISA except where the failure to comply could not reasonably be expected to have a Material Adverse Effect. SECTION 9.8 Books, Records and Access. Each Borrower will maintain complete and accurate books and records in which full and correct entries in conformity with generally accepted accounting principles shall be made of all dealings and transactions in relation to the business and activities of such Borrowers. Each Borrower will permit reasonable access by the Agent and each Bank, upon reasonable request, to the books and records relating to such Borrower during normal business hours, to permit or cause to be permitted, the Agent and each Bank to make extracts from such books and records and permit, or cause to be permitted, upon reasonable request, any authorized representative designated by any Bank to discuss the affairs, finances and condition of such Borrower with such Person's principal financial officers and principal accounting officers and such other officers as such Borrower shall deem appropriate. SECTION 9.9 Use of Proceeds. The Borrowers shall use the proceeds of the Loans for only the following purposes: (a) Floor Plan Loans. The proceeds of the Floor Plan Loans may be used only to finance the purchase of Motor Vehicles for resale in the ordinary course of business of the Floor Plan Borrowers. (b) Acquisition Loans. The proceeds of the Acquisition Loans may be used only for the following purposes: (i) for working capital and general corporate purposes, including, without limitation, the issuance of Letters of Credit and to pay outstanding Floor Plan Loans; and (ii) to make Permitted Acquisitions. (c) Swing Line Loans. The proceeds of the Swing Line Loans may be used only to finance the purchase of Motor Vehicles for resale in the ordinary course of business of the Borrowers. 73 74 (d) All Loans. No Loans shall be used for any purpose which would be in contravention of any Requirement of Law. SECTION 9.10 Nature of Business. The Borrowers will engage in substantially the same field of business as they are engaged in on the date hereof, and except as permitted in Section 10.5(k), will refrain from engaging in, establishing or becoming in any way involved as a lender in the business of automobile financing, sub-prime automobile financing or any other credit transactions related to automobiles other than Retail Loan Guarantees. SECTION 9.11 Compliance. The Borrowers will comply with all statutes and governmental rules and regulations applicable to them including all such statutes and government rules and regulations relating to environmental pollution or to environmental regulation and control except where the failure to comply could not reasonably be expected to have a Material Adverse Effect. SECTION 9.12 Audits (a) Entry on Premises. Each Floor Plan Borrower shall permit a duly authorized representative of the Floor Plan Agent to enter upon such Borrower's premises during regular business hours to perform audits of Motor Vehicles in a manner satisfactory to the Agent, provided that the Floor Plan Agent or its representative shall not perform an audit of such Motor Vehicles prior to the occurrence of an Event of Default without having given the applicable Borrower reasonable prior notice; and provided, further, however, the Floor Plan Agent shall not be required to make more than six (6) such audits in any fiscal year of any Floor Plan Borrower. Each Floor Plan Borrower shall assist the Floor Plan Agent, and its representatives, in whatever way necessary to make the inspections and audits provided for herein. (b) Excess/Payments in Process. The Borrowers shall maintain at all times Excess/Payments in Process in an amount of not less than Three Million Dollars ($3,000,000), which amount may be increased or decreased from time to time in the sole reasonable determination of the Floor Plan Agent (the "Out of Balance Amount"). If and to the extent audits performed from time to time by the Floor Plan Agent as provided in Section 9.12(a) reveal that any Motor Vehicles of the Floor Plan Borrowers are for any consecutive thirty (30) day period Out of Balance in an aggregate amount equal to or greater than the Out of Balance Amount, the Floor Plan Agent shall so notify the Company. The Company shall, or shall cause the other applicable Floor Plan Borrowers to, deliver by the next Business Day after receipt of such notice, sufficient funds so as to cause the Borrowings with respect to any such Motor Vehicles and/or Floor Plan Loans which are Out of Balance to be in compliance with the Floor Plan Advance Limits. If the Company or such other Floor Plan Borrowers fail to deliver such funds, or any of them notifies the Floor Plan Agent that such funds will not be delivered, the Floor Plan Agent shall, and the Floor Plan Borrowers hereby authorize the Floor Plan Agent to, apply sufficient funds from such Excess/Payments in Process to cause the Borrowings with respect to any such Motor Vehicles and/or Floor Plan Loans which are Out of Balance to be in compliance with the Floor Plan Advance Limits. The Floor Plan Agent shall provide written notice (including via fax) to the Company on each Business Day Excess/Payments in Process are so applied and the Floor Plan Borrowers shall, on or before the next following Business Day, deposit sufficient funds to restore the balance thereof back to the Out of Balance Amount then in effect. 74 75 SECTION 9.13 Demonstration, Service Rental or Loaner Vehicles. The Floor Plan Agent may from time to time limit the number of Motor Vehicles which may be placed in service as Demonstrators, service rental or loaner vehicles and establish other requirements for Demonstrators, service rental or loaner vehicles as the Floor Plan Agent may reasonably determine. Each Borrower shall maintain records at the premises where the Motor Vehicles are kept evidencing which Motor Vehicles are being used as Demonstrators, service rental or loaner vehicles. SECTION 9.14 Disbursement Account. Subject to the terms and conditions of this Agreement, including Sections 2.1 and 5.7 hereof, a Floor Plan Borrower may prepay, in whole or in part, from time to time, outstanding Floor Plan Loans, Swing Line Loans or Swing Line Overdraft Loans and may reborrow Floor Plan Loans and Swing Line Loans. Any or all of the Floor Plan Borrowers and the Floor Plan Agent, at various times, may be parties to a corporate cash management service agreement (the "Service Agreement") providing for a controlled disbursement account (the "Disbursement Account") between such Floor Plan Borrower and the Floor Plan Agent. Subject to the terms and conditions of this Agreement, each such Floor Plan Borrower authorizes the Floor Plan Agent to fund the Disbursement Account, on a daily basis if necessary, by advancing Loans under this Agreement to the extent of availability under the aggregate Floor Plan Loan Commitments. Each such Floor Plan Borrower acknowledges and agrees that any requests for funding from the Disbursement Account will not be paid unless funds in an amount sufficient to pay such requests are then available for reborrowing in compliance with the terms and conditions of this Agreement, including Section 2.1 hereof to enable Floor Plan Agent to advance those funds to the Disbursement Account. Floor Plan Agent agrees that any requests to be submitted for payment through the Disbursement Account will not be made unless sufficient funds are available and such request is made in compliance with the terms and conditions of this Agreement to pay all such requests. Each Floor Plan Borrower at all times is responsible for having sufficient available funds in Excess/Payments in Process to pay all requests to be paid through the Disbursement Account, whether these funds are advances under this Agreement or otherwise. Each Floor Plan Borrower acknowledges and agrees that the Service Agreement relating to the Disbursement Account may be canceled by the Floor Plan Agent at any time upon written notice to the applicable Floor Plan Borrower, notwithstanding anything to the contrary in the Service Agreement. A copy of the form of Service Agreement may be attached to this Agreement by the Floor Plan Agent at any time a Service Agreement is in effect between a Floor Plan Borrower and the Floor Plan Agent, although the failure to attach it shall not affect its validity or the effectiveness of this Agreement. SECTION 9.15 Further Assurances. (a) The Company shall and shall cause each of its Subsidiaries to the extent applicable to execute, acknowledge, deliver, and record or file such further instruments, including, without limitation, further security agreements, financing statements, and continuation statements, and do such further acts as may be reasonably necessary, desirable, or proper to carry out more effectively the purposes of this Agreement, including, without limitation, (i) causing any additions, substitutions, replacements, or appurtenances to the Motor Vehicles to be covered by and subject to the Liens created 75 76 in this Agreement or the Documents to which any Floor Plan Borrower is a party; and (ii) with respect to any Motor Vehicles which are or are required to be subject to Liens created in this Agreement or any other Loan Document to which any Floor Plan Borrower is a party, execute, acknowledge, endorse, deliver, procure, and record or file any document or instrument, including, without limitation, any financing statement, certificate of title, manufacturer's statement of origin, certificate of origin, and dealer reassignment of any of the foregoing which are evidences of ownership of such Motor Vehicles, deemed advisable by the Agent or the Floor Plan Agent to protect the Liens granted in this Agreement or the Loan Documents to which any of them respectively is a party and against the rights or interests of third persons, and will pay all reasonable costs connected with any of the foregoing; (b) The Company shall and shall cause each of its Subsidiaries to pledge the capital stock or other evidence of ownership of any Person which becomes a Subsidiary of the Company or any of its Subsidiaries. The Company shall cause all of its Subsidiaries which become Subsidiaries after the Closing Date to execute the Addendum to Credit Agreement and Notes, if applicable, and to execute such other Security Documents as the Agent and/or the Floor Plan Agent shall reasonably request to establish Liens on the assets of such Subsidiary consistent with those in place on the Closing Date. (c) SMC Luxury Cars, Inc. and Southwest Toyota, Inc. shall each, on or before sixty (60) days after the Closing Date, obtain the consent of Toyota Motor Credit Corporation to permit the Agent, for the benefit of the Banks, to file and perfect a Lien (subject only to any Permitted Liens) on the Collateral owned by each of them, respectively. Until the date such Liens have been filed and perfected, the EBITDA of each of SMC Luxury Cars, Inc. and Southwest Toyota, Inc., respectively, shall not be considered in determining the Acquisition Loan Advance Limit. SECTION 9.16 Permitted Acquisitions. (a) Subject to the remaining provisions of this Section 9.16 applicable thereto and the requirements contained in the definition of Permitted Acquisition, the Company may, from time to time after the Closing Date, effect Permitted Acquisitions, as long as with respect thereto each of the following conditions are satisfied: (i) no Default or Event of Default is in existence at the time of the consummation of such proposed Acquisition or would exist after giving effect thereto, all representations and warrants contained herein and in the other Loan Documents shall be true and correct in all material respects with the same effect as though such representations and warranties were made on and as of the date of such proposed Acquisition (both before and after giving effect thereto), and no other agreement, contract or instrument to which any Borrower is a party restricts such proposed Acquisition; (ii) the Company shall have given the Agent at least 30 days (or ten Business Days, in the case of clause (B) below) prior written notice of any such 76 77 proposed Acquisition (each of such notices, a "Permitted Acquisition Notice"), which notice shall (A) contain the estimated date such proposed Acquisition is scheduled to be consummated, (B) attach a true and correct copy of the draft purchase agreement, letter of intent, description of material terms or similar agreements executed by the parties thereto in connection with such proposed Acquisition, (C) contain the estimated aggregate purchase price of such proposed Acquisition and the amount of related costs and expenses and the intended method of financing thereof, (D) contain the estimated amount of Acquisition Loans required to effect such proposed Acquisition; and, (E) whether the target company will be a Floor Plan Borrower; (iii) the Company shall have provided the Banks with all information related to the Auto Dealer being acquired and the proposed Acquisition as the Agent shall reasonably request, including, without limitation, delivery of the expert reports (if any) prepared by accounting, environmental, and/or other experts which the Company has obtained as the Agent shall reasonably request; (iv) (A) as soon as available but not less than the earlier of three (3) days after the execution thereof, a copy of the executed purchase agreement and all related agreements, schedules and exhibits with respect to such proposed Acquisition and (B) at the time of delivery of the purchase agreement, certification from the Company as to the purchase price for the acquisition (or a formula therefor) and the estimated amount of all related costs, fees and expenses and that, except as described, there are no other amounts which will be payable in connection with the respective proposed Acquisition; (v) the Company shall have given the Agent, at least ten (10) Business Days prior to the closing date of the proposed Acquisition, a good faith estimate made by the Company of its Consolidated Pro Forma EBITDA and Consolidated Pro Forma Floor Plan Interest Expense, the calculations for which, the Company shall have furnished to the Agent together with audited statements from an auditor, satisfactory to the Agent, supporting such calculations for Pro Forma Floor Plan Interest Expense and such other information as the Agent may have reasonably requested to determine the accuracy of such calculation, calculated as of a date immediately after the projected closing date of such proposed Acquisition, and the amount of Consolidated Pro Forma EBITDA shall exceed zero for the immediately preceding four (4) fiscal quarters of the Company; provided, however, in the case of calculations based on financial statements not audited by a nationally recognized accounting firm reasonably acceptable to the Agent, the Agent shall be satisfied that the consolidated EBITDA of the Auto Dealer being acquired pursuant to the proposed Acquisition exceeds zero for such period; (vi) recalculations are made by the Company of compliance with the covenants contained in Sections 10.14 through 10.17, inclusive, for the immediately preceding four (4) fiscal quarters of the Company on a pro forma basis, and such 77 78 recalculations shall show that during such period, on a pro forma basis, the Company would have been in compliance therewith; (vii) the Company shall have delivered updated Schedules of the Agreement to the Agent; and (viii) prior to the consummation of the respective proposed Acquisition, the Company shall furnish the Agent an officer's certificate executed by the chief financial officer of the Company, certifying as to compliance with the requirements of the applicable preceding clauses (i) through (vii) and containing the calculations required in this Section 9.16(a). The consummation of each Permitted Acquisition shall be deemed to be a representation and warranty by the Company that all conditions thereto have been satisfied and that same is permitted in accordance with the terms of this Agreement, which representation and warranty shall be deemed to be a representation and warranty for all purposes hereunder. (ix) For each Permitted Acquisition involving the creation of a direct or indirect Subsidiary of the Company, not less than 100% of the capital stock or other equity interest of such Subsidiary shall be directly owned by the Company or another Borrower, and all such stock or other equity interest shall be pledged to the Agent for the benefit of the Banks pursuant to the Pledge Agreement or pursuant to a similar agreement satisfactory to the Agent to the extent such pledge is not prohibited by any Dealer Franchise Agreement to which such Subsidiary is a party. (x) The Required Banks shall have consented in writing to the proposed Acquisition prior to the closing thereof; provided, however, such consent shall be deemed to have been granted if the Required Banks shall not have given written notice of consent or rejection of such consent to the Agent within thirty (30) days after receipt by the Agent of the Permitted Acquisition Notice. (b) The Company shall cause each Subsidiary that is created, or is otherwise acquired pursuant to a Permitted Acquisition to execute and deliver, an Addendum, if applicable, and the other applicable Loan Documents, with the documentation to be in form and substance reasonably satisfactory to the Agent. Each such Subsidiary shall also grant to the Agent, for the benefit of the Banks, first priority perfected security interests in all property of such Subsidiary subject only to Liens permitted by Section 10.2 acquired in connection with the Permitted Acquisition, and such Subsidiary shall take all actions requested by the Agent or the Required Banks (including, without limitation, the obtaining of UCC-11's, the filing of UCC-1's in connection with the granting of such security interests. All security interests required to be granted pursuant to this Section 9.16(c) shall be granted pursuant to such security documentation (which shall be substantially similar to the analogous Security Documents already executed and satisfactory in form and substance to the Agent) and shall (except as otherwise consented to by the Agent and the Required Banks) constitute valid and enforceable perfected security interests prior to the rights of all third Persons and subject to no other Liens, except Liens permitted under Section 10.2 . The security documents and other instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens, in favor 78 79 of the Agent for the benefit of the Banks, required to be granted pursuant to such additional Security Documents and all taxes, fees and other charges payable in connection therewith shall be paid in full by the Company. At the time of the execution and delivery of such additional Security Documents, the Company and the applicable Borrower shall cause to be delivered to the Agent such documents as may be reasonably requested by the Agent to assure that this Section 9.16(c) has been complied with. All actions required to be taken by Section 9.16(c) with respect to the additional Collateral shall be completed no later than ten (10) Business Days after the date on which the Permitted Acquisition is effected. ARTICLE X NEGATIVE COVENANTS So long as this Agreement shall remain in effect or the principal of or interest on any Note, the Swing Line Note, any Commitment Fee or any other expense or amount payable hereunder shall be unpaid and until the Commitments of the Banks shall expire or terminate, the Letter of Credit Obligations are paid in full and all Drafting Agreements are terminated, the Company, as to itself and as to all of the other Borrowers and each of the Borrowers other than the Company, as to itself only covenants and agrees with the Agent, the Floor Plan Agent, the Swing Line Bank and each Bank that: SECTION 10.1 Indebtedness. No Borrower will incur, create, assume or suffer to exist any Indebtedness, except: (a) The Notes, the Swing Line Note, and Indebtedness and Obligations under this Agreement and the other Loan Documents; (b) Indebtedness of any Borrower existing at the Closing Date which is reflected in Schedule X hereto and all renewals and extensions thereof; (c) Indebtedness created under leases which, in accordance with generally accepted accounting principles, have been recorded and/or should have been recorded on the books of the applicable Borrower as Capital Leases which, when combined with Indebtedness described in Section 10.1(d), is less than Three Million Dollars ($3,000,000); (d) Indebtedness which is permitted in connection with the purchase of property, provided that the aggregate amount of such Indebtedness shall not exceed $3,000,000; (e) Subordinated Indebtedness as specified in Schedule XI; (f) accounts payable (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business and which are not in excess of ninety (90) days past the invoice or billing date; (g) Non-Recourse Real Estate Debt and any Guaranties by the Company of such Indebtedness; 79 80 (h) Indebtedness pursuant to Third Party Floor Plan Financing; (i) Indebtedness of any Subsidiary of the Company in existence (but not incurred or created in connection with such acquisition) on the date on which such Subsidiary is acquired by the Company and for which Indebtedness neither the Company nor any of its other Subsidiaries has any obligation and with respect to which Indebtedness none of the properties of the Company or any of its other Subsidiaries is bound; (j) Indebtedness secured by Liens upon any property hereafter acquired by the Company or any of its Subsidiary to secure Indebtedness in existence on the date of such acquisition (but not incurred or created in connection with such acquisition), which Indebtedness is assumed by such Person simultaneously with such acquisition, which Liens extend only to such Property so acquired and with respect to which Indebtedness none of the Company or any of its Subsidiaries (other than the acquiring Person) has any obligation; (k) Indebtedness owed by the Company or any of its Subsidiaries to the Company or to any other Subsidiary; (l) any Retail Loan Guaranties; provided that the aggregate principal amount of such Retail Loan Guaranties shall not exceed $12,000,000; and (m) Indebtedness arising under any Service Agreement as such term is defined in Section 9.14. SECTION 10.2 Liens. No Borrower will incur, create, assume or permit to exist any Lien on any of its property or assets, whether owned at the date hereof or hereafter acquired, or assign or convey any rights to or security interests in any future revenues, except: (a) Liens securing payment of the Obligations; (b) (i) Liens securing Indebtedness permitted by Sections 10.1(c) or (d), but only on the property subject to such Capital Lease or purchase-money arrangement, or (ii) securing Indebtedness permitted by Sections 10.1(h), (i), (j) and (k); (c) Liens referred to in Section 7.16; (d) Liens securing Non-Recourse Real Estate Debt; (e) extensions, renewals and replacements of Liens referred to in paragraphs (a) through (d) of this Section 10.2 provided, that any such extension, renewal or replacement Lien shall be limited to the property or assets covered by the Lien extended, renewed or replaced and that the Obligations secured by any such extension, renewal or replacement lien shall be in an amount not greater than the amount of the Obligations secured by the Lien extended, renewed or replaced; and 80 81 (f) rights of set off which any Manufacturer may have on Investments permitted under Section 10.5(i). SECTION 10.3 Consolidations and Mergers. No Borrower shall merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) any of its Subsidiaries may merge with the Company, provided that the Company shall be the continuing or surviving corporation, or with any one or more such Subsidiaries, provided that if any such transaction shall be between Subsidiaries, one hundred percent (100%) of the capital stock of which is a Wholly Owned Subsidiary and one of its Subsidiaries which is not a Wholly Owned Subsidiary, the Wholly Owned Subsidiary shall be the continuing or surviving corporation; (b) any Subsidiary of the Company may sell all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Company or a Wholly-Owned Subsidiary); and (c) any Subsidiary of the Company or the Company may merge or consolidate with another Person; if (x) the Company or such Subsidiary involved in the merger or the consolidation is the surviving corporation, and (y) immediately prior to and after giving effect to such merger or consolidation, there exists no Default or Event of Default. SECTION 10.4 Disposition of Assets. Each Borrower agrees that it shall not permit any Disposition (whether in one or a series of transactions) of any property or assets (including Accounts, notes receivable, and/or chattel paper, with or without recourse) or enter into any agreement so to do, except: (a) Dispositions of Motor Vehicles and dispositions of other inventory in the ordinary course of business; (b) Dispositions of assets, properties or businesses by the Company or any of its Subsidiaries or Affiliates to any other Subsidiary or to the Company; (c) Dispositions of property in connection with any consolidation or merger permitted by Schedule XIII hereof; (d) Dispositions of the property described in Schedule XIV attached hereto; (e) Dispositions of equipment and other property which is obsolete, worn out or no longer used or useful in such Person's business, all in the ordinary course of business; (f) Dispositions occurring as the result of a casualty event, condemnation or expropriation; and 81 82 (g) Dispositions of any property, assets (including capital stock of its Subsidiaries and Affiliates) or businesses of the Company not otherwise permitted by clauses (a) through (g) of this Section 10.4; provided, that the aggregate book value of all such property, assets or businesses sold, leased or otherwise disposed of during the term of this Agreement shall not at any time exceed the greater of (i) Five Million Dollars ($5,000,000) or (ii) ten percent (10%) of the total book value of the assets of the Company and each of its Subsidiaries, (determined on a consolidated basis in accordance with generally accepted accounting principles, as of the end of the immediately preceding fiscal quarter), and provided, further, that for any such property, assets or business other than capital stock that is sold, leased or otherwise disposed of, for purposes of determining compliance with this Section 10.4, the value of any such property, asset or business shall be equal to the book value of such property, asset or business as of the date of such Disposition; and provided, further, that for purposes of determining compliance with this Section 10.4, the value of any capital stock sold or disposed of shall be determined by multiplying the number of shares of such capital stock sold by the net book value per share of such capital stock; and provided, further, that this Section 10.4 does not authorize Disposition of any Accounts, notes receivable and/or Chattel Paper with or without recourse. SECTION 10.5 Investments. No Borrower will make or permit to exist any Investment in any Person, except for: (a) Permitted Acquisitions; (b) extensions of credit in the nature of Accounts receivable or notes receivable and/or chattel paper arising from the sale of goods and services in the ordinary course of business; (c) shares of stock, obligations or other securities received in settlement of claims arising in the ordinary course of business; (d) Investments in securities, maturing within two (2) years and issued or fully guaranteed or insured by the United States of America or any agency thereof; (e) Investments in commercial paper, maturing in two hundred seventy (270) days or less from the date of issuance, rated in the highest or second highest grade by a nationally recognized credit rating agency; (f) Investments in United States Dollar denominated and Eurodollar denominated time deposits, maturing within two (2) years from the date of such Investment and issued by a bank or trust company having capital, surplus and undivided profits aggregating at least Five Hundred Million Dollars ($500,000,000); (g) Investments outstanding on the date hereof in Subsidiaries by the Company and its Subsidiaries; (h) Investments in negotiable instruments held by Comerica Securities, Inc. which are acceptable to the Floor Plan Agent; 82 83 (i) Investments with a Manufacturer's affiliated finance company in Manufacturer floor plan offset accounts in an amount not to exceed $25,000,000; provided however that Agent shall have a security interest therein second only to a Lien of third party floor plan lender; (j) Investments in capital assets, subject to the limitations set forth in Section 10.11. (k) Investments in seller financed notes in connection with Motor Vehicles at Foyt Motors, Inc. not to exceed $2,000,000 in the aggregate at anytime. SECTION 10.6 Transactions with Affiliates. No Borrower will enter into any transaction with any Affiliate except in the ordinary course of business and upon fair and reasonable terms no less favorable than the applicable Borrower could obtain or could become entitled to in an arm's-length transaction with a Person which was not an Affiliate. SECTION 10.7 Other Agreements. No Borrower will enter into any agreement containing any provision which would be violated or breached by such Borrower's performance of its Obligations hereunder or under any instrument or document delivered or to be delivered by the Borrowers hereunder or in connection herewith if the effect of such violation or breach could reasonably be expected to have a Material Adverse Effect. SECTION 10.8 Fiscal Year; Accounting. No Borrower will change its fiscal year or method of accounting (other than immaterial changes and methods and changes authorized by generally accepted accounting principles). SECTION 10.9 Credit Standards. No Borrower will modify in any way the credit standards and procedures, the collection policies or the loss recognition procedures with respect to the creation or collection of Accounts, notes received and/or chattel paper. SECTION 10.10 Pension Plans. No Borrower will permit any condition to exist in connection with any Plan which might constitute grounds for the PBGC to institute proceedings to have such Plan terminated or a trustee appointed to administer such Plan, or engage in, or permit to exist or occur any other condition, event or transaction with respect to any Plan which could reasonably be expected to have Material Adverse Effect. SECTION 10.11 Capital Expenditures. The Borrowers will not make expenditures for capital or fixed assets on improvements in any consecutive twelve (12) month period in excess of Five Million Dollars ($5,000,000) in the aggregate. SECTION 10.12 Net Worth of Company. The Company will not at any time permit (a) its Consolidated Tangible Net Worth to be less than twenty-five million dollars ($25,000,000), or (b) its Shareholders' Equity to be less than an amount equal to the sum of (x) $85,000,000 plus (y) seventy-five percent (75%) of Consolidated Net Income, computed on a cumulative basis, for the period beginning on December 31, 1997 and ending on the date of determination (provided that no negative adjustment will be made in the event that Consolidated Net Income is a deficit figure for such period), plus (z) one hundred percent (100%) of the net proceeds (cash or non-cash) realized 83 84 from the issuance of any equity securities by the Company (or other capital contributions made to the Company) after December 31, 1997. SECTION 10.13 Restricted Payments. Each Borrower agrees that it shall not declare or make any Restricted Payment, except that any Borrower may make the following Restricted Payments provided that immediately prior to and after giving effect to the declaration of any dividend, and immediately prior to and after giving effect to the payment of any Restricted Payment, there exists no Default or Event of Default: (a) any Borrower may declare and make dividend payments or other distributions payable solely in its capital stock; (b) any Subsidiaries of the Company may declare and make Restricted Payments to the Company or to any other Subsidiaries of the Company; (c) any Borrower may declare and pay cash dividends on its capital stock, provided (i) no Default or Event of Default has occurred, is continuing or would be created thereby and (ii) that the aggregate cash dividends paid by such Borrower shall not exceed an amount equal to thirty-three and three-one-hundredths percent (33.3%) of the aggregate Consolidated Net Income for the period commencing on December 31, 1997 and ending on the date of determination taken as a single accounting period. SECTION 10.14 Fixed Charge Coverage Ratio. The Company will not permit (as of the end of any fiscal quarter) its Fixed Charge Coverage Ratio to be less than 1.25 to 1, such ratio to be calculated as of the end of each fiscal quarter of the Company based upon the four fiscal quarters immediately preceding such date of determination. SECTION 10.15 Interest Coverage Ratio. The Company will not permit (as of the end of any fiscal quarter) its Interest Coverage Ratio to be less than 2.50 to 1, such ratio to be calculated as of the end of each fiscal quarter of the Company based upon the four fiscal quarters immediately preceding such date of determination. SECTION 10.16 Leverage Ratio. The Company shall not, at any time, permit its Leverage Ratio to be greater than 2.0 to 1. SECTION 10.17 Current Ratio. The Company shall not, at any time, permit its Current Ratio to be less than 1.05 to 1. ARTICLE XI EVENTS OF DEFAULT SECTION 11.1 Events of Default. In case of the happening of any of the following events (herein called "Events of Default"): 84 85 (a) any representation or warranty made or deemed made in or in connection with this Agreement, the Notes, the Swing Line Note, any of the Loan Documents or any of the Borrowings hereunder or in any report, certificate, financial statement or other instrument furnished in connection with this Agreement or the execution and delivery of the Notes, the Swing Line Note or any of the Loan Documents or the making of any of the Borrowings hereunder shall prove to have been false or misleading in any material respect when made or deemed made; (b) Default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable pursuant to the terms of this Agreement, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (c) Default shall be made in the payment of any interest on any Loan or any Commitment Fee or any other amount due under this Agreement, when and as the same shall become due and payable which shall remain unremedied for a period of five (5) days; (d) Default shall be made in the due observance or performance of any covenant, condition or agreement contained in Sections 6.3 [Risk Participations, Drawings and Reimbursements], 9.1 [Existence], 9.3 [Insurance], 9.5[ Financial Statements; Reports], 9.6 [Litigation and Other Notices], 9.8 [Books, Records and Access], 9.10 [Nature of Business], 9.13 [Demonstration, Service Rental or Loaner Vehicles] or in Article X [Negative Covenants]; (e) except as provided in Sections 11.1(a) through (d), inclusive, Default shall be made in the due observance or performance of any other covenant, condition or agreement to be observed or performed pursuant to this Agreement or any of the Loan Documents and such Default shall continue unremedied for thirty (30) days after the earlier to occur of (i) any Borrower obtaining knowledge thereof or (ii) written notice thereof having been given to the Company; (f) any Borrower shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other federal or state bankruptcy, insolvency, liquidation or similar law, (ii) consent to the institution of, or fail to contravene in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such Borrower or for a substantial part of such Borrower's property or assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any corporate or other action for the purpose of effecting any of the foregoing; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of any Borrower, or of a substantial part of the property or assets of any Borrower, under Title 11 of the United States Code or any other federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for any Borrower or for a substantial part of the property of any Borrower or (iii) the winding-up or liquidation of any Borrower; and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for sixty (60) days; 85 86 (h) default or defaults (other than defaults in the payment of principal or interest) shall be made with respect to any Indebtedness of any Borrower, if the total amount of such Indebtedness in default exceeds in the aggregate, an amount equal to One Million Dollars ($1,000,000) and if the effect of any such default or defaults shall be to accelerate, or to permit the holder or obligee of any such Indebtedness (or any trustee on behalf of such holder or obligee) to accelerate (with or without notice or lapse of time or both), the maturity of any such Indebtedness; or any payment of principal or interest, regardless of amount, on any Indebtedness of the Borrowers which exceeds in the aggregate, an amount equal to One Million Dollars ($1,000,000) shall not be paid when due, whether at maturity, by acceleration or otherwise (after giving effect to any period of grace as specified in the instrument evidencing or governing such Indebtedness); (i) a Reportable Event or Reportable Events shall have occurred with respect to any Plan or Plans that reasonably could be expected to result in a Material Adverse Effect. (j) there shall be entered against the Company or any of its Subsidiaries one or more judgments or decrees in excess of Five Million Dollars ($5,000,000) in the aggregate at any one time outstanding for the Company and all such Subsidiaries and all such judgments or decrees in the amount of such excess shall not have been vacated, discharged, stayed or bonded pending appeal within sixty (60) days from the entry thereof, excluding those judgments or decrees for and to the extent which the Company or any such Subsidiary is insured and with respect to which the insurer has assumed responsibility in writing or for and to the extent which the Company or any such Subsidiary is otherwise indemnified if the terms of such indemnification are satisfactory to the Required Banks; (k) there shall occur any material loss or change to any Dealer Franchise Agreement between any Borrower and a Manufacturer, which has a Material Adverse Effect; (l) there occurs any Material Adverse Effect; (m) any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the Person executing the same in accordance with the respective terms thereof except as permitted by the terms hereof or thereof shall in any way be terminated or become or be declared ineffective or inoperative or shall in any way whatsoever cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby; (n) an audit performed by the Floor Plan Agent pursuant to the provisions of Section 9.12(a), reveals that Motor Vehicles have, for a period of thirty consecutive (30) days been Out of Balance in an amount equal to or greater than the Out of Balance Amount and none of the Floor Plan Borrowers has delivered sufficient funds to restore Excess/Payments in Process to an amount not less than the Out of Balance Amount; or (o) an audit performed by the Floor Plan Agent pursuant to the provisions of Section 9.12(a) identifies any specific motor vehicle by vehicle identification number as an exception to the payment requirements of Section 2.5, and the Loan advanced to fund such Motor Vehicle has 86 87 not been repaid within thirty (30) days (except in the case of Fleet Motor Vehicles, which shall be sixty (60) days) of such audit; then, and in any such event (other than an event with respect to the Company described in paragraph (f) or (g) above), and at any time thereafter during the continuance of such event, (i) the Agent may, and at the request of the Required Banks shall, by written or telegraphic notice to the Company, take any of the following actions at the same or different times: (x) terminate forthwith the Commitments of the Banks hereunder (if not theretofore terminated) and any such termination shall automatically constitute a termination of the Swing Line Commitment, (y) declare the Notes then outstanding to be forthwith due and payable and any such declaration shall automatically constitute a declaration that the Swing Line Note is due and payable, whereupon the principal of the Notes, and the Swing Line Note, together with accrued and unpaid interest thereon and any unpaid accrued Commitment Fees and all other liabilities of the Borrowers accrued hereunder, shall become forthwith due and payable both as to principal and interest, without presentment, demand, protest, notice of protest, notice of intent to accelerate, notice of acceleration or any other notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in any Note, the Swing Line Note or other Loan Document to the contrary notwithstanding, or (z) pursue and enforce any of the rights and remedies of the Agent on behalf of the Banks as provided in any of the Loan Documents or as otherwise provided in the UCC or other applicable law and (ii) the Floor Plan Agent in its sole discretion may, and at the request of the Required Banks shall (and, to the extent the Commitments have been terminated, such request shall be deemed to have been made), suspend and terminate all Drafting Agreements; and in any event with respect to a Borrower described in paragraph (f) or (g) above, the Commitments of the Banks shall automatically terminate (if not theretofore terminated) and any such termination shall automatically constitute a termination of the Swing Line Commitment, and the Notes and the Swing Line Note shall automatically become due and payable, both as to principal and interest, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in any Note, the Swing Line Note or other Loan Document to the contrary notwithstanding and the Company and the other Borrowers shall immediately deliver cash collateral to the Agent in such amounts as are acceptable to the Agent to be held by the Agent, for the benefit of the Swing Line Bank and the Banks as Collateral for the payment and performance of Drafting Agreements until all such Drafting Agreements are terminated according to their terms. ARTICLE XII THE AGENT AND FLOOR PLAN AGENT SECTION 12.1 Authorization and Action of the Agent; Rights and Duties Regarding Collateral. (a) In order to expedite the various transactions contemplated by this Agreement, each Bank, the Floor Plan Agent and the Swing Line Bank hereby irrevocably appoints and authorizes TCB to act as Agent on its behalf. Each of the Banks, the Floor Plan Agent and the Swing Line Bank and each subsequent holder of any Note or the Swing Line Note by its acceptance thereof, hereby irrevocably authorizes and directs the Agent to take such action on its behalf and to exercise such powers hereunder as are specifically delegated to or required of the Agent by the terms 87 88 and provisions hereof, together with such powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents and employees. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Bank, the Floor Plan Agent or the Swing Line Bank; and nothing in this Agreement or any other Loan Document, expressed or implied, is intended to, or shall be so construed as to, impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. The Agent is hereby expressly authorized on behalf of the Banks, the Floor Plan Agent and the Swing Line Bank, without hereby limiting any implied authority, (i) to receive on behalf of each of the Banks any payment of principal of or interest on the Notes outstanding hereunder and all other amounts accrued hereunder paid to the Agent, and promptly to distribute to each Bank its proper share of all payments so received; (ii) to give notice within a reasonable time on behalf of each of the Banks and the Swing Line Bank to the Borrowers of any Default or Event of Default specified in this Agreement of which the Agent has actual knowledge as provided in Section 12.7; (iii) to distribute to each Bank and the Swing Line Bank copies of all notices, agreements and other material as provided for in this Agreement as received by the Agent; (iv) to distribute to the Borrowers any and all requests, demands and approvals received by the Agent or from the Banks, and (v) to distribute and receive all notices, agreements and other material as provided in this Agreement with respect to Floor Plan Loans and to deal with the Floor Plan Agent to the fullest extent required or contemplated by the terms of their Agreement or any other Loan Document. As to any matters not expressly provided for by this Agreement, the Notes, the Swing Line Note or the other Loan Documents (including enforcement or collection of the Notes or the Swing Line Note), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks, and such instructions shall be binding upon all Banks and all holders of Notes, the Swing Line Note and the Loans, the Floor Plan Agent and the Swing Line Bank; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. (b) The Agent shall hold all of the Collateral along with all payments and proceeds arising therefrom, for the benefit of all Banks and the Swing Line Bank as ratable security for the payment of all the Obligations. Upon payment in full of all the Obligations, the Agent shall release all of the Collateral to the Borrowers. Except as otherwise expressly provided for in Section 13.5, the Agent, in its own name or in the name of the Borrowers, may enforce any of the Security Documents or the security therefor by any mode provided under the Loan Documents or by applicable law, and may collect, receive and receipt for all proceeds receivable on account of the Collateral. (c) To the extent that the Collateral includes notes or other instruments evidencing any monetary obligation to, or interest of any Borrower, such Borrowers shall, if requested by the Agent, deliver to the Agent letters, executed by such Borrower and approved by counsel for the Agent, notifying the obligors to make payments directly to the Agent, such letters to be held by the Agent and sent to such obligors at its discretion in accordance with Section 12.1(d) below. All payments and proceeds of every kind from the Collateral, when directly received by the Agent pursuant to Section 12.1(d) (whether from payments on or with respect to the Collateral, from 88 89 foreclosure and sale to third parties, from sale of Collateral subsequent to a foreclosure at which the Agent or another Bank was the purchaser, or otherwise) shall be held by it as a part of the Collateral and, except as otherwise expressly provided hereinafter, shall be applied to the Obligations in the manner set forth in Section 12.1(d). (d) Upon the occurrence of an Event of Default, and pursuant to the procedures among the Banks set forth in Section 12.1(e), the Agent, after giving written notice to the Borrowers and to all Banks and the Swing Line Bank of the action(s) to be taken, may at any time or times thereafter (i) deliver the various letters required by Section 12.1(c) hereof and receive directly, for the pro rata benefit of the Banks and Swing Line Bank and for reduction of the Obligations as provided hereafter in this Section 12.1(d), all payments and proceeds related to the Collateral and/or (ii) sell, assign and deliver all of the Collateral or any part thereof, or any substitution therefor or any additions thereto as provided hereafter. Any such sale or assignment may be at any broker's board or at any public or private sale, at the option of the Agent or of any officer or representative acting on behalf of the Agent, without advertisement or any notice to the Borrowers or any other Person except those required by applicable law (the Borrowers hereby agreeing that ten (10) days' notice constitutes "reasonable notice"); and each Bank (including the Agent), its officers and assigns, may bid and become purchasers at any such sale, if public, or at any broker's board if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations. Sales hereunder may be at such time or times, place or places, for cash or credit, and upon such terms and conditions as the Agent may determine in its sole discretion. Upon the completion of any sale, the Agent shall execute all instruments of transfer necessary to vest in the purchaser(s) title to the property sold, and shall deliver to such purchaser(s) any of the property so sold which may be in the possession of the Agent. In the case of any sale of Collateral, the purchase money proceeds and avails, and all other proceeds which then may be held or recovered by the Agent or the Floor Plan Agent for the benefit of the Banks and the Swing Line Bank, shall be applied in the following order: (w) First, to the payment of the reasonable costs and expenses of such sale and of the collection or enforcement of such Collateral, and of all reasonable expenses (including attorneys fees) and liabilities incurred and advances made by the Agent or Floor Plan Agent in connection therewith; (x) Second, to the payment of any amounts due to Swing Line Bank in the form of Swing Line Overdraft Loans; (y) Third, to the payment ratably of the amounts due to the Banks for principal of and interest on all Obligations other than Swing Line Overdraft Loans then outstanding, without preference or priority of such indebtedness owing to one Bank over another, or of principal over interest, or of interest over principal; and, (z) Fourth, to the payment of the surplus, if any, to the Borrowers, their successors or assigns, or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct. 89 90 (e) After the occurrence and during the continuance of a Default or an Event of Default, the Required Banks shall meet to establish written procedures to be taken by the Agent for the protection, collection and enforcement of the Collateral. The Agent shall not act with respect to the Collateral except in accordance with the written procedures as established by the Required Banks; however, if the Required Banks fail to agree upon and establish such procedures, and the exigency of the circumstances requires, the Agent, in its sole discretion and in good faith, may (but is not required to) take whatever action it deems necessary to protect and enforce the Collateral or the rights of the Banks and the Swing Line Bank under the Loan Documents. The Borrowers shall acquire no rights or defenses under this Section 12.1(e). (f) No Bank or the Swing Line Bank may enforce, or demand enforcement of, any rights or Liens with respect to the Collateral except upon the terms and conditions elsewhere stated in this Agreement. SECTION 12.2 Agent's Reliance, Etc. (a) Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, the Notes, the Swing Line Note or any of the other Loan Documents (i) with the consent or at the request of the Required Banks or (ii) in the absence of its or their own gross negligence or willful misconduct (it being the express intention of the parties hereto that the Agent and its directors, officers, agents and employees shall have no liability for actions and omissions under this Section 12.2 resulting from their sole ordinary or contributory negligence). (b) Without limitation of the generality of the foregoing, the Agent: (i) may treat the payee of each Note, the Swing Line Note and the Obligations of each Borrower hereunder and the Swing Line Bank, respectively, as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel (including counsel for any Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank, the Swing Line Bank, or the Floor Plan Agent and shall not be responsible to any Bank, the Swing Line Bank, or the Floor Plan Agent for any statements, warranties or representations made in or in connection with this Agreement, any Note, the Swing Line Note or any other Loan Document; (iv) except as otherwise expressly provided herein, shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, any Note, the Swing Line Note or any other Loan Document or to inspect the property (including the books and records) of any Borrower; (v) shall not be responsible to any Bank, the Swing Line Bank or the Floor Plan Agent for the due execution, legality, validity, enforceability, collectability, genuineness, sufficiency or value of this Agreement, any Note, the Swing Line Note, any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; (vi) shall not be responsible to any Bank, the Swing Line Bank or the Floor Plan Agent for the perfection or priority of any Lien securing the Loans; and (vii) shall incur no liability under or in respect of this Agreement, any Note, the Swing Line Note or any other Loan Document by acting upon any notice, consent, certificate or other instrument or 90 91 writing (which may be by telegram, telecopier, cable or telex) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 12.3 Agent and Affiliates; TCB and Affiliates. Without limiting the right of any other Bank or the Swing Line Bank to engage in any business transactions with any Borrower or any of its Affiliates, with respect to their Commitments, the Loans, if any, made by them, the Notes, and the Swing Line Note, if any, issued to them, TCB shall have the same rights and powers under this Agreement, any Note, the Swing Line Note or any of the other Loan Documents as any other Bank and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include TCB in its individual capacity. TCB and its Affiliates may be engaged in, or may hereafter engage in, one or more loan, letter of credit, leasing or other financing activities not the subject of the Loan Documents (collectively, the "Other Financings") with any of Borrowers or any of their Affiliates, or may act as trustee on behalf of, or depositary for, or otherwise engage in other business transactions with any of the Borrowers or any of their Affiliates (all Other Financings and other such business transactions being collectively, the "Other Activities") with no responsibility to account therefor to the Banks or the Floor Plan Agent. Without limiting the rights and remedies of the Banks, the Swing Line Bank, or the Floor Plan Agent specifically set forth in the Loan Documents, no other Bank, the Swing Line Bank, nor the Floor Plan Agent shall have any interest in (a) any Other Activities, (b) any present or future guarantee by or for the account of any Borrower not contemplated or included in the Loan Documents, (c) any present or future offset exercised by the Agent in respect of any such Other Activities, (d) any present or future property taken as security for any such Other Activities or (e) any property now or hereafter in the possession or control of the Agent which may be or become security for the Obligations of any Borrower under the Loan Documents by reason of the general description of indebtedness secured, or of property contained in any other agreements, documents or instruments related to such Other Activities; provided, however, that if any payment in respect of such guarantees or such property or the proceeds thereof shall be applied to reduction of the Obligations evidenced hereunder and by the Notes, then each Bank, the Swing Line Bank and the Floor Plan Agent shall be entitled to share in such application according to its equitable portion of such Obligations. SECTION 12.4 Agent's Indemnity. (a) The Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Agreement, the Notes, the Swing Line Note or any other Loan Document unless indemnified to the Agent's satisfaction by the Banks and the Swing Line Bank against loss, cost, liability and expense. If any indemnity furnished to the Agent shall become impaired, the Agent may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, the Banks and the Swing Line Bank agree to indemnify the Agent (to the extent not reimbursed by the Borrowers), ratably according to the respective aggregate principal amounts of the Notes and the Swing Line Note then held by each of them (or if no Notes are at the time outstanding, ratably according to the respective amounts of their Commitments, or if no Commitments are outstanding, the respective amounts of the Commitments immediately prior to the time the Commitments ceased to be outstanding), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent (or either of them) in any way relating to or arising out of this 91 92 Agreement or any action taken or omitted by the Agent under this Agreement, the Notes, the Swing Line Note and the other Loan Documents (including any action taken or omitted under Article II of this Agreement). Without limitation of the foregoing, each Bank and the Swing Line Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement, the Notes, the Swing Line Note and the other Loan Documents to the extent that the Agent is not reimbursed for such expenses by the Borrowers. The provisions of this Section 12.4 shall survive the termination of this Agreement, the payment of the Loans and/or the assignment of any of the Notes and the Swing Line Note. (b) Notwithstanding the foregoing, no Bank or the Swing Line Bank shall be liable under this Section 12.4 to the Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements due to the Agent resulting from the Agent's gross negligence or willful misconduct. Each Bank and the Swing Line Bank agrees, however, that it expressly intends, under this Section 12.4, to indemnify the Agent ratably as aforesaid for all such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements arising out of or resulting from the Agent's sole ordinary or contributory negligence. SECTION 12.5 Bank Credit Decision. Each Bank and the Swing Line Bank acknowledges that it has, independently and without reliance upon the Agent, the Floor Plan Agent or any other Bank or the Swing Line Bank and based on the financial statements most recently delivered under either referred to in Section 7.5 or Section 9.5 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank and the Swing Line Bank also acknowledges that it will, independently and without reliance upon the Agent, the Floor Plan Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under or based upon this Agreement, the other Loan Documents, any related agreement or any document furnished hereunder. SECTION 12.6 Successor Agent. Subject to the appointment and acceptance of a successor Agent as provided herein, the Agent may resign at any time by giving written notice thereof to the Banks, the Swing Line Bank, the Floor Plan Agent and the Company. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent, subject to the approval of the Company, which approval shall not be unreasonably withheld. If no successor Agent shall have been so appointed by the Required Banks, approved by the Company and shall have accepted such appointment, all within thirty (30) calendar days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States or of any state thereof and having a combined capital and surplus of at least Five Hundred Million Dollars ($500,000,000). Upon the acceptance of any appointment as Agent hereunder and under the Notes by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the Notes. After any retiring Agent's resignation as the Agent hereunder and under the Notes, the provisions of this Article XII 92 93 and Section 13.4 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the Notes. SECTION 12.7 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent shall have received notice from a Bank, the Swing Line Bank, the Floor Plan Agent or the Borrowers referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default" or "notice of event of default," as applicable. If the Agent receives such a notice, the Agent shall give notice thereof to the Banks, the Swing Line Bank and the Floor Plan Agent and, if such notice is received from a Bank, the Swing Line Bank or the Floor Plan Agent, the Agent shall give notice thereof to the other Banks, the Swing Line Bank and the Company. The Agent shall be entitled to take action or refrain from taking action with respect to such Default or Event of Default as provided in Section 12.1 and Section 12.2. SECTION 12.8 Authorization and Action of the Floor Plan Agent. (a) In order to expedite the various transactions contemplated by this Agreement, each Bank, the Swing Line Bank and the Agent hereby irrevocably appoint and authorize Comerica Bank to act as Floor Plan Agent on its behalf. Each of the Banks, the Swing Line Bank and the Agent, and each subsequent holder of any Note or the Swing Line Note by its acceptance thereof, hereby irrevocably authorizes and directs the Floor Plan Agent to take such action and to exercise such powers hereunder as are specifically delegated to or required of the Floor Plan Agent by the terms and provisions hereof, together with such powers as are reasonably incidental thereto. The Floor Plan Agent may perform any of its duties hereunder by or through its agents and employees. The duties of the Floor Plan Agent shall be mechanical and administrative in nature; the Floor Plan Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Bank, the Swing Line Bank or the Agent; and nothing in this Agreement or any other Loan Document, expressed or implied, is intended to, or shall be so construed as to, impose upon the Floor Plan Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. The Floor Plan Agent is hereby expressly authorized on behalf of the Banks to (i) receive and distribute funds, (ii) to receive and distribute all notices and agreements and other material and (iii) to take all actions and perform such duties and make such determinations, all as provided in this Agreement. As to any matters not expressly provided for by this Agreement or any Loan Document, the Floor Plan Agent shall not be required to exercise any discretion or take any action, but shall not be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks, and such instructions shall be binding upon all Banks, the Swing Line Bank, the Agent and all holders of Notes and the Swing Line Note and the Loans and the Floor Plan Agent; provided, however, that the Floor Plan Agent shall not be required to take any action which exposes it to personal liability or which is contrary to this Agreement or applicable law. (b) To the extent that any proceeds of the Motor Vehicles includes notes or other instruments evidencing any monetary obligation to, or interest of, any Borrower, such Borrower shall deliver or cause to be delivered to the Floor Plan Agent letters, executed by such Borrower and approved by counsel for the Floor Plan Agent, notifying the obligors to make payments directly to the Floor Plan Agent, such letters to be held by the Floor Plan Agent and sent 93 94 to such obligors at its discretion. All payments and proceeds of every kind from such Motor Vehicles, when directly received by the Floor Plan Agent (whether from payments on or with respect to proceeds of Motor Vehicles, from foreclosure and sale to third parties, from sale of Motor Vehicles subsequent to a foreclosure at which the Floor Plan Agent or another Bank was the purchaser, or otherwise) shall be, except as otherwise expressly provided hereinafter, applied to the Obligations in the manner set forth in Section 12.1(d). SECTION 12.9 Floor Plan Agent's Reliance, etc. (a) Neither the Floor Plan Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement (i) with the consent or at the request of the Required Banks acting by and through the Agent or (ii) in the absence of its or their own gross negligence or willful misconduct (it being the express intention of the parties hereto that the Floor Plan Agent and its directors, officers, agents and employees shall have no liability for actions and omissions under this Section 12.9 resulting from their sole ordinary or contributory negligence). (b) Without limitation of the generality of the foregoing, the Floor Plan Agent: (i) may treat the Agent as Agent hereunder until the Floor Plan Agent receives written notice of the appointment of a successor Agent as provided in Section 12.6; (ii) may consult with legal counsel (including counsel for the Borrowers), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank, the Swing Line Bank or the Agent and shall not be responsible to any Bank, the Swing Line Bank or the Agent for any statements, warranties or representations made in or in connection with this Agreement; (iv) except as otherwise expressly provided herein, shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, or to inspect the property (including the books and records) of any Borrower; (v) shall not be responsible to any Bank, the Swing Line Bank or the Agent for the due execution, legality, validity, enforceability, collectability, genuineness, sufficiency or value of this Agreement, or any other instrument or document furnished pursuant hereto or thereto; (vi) except as otherwise expressly provided herein shall not be responsible to any Bank, the Swing Line Bank or the Agent for the perfection or priority of any Lien securing the Loans; and (vii) shall incur no liability under or in respect of this Agreement, by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopier, cable or telex) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 12.10 Floor Plan Agent and Affiliates; Comerica Bank and Affiliates . Without limiting the right of any other Bank, the Swing Line Bank or the Agent to engage in any business transactions with any Borrower or any of its Affiliates, with respect to their Commitments, the Loans, if any, made by them and the Notes, if any, issued to them, Comerica Bank shall have the same rights and powers under this Agreement, any Note, the Swing Line Note or any of the other Loan Documents as any other Bank and may exercise the same as though it were not the Floor Plan Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Comerica Bank in its individual capacity. Unless prohibited hereby, Comerica Bank and its Affiliates may be engaged in, or may hereafter engage in, one or more Other Financings with the 94 95 Company, any other Borrower or any of their Affiliates, or may act as trustee on behalf of, or depositary for, or otherwise engage in Other Activities with no responsibility to account therefor to the Banks or the Agent. Without limiting the rights and remedies of the Banks or the Agent specifically set forth in the Loan Documents, no other Bank nor the Agent shall have any interest in (a) any Other Activities, (b) any present or future guarantee by or for the account of any of the Borrowers not contemplated or included in the Loan Documents, (c) any present or future offset exercised by the Floor Plan Agent in respect of any such Other Activities, (d) any present or future property taken as security for any such Other Activities or (e) any property now or hereafter in the possession or control of the Floor Plan Agent which may be or become security for the Obligations of the Borrowers under the Loan Documents by reason of the general description of indebtedness secured, or of property contained in any other agreements, documents or instruments related to such Other Activities; provided, however, that if any payment in respect of such guarantees or such property or the proceeds thereof shall be applied to reduction of the Obligations evidenced hereunder and by the Notes or the Swing Line Note, then each Bank and the Swing Line Bank shall be entitled to share in such application according to its equitable portion of such Obligations. SECTION 12.11 Floor Plan Agent's Indemnity . (a) The Floor Plan Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Agreement, the Notes, the Swing Line Note, or any other Loan Document unless indemnified to the Floor Plan Agent's satisfaction by the Banks and the Swing Line Bank, against loss, cost, liability and expense. If any indemnity furnished to the Floor Plan Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, the Banks and the Swing Line Bank agree to indemnify the Floor Plan Agent (to the extent not reimbursed by the Borrowers), ratably according to the respective aggregate principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding, ratably according to the respective amounts of their Commitments, or if no Commitments are outstanding, the respective amounts of the Commitments immediately prior to the time the Commitments ceased to be outstanding), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Floor Plan Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Floor Plan Agent under this Agreement, the Notes, the Swing Line Note and the other Loan Documents (including action taken or omitted under Article II or Article IV of this Agreement). Without limitation of the foregoing, each Bank and the Swing Line Bank agrees to reimburse the Floor Plan Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Floor Plan Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement, the Notes, the Swing Line Note and the other Loan Documents to the extent that the Floor Plan Agent is not reimbursed for such expenses by the Borrowers. The provisions of this Section 12.11 shall survive the termination of this Agreement, the payment of the Loans and/or the assignment of any of the Notes or the Swing Line Note. (b) Notwithstanding the foregoing, no Bank nor the Swing Line Bank shall be liable under this Section 12.11 to the Floor Plan Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements 95 96 due to the Floor Plan Agent resulting from the Floor Plan Agent's gross negligence or willful misconduct. Each Bank and the Swing Line Bank agrees, however, that it expressly intends, under this Section 12.11, to indemnify the Floor Plan Agent ratably as aforesaid for all such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements arising out of or resulting from the Floor Plan Agent's sole ordinary or contributory negligence. SECTION 12.12 Bank Credit Decision . Each Bank acknowledges that it has, independently and without reliance upon the Floor Plan Agent, the Agent or any other Bank and based on the financial statements referred to in Section 7.5 and Section 9.5 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank and the Swing Line Bank also acknowledges that it will, independently and without reliance upon the Floor Plan Agent, the Swing Line Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under or based upon this Agreement, the other Loan Documents, any related agreement or any document furnished hereunder. SECTION 12.13 Successor Agent . Subject to the appointment and acceptance of a successor Floor Plan Agent as provided herein, the Floor Plan Agent may resign at any time by giving written notice thereof to the Banks, the Agent and the Company. Upon any such resignation, the Required Banks shall have the right to appoint a successor Floor Plan Agent, subject to the approval of the Company, which approval shall not be unreasonably withheld. If no successor Floor Plan Agent shall have been so appointed by the Required Banks, approved by the Company and shall have accepted such appointment, all within thirty (30) calendar days after the retiring Floor Plan Agent's giving of notice of resignation, then the Agent shall, on behalf of the Banks, appoint a successor Floor Plan Agent, which shall be a commercial bank organized or licensed under the laws of the United States or of any state thereof and having a combined capital and surplus of at least Five Hundred Million Dollars ($500,000,000). Upon the acceptance of any appointment as Floor Plan Agent hereunder, such successor Floor Plan Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Floor Plan Agent, and the retiring Floor Plan Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Floor Plan Agent's resignation as the Floor Plan Agent hereunder, the provisions of this Article XII and Section 13.4 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Floor Plan Agent under this Agreement. SECTION 12.14 Notice of Default . The Floor Plan Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Floor Plan Agent shall have received notice from a Borrower, a Bank or the Swing Line Bank, stating that such Default or Event of Default has occurred and stating that such notice is a "notice of default or "notice of event of default", as applicable. If the Floor Plan Agent receives such a notice, the Floor Plan Agent shall be entitled to take action or refrain from taking action with respect to such Default or Event of Default as provided in Sections 12.8 and 12.9. SECTION 12.15 Documentation Agent; Co-Agent. None of the Banks identified on the facing page or signature pages of this Agreement as Documentation Agent or Co-Agent shall have any right, power, obligation, liability or responsibility or duty under this Agreement other than those applicable to all Banks as such. Without limiting the foregoing, none of the Banks so identified shall 96 97 have or be deemed to have any fiduciary relations with any Bank. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified in deciding to enter into this Agreement or in taking any action hereunder. ARTICLE XIII MISCELLANEOUS SECTION 13.1 Notices, Etc . The Agent, any Bank, or the holder of any of the Notes or Loans, the Floor Plan Agent, and the Swing Line Bank giving consent or notice or making any request of the Company or any of the other Borrowers provided for hereunder, shall notify each Bank, the Floor Plan Agent and the Agent thereof. In the event that the holder of any Note (including any Bank) shall transfer such Note, it shall promptly so advise the Agent which shall be entitled to assume conclusively that no transfer of any Note has been made by any holder (including any Bank) unless and until the Agent receives written notice to the contrary. All notices, consents, requests, approvals, demands and other communications (collectively, "Communications") provided for herein shall be in writing (including telecopy Communications) and mailed, telecopied or delivered: (a) if to the Company, at 950 Echo Lane, Suite #350, Houston, Texas 77024, Attention of Scott Thompson, Chief Financial Officer (Telecopy No. (713) 467-6268); (b) if to the Borrowers, or any individual Borrower, at the address of the Company specified in Section 13.1(a) above; (c) if to the Agent, at 707 Travis Street, Houston, Texas 77002, Attention of David Jones, Associate (Telecopy No. (713) 216-4940) with a copy to Chase Securities, Inc., 707 Travis Street, 8-TCBN-96, Houston, Texas 77002, Attention of Keith Winzenreid, Managing Director (Telecopy No. (713) 216-2142); (d) if to any Bank, as specified on the signature page for such Bank hereto or, in the case of any Person who becomes a Bank after the date hereof, as specified on the Assignment and Acceptance executed by such Person or in the Administrative Questionnaire delivered by such Person or; (e) in the case of any party hereto, such other address or telecopy number as such party may hereafter specify for such purpose by notice to the other parties; (f) if to the Floor Plan Agent, at Comerica Bank National Dealer Services, 1920 Main Street, Suite 1150 Irvine, California 92614, Attention of Bruce Nowel, (Telecopy No. (714) 476-1222) with a copy to Comerica Bank, Attention: Chris Stearns (Telecopy No. (313-222-9419). All Communications shall, when mailed, telecopied or delivered, be effective when (i) mailed by certified mail, return receipt requested to any party at its address specified above, on the signature page hereof or on the signature page of such Assignment and Acceptance (or other address 97 98 designated by such party in a Communication to the other parties hereto), or (ii) telecopied to any party to the telecopy number set forth above, on the signature page hereof or on the signature page of such Assignment and Acceptance (or other telecopy number designated by such party in a Communication to the other parties hereto) and confirmed by a transmission report verifying the correct telecopier number and number of pages and that such transmission was well transmitted, or (iii) delivered personally to any party at its address specified above, on the signature page hereof or on the signature page of such Assignment and Acceptance (or other address designated by such party in a Communication to the other parties hereto); provided, however, Communications to the Agent pursuant to Article VI or Article XI shall not be effective until received by the Agent. SECTION 13.2 Survival of Agreement . All covenants, agreements, representations and warranties made by the Borrowers herein and in the other Loan Documents and in the certificates or other instruments prepared or delivered in connection with this Agreement shall be considered to have been relied upon by the Banks and shall survive the making by the Banks of the Loans and the execution and delivery to the Banks of the Notes evidencing such Loans and shall continue in full force and effect as long as the principal of or any accrued interest on any Note or any Commitment Fee or any other fee or amount payable under the Notes or this Agreement is outstanding and unpaid and so long as the Commitments have not been terminated. SECTION 13.3 Successors and Assigns; Participations . (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrowers, the Agent, the Floor Plan Agent or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. Except as permitted by ss.10.3, no Borrower may assign or transfer any of its rights or Obligations hereunder without the prior written consent of all the Banks. (b) Each Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including a portion of its Commitment and the same portion of the Loans at the time owing to it and the Note held by it); provided, however, that (i) except in the case of an assignment to a Bank or an Affiliate of a Bank, the Company (except during the continuance of an Event of Default) and the Agent must give their prior written consent by countersigning the Assignment and Acceptance (which consent shall not be unreasonably withheld), (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations to this Agreement, and be pro rata between the Acquisition Loan Commitment and the Floor Plan Loan Commitment, (iii) the amount of the Commitment of the assigning Bank subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Agent) shall (A) be equal to the entire amount of the Commitment of the assigning Bank or (B) if not equal to the entire amount of the Commitment of the assigning Bank, in no event be less than Five Million Dollars ($5,000,000) and shall be in an amount which is an integral multiple of One Million Dollars ($1,000,000); provided, however, for purposes of this Section 13.3(b)(iii)(B), that the retained Commitment of the assigning Bank may not be less than Five Million Dollars ($5,000,000), (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance substantially in the form of Exhibit M 98 99 hereto (an "Assignment and Acceptance"), together with any Note subject to such assignment and the assignor shall pay a processing and recordation fee of Three Thousand Dollars ($3,000) payable by the Bank's assignor thereunder, and (v) the assignee shall deliver to the Agent an Administrative Questionnaire. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be no later than five (5) Business Days after the execution thereof unless otherwise agreed to by the assigning Bank, the Eligible Assignee thereunder and the Agent, (x) the assignee thereunder shall be a party hereto and under the other Loan Documents and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and under the other Loan Documents and (y) the Bank thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement. (c) By executing and delivering an Assignment and Acceptance, the assigning Bank thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty contained in Section 5.14 and that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Borrowers or the performance or observance by any of the Borrowers of any of their Obligations under this Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements most recently delivered under either in Section 7.5 or Section 9.5 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such Bank's assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee and can make the representation contained in Section 5.14 and has, to the extent required, complied with the covenants contained therein; (vi) such assignee appoints and authorizes the Agent and the Floor Plan Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent and the Floor Plan Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (d) The Agent shall maintain at its address referred to in Section 13.1 a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Banks and the Commitments of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive, in the absence of demonstrable error, and the Borrowers and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement and the Loan 99 100 Documents. The Register shall be available for inspection by the Borrowers or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an Eligible Assignee together with the Note subject to such assignment, the processing and recordation fee referred to in paragraph (b) above and, if required, the Company's written consent to such assignment, the Agent shall (subject to the consent of the Company to such assignment, if required), if such Assignment and Acceptance has been completed and is in the form of Exhibit M, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company and the Banks. Within five (5) Business Days after receipt of notice, the Company, at its own expense, shall execute and deliver and shall cause each of the other Borrowers to execute and deliver to the Agent in exchange for the surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the assigning Bank's Commitment assumed by it pursuant to such Assignment and Acceptance, and a new Note to the order of the assigning Bank in an amount equal to the portion of its Commitment retained by the assigning Bank hereunder. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit C-1 or C-2 hereto, as applicable. Each canceled Note shall be promptly returned to the Company. (f) Each Bank may without the consent of any Borrower or the Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it and the Note held by it); provided, however, that (i) such Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the cost protection provisions and Tax indemnities contained in Article V only to the same extent that the Bank from which such participating bank or other entity acquired its participation would be entitled to the benefit of such cost protection provisions and Tax indemnities and (iv) the Borrowers, the Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, and such Bank shall retain the sole right to enforce the Obligations of any of the Borrowers relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers with respect to any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, or the dates fixed for payments of principal of or interest on the Loans). (g) Any Bank or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 13.3, disclose to the assignee or participant or proposed assignee or participant, any information relating to any Borrower furnished to such Bank by or on behalf of any of the Borrowers; provided that prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of any confidential information relating to any Borrower received from such Bank. 100 101 (h) Anything in this Section 13.3 to the contrary notwithstanding, any Bank may at any time, without the consent of any Borrower or the Agent, assign and pledge all or any portion of its Commitment and the Loans owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (i) All transfers of any interest in any Note hereunder shall be in compliance with all federal and state securities laws, if applicable. Notwithstanding the foregoing sentence, however, the parties to this Agreement do not intend that any transfer under this Section 13.3 be construed as a "purchase" or "sale" of a "security" within the meaning of any applicable federal or state securities laws. SECTION 13.4 Expenses of the Banks; Indemnity . (a) The Borrowers agree to pay all reasonable out-of-pocket expenses reasonably incurred by the Agent and the Floor Plan Agent in connection with the preparation of this Agreement, the Notes and the other Loan Documents or with any amendments, modifications or waivers of the provisions hereof (whether or not the transactions hereby contemplated shall be consummated) or reasonably incurred by the Agent, the Floor Plan Agent or any Bank in connection with the enforcement or protection of their rights in connection with this Agreement or with the Loans made or the Notes issued hereunder, including the reasonable fees and disbursements of Jackson Walker L.L.P., special counsel for the Agent and Bodman, Longley & Dahling, LLP, special counsel for the Floor Plan Agent, and, in connection with such enforcement or protection, the reasonable fees and disbursements of other counsel for any Bank, including allocated staff counsel costs for any Bank that elects to use the services of staff counsel in lieu of outside counsel. The Borrowers agree to indemnify the Banks from and hold them harmless against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement or any of the Notes or other Loan Documents. (b) The Borrowers agree to indemnify the Agent, the Floor Plan Agent and the Banks and their Affiliates, directors, officers, employees and agents (each such Person being called an "Indemnitee") against, and to hold the Banks and such other Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution and delivery of this Agreement and the other Loan Documents contemplated hereby, the performance by the parties hereto and thereto of their respective obligations hereunder and thereunder (including the making of the Commitment of each Bank) and consummation of the transactions contemplated hereby and thereby, (ii) the use of proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Bank, apply to any such losses, claims, damages, liabilities or related expenses that are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. The Borrowers agree, however, that they expressly intend to indemnify each Indemnitee from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses arising out of the 101 102 ordinary sole or contributory negligence of such Indemnitee, but not the gross negligence or willful misconduct of such Indemnitee or to any of the foregoing arising solely by reason of claims between the Lenders or any Lender and the Agent or the Floor Plan Agent. (c) The provisions of this Section 13.4 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any Note, or any investigation made by or on behalf of any Bank. All amounts due under this Section 13.4 shall be payable within ten (10) days following receipt by the Company of a detailed invoice or statement setting forth in reasonable detail the basis of such claim and the amounts so expended or lost or the amount of damages so incurred. (d) No Indemnitee may settle any claim to be indemnified without prior written notice to the Company; provided however, failure to provide such prior written notice shall in no way affect the settlement of such claims. (e) In the case of any indemnification hereunder, the Indemnitee shall give notice to the Company of any such claim or demand being made against the Indemnitee and the Company may participate in such proceeding at its own expense if legal counsel to the Company is acceptable to the Agent. SECTION 13.5 Right of Setoff . If an Event of Default shall have occurred and be continuing, each Bank and the Swing Line Bank are hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank, the Swing Line Bank or any branch Subsidiary or Affiliate thereof to or for the credit or the account of the Borrowers against any of and all the Obligations of the Borrowers now or hereafter existing under this Agreement and the Note held by such Bank and the Swing Line Bank, respectively, according to their respective rights as otherwise provided herein, irrespective of whether or not such Bank shall have made any demand under this Agreement or such Note and although such Obligations may be unmatured. Each Bank and the Swing Line Bank agree promptly to notify the Borrowers after any such setoff and application, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Bank and the Swing Line Bank under this Section 13.5 are in addition to other rights and remedies (including other rights of setoff) which such Bank and the Swing Line Bank may have under applicable law. SECTION 13.6 Governing Law; Jurisdiction . (a) This Agreement, the Notes, the other Loan Documents and all other documents executed in connection herewith, shall be deemed to be contracts and agreements executed by the Borrowers, the Agent, the Floor Plan Agent and the Banks under the laws of the State of Texas and of the United States of America and for all purposes shall be governed by, and construed and interpreted in accordance with, the laws of said state and of the United States of America. Without limitation of the foregoing, nothing in this Agreement, the Notes or the other Loan Documents shall be deemed to constitute a waiver of any rights which any Bank may have 102 103 under applicable federal legislation relating to the amount of interest which such Bank may contract for, take, receive, or charge in respect of any Loans, including any right to contract for, take, receive, reserve and charge interest at the rate allowed by the law of the state where such Bank is located. The Agent, the Floor Plan Agent, the Banks and the Borrowers further agree that insofar as the provisions of Article 1.4, Subtitle 1, Title 79, of the Revised Civil Statutes of Texas, 1925, as amended, are at any time applicable to the determination of the Highest Lawful Rate with respect to the Notes, the indicated rate ceiling computed from time to time pursuant to Section (a) of such Article shall apply to the Notes, provided, however, that to the extent permitted by such Article, the Agent may from time to time by notice from the Agent to the Borrowers revise the election of such interest rate ceiling as such ceiling affects the then-current or future balances of the Loans outstanding hereunder and under the Notes. The provisions of Chapter 15 of Subtitle 3 of the said Title 79 do not apply to this Agreement or any Note issued hereunder. (b) Each Borrower hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any Texas state court, or any United States federal court, sitting in the City of Houston or County of Harris, Texas, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Collateral is located, over any suit, action or proceeding arising out of or relating to this Agreement or the Obligations. Each Borrower hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any Texas state court, or any United States federal court, sitting in the City of Houston or County of Harris, Texas may be made by certified or registered mail, return receipt requested, directed to such Borrower at its address stated in Section 13.1, or at a subsequent address of which Administrative Agent received actual notice from such Borrower in accordance with this Agreement, and service so made shall be complete five (5) days after the same shall have been so mailed. SECTION 13.7 Waivers; Amendments. (a) No failure or delay of the Agent, the Floor Plan Agent or any Bank in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agent, the Floor Plan Agent and the Banks hereunder are cumulative and not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement, the Notes or the other Loan Documents or consent to any departure by the Borrowers therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances. Each holder of any Note shall be bound by any amendment, modification, waiver or consent authorized as provided herein, whether or not such Note shall have been marked to indicate such amendment, modification, waiver or consent. (b) Neither this Agreement, any Loan Document nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in 103 104 writing entered into by the Borrowers and the Required Banks; provided, however, that no such agreement shall (i) change the principal amount of, or extend or advance the maturity of or any date for the payment of any principal of or interest on, any Loan, or waive or excuse any such payment or any part thereof, or, except as provided in this Agreement, change the rate of interest on any Loan, without the written consent of each Bank affected thereby, (ii) change the Commitment of any Bank without the written consent of such Bank or change the Commitment Fees of any Bank without the written consent of each Bank, (iii) release or defer the granting or perfecting of a Lien in any Collateral or release any guaranty or similar undertaking provided by any Person or modify any indemnity provided to the Banks hereunder or under the other Loan Documents; provided however the Agent or the Floor Plan Agent, as the case may be, shall be entitled to release any Collateral or any guaranty which a Borrower is permitted to sell or transfer or otherwise release under the terms of this Agreement or any Loan Document without notice to or any further action or consent of the Banks; or (iv) amend or modify the provisions of this Section 13.7, Section 13.3, Section 4.6(c), Section 12.1(d), Section 6.7(a) or the definition of the "Required Banks," without the written consent of each Bank; and provided further that no such agreement shall amend, modify, waive or otherwise affect the rights or duties of the Agent or the Floor Plan Agent hereunder without the written consent of the Agent or the Floor Plan Agent, respectively. Each Bank and each holder of any Note shall be bound by any modification or amendment authorized by this Section 13.7 regardless of whether its Note shall be marked to make reference thereto, and any consent by any Bank or holder of a Note pursuant to this Section 13.7 shall bind any Person subsequently acquiring a Note from it, whether or not such Note shall be so marked. SECTION 13.8 Interest . Each provision in this Agreement and each other Loan Document is expressly limited so that in no event whatsoever shall the amount contracted for, charged, paid, or otherwise agreed to be paid, or received to the Agent or any Bank for the use, forbearance or detention of the money to be loaned under this Agreement or any Loan Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other Loan Document which is for the use, forbearance or detention of such money), exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate, and all amounts owed under this Agreement and each other Loan Document shall be held to be subject to reduction to the effect that such amounts so paid or agreed to be paid which are for the use, forbearance or detention of money under this Agreement or such Loan Document shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. Anything in this Agreement or any Note or any other Loan Document to the contrary notwithstanding, none of the Borrowers shall ever be required to pay unearned interest on any Note and shall never be required to pay interest on such Note at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under this Agreement, such Note and the other Loan Documents would exceed the Highest Lawful Rate, or if the holder of such Note shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by the Borrowers under this Agreement and such Note to a rate in excess of the Highest Lawful Rate, then (a) the amount of interest which would otherwise be payable by the Borrowers under this Agreement, such Note or any Loan Document shall be reduced to the amount allowed under applicable law, and (b) any unearned interest paid by the Borrowers or any interest paid by the Borrowers in excess of the Highest Lawful Rate shall be credited on the principal of such Note (or, if the principal amount of such Note shall have been paid in full, refunded to the Borrowers). It is further agreed that, without limitation of the 104 105 foregoing, all calculations of the rate of interest contracted for, charged or received by any Bank under the Notes held by it, or under this Agreement, are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate applicable to such Bank (such Highest Lawful Rate being such Bank's "Maximum Permissible Rate"), and shall be made, to the extent permitted by usury laws applicable to such Bank (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Loans evidenced by said Notes all interest at any time contracted for, charged or received by such Bank in connection therewith. If at any time and from time to time (i) the amount of interest payable to any Bank on any date shall be computed at such Bank's Maximum Permissible Rate pursuant to this Section 13.8 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Bank would be less than the amount of interest payable to such Bank computed at such Bank's Maximum Permissible Rate, then the amount of interest payable to such Bank in respect of such subsequent interest computation period shall continue to be computed at such Bank's Maximum Permissible Rate until the total amount of interest payable to such Bank shall equal the total amount of interest which would have been payable to such Bank if the total amount of interest had been computed without giving effect to this Section 13.8. SECTION 13.9 Severability; Conflicts . (a) In the event any one or more of the provisions contained in this Agreement, the Notes or any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. (b) In the event any of the terms and provisions of any other Loan Document are inconsistent with the terms and provisions set forth in this Agreement, the terms and provisions set forth in this Agreement shall prevail. SECTION 13.10 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 13.11. SECTION 13.11 Binding Effect . This Agreement shall become effective on the Closing Date, and thereafter shall be binding upon and inure to the benefit of each Borrower, the Agent, the Floor Plan Agent and each Bank and their respective successors and assigns, except that no Borrower shall have the right to assign its rights hereunder or any interest herein except as provided in Section 13.3(a). SECTION 13.12 Further Assurances . Each Borrower shall make, execute or endorse, and acknowledge and deliver or file or cause the same to be done, all such vouchers, invoices, notices, certifications and additional agreements, undertakings, conveyances, deeds of trust, mortgages, transfers, assignments, financing statements or other assurances, and take any and all such other action, as the Agent or the Floor Plan Agent may, from time to time, deem reasonably necessary or proper in connection with any of the Loan Documents, the Obligations of the Borrowers thereunder or for better assuring and confirming unto the Banks all or any part of the security for any of such Obligations. 105 106 SECTION 13.13 Subsidiary Solvency Savings Clause . Each of the Borrowers acknowledges the receipt and acceptance of valuable consideration as of the Closing Date and thereafter in connection with this Agreement; and each such Borrower further acknowledges and agrees that the direct benefits and enrichment it derives from being a party to this Agreement constitute a reasonably equivalent value to it in exchange for the joint and several liability it has incurred pursuant to this the Agreement. Further, each of the Borrowers acknowledges the interdependence by and among the other Borrowers in successfully carrying out their business operations. Each of the Borrowers represents that it is solvent prior to entering into this Agreement and that the transactions completed hereby will not render it insolvent and will not cause it to become financially non-viable in the future; provided, however in the event that the Indebtedness incurred by any Borrower pursuant to this Agreement or the transactions contemplated hereby would constitute a "fraudulent transfer"as to any such Borrower under Section 548 of the Federal Bankruptcy Code or pursuant to any applicable state law governing "fraudulent transfers" because such Borrower is deemed to have become insolvent as a result of incurring such Indebtedness, then, in such event, the liability of any such Borrower hereunder shall be deemed for all purposes to be equal to one dollar less than that amount of Indebtedness which would not render such Borrower insolvent. SECTION 13.14 Joint and Several Liability and Related Matters . (a) Each of Floor Plan Borrowers other than the Company authorizes the Company with full power and authority as attorney-in-fact, to execute and deliver Requests for Borrowings, requests for issuance of Letters of Credit and each other instrument, certificate and report to be delivered by any Floor Plan Borrower to the Agent, the Floor Plan Agent and the Banks pursuant to this Agreement or any Loan Document. Each of the Floor Plan Borrowers other than the Company agrees that it shall be bound by any action taken by the Company on its behalf pursuant to such appointment. (b) The obligations of the Borrowers under this Agreement and the other Loan Documents are joint and several. (c) Each Borrower acknowledges and agrees that it is the intent of the parties that each Borrower be primarily liable for the obligations as a joint and several obligor. It is the intention of the parties that with respect to liability of any Borrower hereunder arising solely by reason of its being jointly and severally liable for Loans and Letter of Credit Obligations and other extensions of credit taken by other Borrowers, the obligations of such Borrower shall be absolute, unconditional and irrevocable irrespective of: (i) any lack of validity, legality or enforceability of this Agreement, any Note or any Loan Document as to any other Borrower; (ii) the failure of any Bank or any holder of any Note: 106 107 (A) to enforce any right or remedy against any Borrower or any other Person (including any surety) under the provisions of this Agreement, such Note or otherwise, or (B) to exercise any right or remedy against any surety of, or Collateral securing, any obligations; (iii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other extension, compromise or renewal of any Obligations; (iv) any reduction, limitation, impairment or termination of any Obligations with respect to any other Borrower for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Borrower hereby waives any right to or claim of) any defense (other than the defense of payment in full of the Obligations) or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations with respect to any other Borrower; (v) any addition, exchange, release, surrender or nonperfection of any Collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any guaranty, held by any Bank or any holder of the Notes securing any of the Obligations; or (vi) any other circumstance which might otherwise constitute a defense (other than the defense of payment in full of the Obligations) available to, or a legal or equitable discharge of, any other Borrower, any surety or any guarantor. (d) Each Borrower agrees that its joint and several liability hereunder shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must be restored by any Bank or any holder of any Note, upon the insolvency, bankruptcy or reorganization of any Borrower as though such payment had not been made. (e) Each Borrower hereby expressly waives: (i) notice of the Banks' acceptance of this Agreement; (ii) notice of the existence or creation or non payment of all or any of the Obligations other than notices expressly provided for in this Agreement; (iii) presentment, demand, notice of dishonor, protest, and all other notices whatsoever other than notices expressly provided for in this Agreement; and (iv) all diligence in collection or protection of or realization upon the Obligations or any part thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing, subject, however, in the case of Collateral in the possession of the Agent or a Bank to such Person's duty to use reasonable care in the custody and preservation of such Collateral. 107 108 (f) No delay on any of the Banks' part in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by any of the Banks of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. No action of any of the Banks permitted hereunder shall in any way affect or impair any such Banks' rights or any Borrower's Obligations under this Agreement. (g) Each Borrower hereby represents and warrants to each of the Banks that it now has and will continue to have independent means of obtaining information concerning the Borrowers' affairs, financial condition and business. Banks shall not have any duty or responsibility to provide any Borrower with any credit or other information concerning the Borrowers' affairs, financial condition or business which may come into the Banks' possession. SECTION 13.15 WAIVER OF JURY TRIAL . THE BANKS, THE AGENT, THE FLOOR PLAN AGENT AND EACH OF THE BORROWERS AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTION OF ANY OF THEM. NEITHER THE BANKS, THE AGENT, FLOOR PLAN AGENT NOR ANY OF THE BORROWERS SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANKS, THE AGENT, THE FLOOR PLAN AGENT OR ANY OF THE BORROWERS EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM. SECTION 13.16 FINAL AGREEMENT OF THE PARTIES . THIS WRITTEN AGREEMENT (INCLUDING THE EXHIBITS AND SCHEDULES HERETO), THE NOTES, THE AGENT'S LETTER, THE FLOOR PLAN AGENT'S LETTER AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.2(a) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement. * * * Signatures following on succeeding pages 108 109 IN WITNESS HEREOF, the Borrowers, the Banks listed on the signature pages hereto, the Agent and the Floor Plan Agent have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. BORROWERS: GROUP 1 AUTOMOTIVE, INC., a Delaware corporation By: /s/ SCOTT THOMPSON ------------------- Name: Scott Thompson Title: Senior Vice President SOUTHWEST TOYOTA, INC., a Texas corporation, SMC LUXURY CARS, INC., a Texas corporation, FOYT MOTORS, INC., a Texas corporation, SMITH, LIU & CORBIN, INC., a Texas corporation, COURTESY NISSAN, Inc., a Texas corporation, ROUND ROCK NISSAN, INC., a Texas corporation, SMITH, LIU & KUTZ, INC., a Texas corporation, TOWN NORTH NISSAN, INC., a Texas corporation, TOWN NORTH IMPORTS, INC., a Texas corporation, TOWN NORTH SUZUKI, INC., a Texas corporation, MIKE SMITH AUTOPLAZA, INC., a Texas corporation, HOWARD PONTIAC-GMC, INC., an Oklahoma corporation, BOB HOWARD CHEVROLET, INC., an Oklahoma corporation, BOB HOWARD MOTORS, INC., an Oklahoma corporation, BOB HOWARD AUTOMOTIVE-H, INC., an Oklahoma corporation, and BOB HOWARD DODGE, INC., an Oklahoma corporation, by the undersigned, on behalf of each of the foregoing: By: /s/ SCOTT THOMPSON ------------------- Name: Scott Thompson Title: Vice President Revolving Credit Agreement Signature Page - 1 110 AGENT AND ISSUING BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ CURTIS D. KARGES --------------------------------------- Name: Curtis D. Karges Title: Senior Vice President FLOOR PLAN AGENT COMERICA BANK AND SWING LINE BANK By: /s/ JOSEPH A. MORAN --------------------------------------- Name: Joseph A. Moran Title: Senior Vice Senior Vice President Revolving Credit Agreement Signature Page - 2 111 BANKS: NATIONSBANK OF TEXAS, N.A. By: /s/ BRUCE CLAY --------------------------------------- Name: Bruce Clay Title: Vice President Address: 140 Cypress Station #208 Houston, Texas 77090 Telecopy No.: 281-537-3246 Domestic Lending Office Attention: Bruce Clay Eurodollar Lending Office Attention: Bruce Clay Revolving Credit Agreement Signature Page - 3 112 BANKS U.S. BANK By: /s/ MICHAEL F. LUITEN --------------------------------------- Name: Michael F. Luiten ------------------------------------- Title: Senior Vice President ------------------------------------ Address: 10800 N.E. 8th, Suite 900 ---------------------------------- Bellvue, WA 98004 ---------------------------------- Telecopy No.: 425-450-5762 ----------------------------- Domestic Lending Office Attention: Eurodollar Lending Office Attention: Revolving Credit Agreement Signature Page - 4 113 BANKS: Bank Of Scotland By: /s/ ANNIE CHIN-TAT --------------------------------------- Name: Annie Chin-Tat Title: Vice President Address: 565 5th Avenue New York, New York 10017 Telecopy No.: (212) 557-9460 Domestic Lending Office Attention: Annie Chin-Tat Eurodollar Lending Office Attention: Annie Chin-Tat Revolving Credit Agreement Signature Page - 5 114 BANKS TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ CURTIS D. KARGES --------------------------------------- Name: Curtis D. Karges Title: Senior Vice President Address: 712 Main Street 8-TCBN-96 Houston, Texas 77002 Telecopy No.: Domestic Lending Office Attention: Gale Manning Eurodollar Lending Office Attention: Gale Manning Revolving Credit Agreement Signature Page - 6 115 BANKS COMERICA BANK By: /s/ JOSEPH MORAN --------------------------------------- Name: Joseph Moran Title: Senior Vice President Address: 1920 Main Street, Suite 1150 Irvine, California 92614 Telecopy No.: 714-476-1222 Domestic Lending Office Attention: Bruce Nowel Eurodollar Lending Office Attention: Bruce Nowel Revolving Credit Agreement Signature Page - 7 EX-10.54 25 STOCK PLEDGE AGREEMENT - DATED 12/19/97 1 EXHIBIT 10.54 STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made and executed as of the 19th day of December, 1997, by GROUP 1 AUTOMOTIVE, INC., a Delaware corporation ("Group 1"), and each Subsidiary of Group 1 executing this Pledge Agreement on the signature pages hereof or on any supplement, addendum or modification hereof (each a "Pledgor" and collectively "Pledgors"), in favor of TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for and representative of (in such capacity, "Agent") itself and such banks as may from time to time be a "Bank" under the Credit Agreement (hereinafter defined) (Agent and such other Banks are sometimes collectively referred to herein as "Pledgees"). W I T N E S S E T H: WHEREAS, pursuant to that certain Revolving Credit Agreement (as modified or restated from time to time, the "Credit Agreement") dated as of December 31, 1997, by and among Agent, Comerica Bank, as Floor Plan Agent, the Pledgees, as the Banks thereunder, and Pledgors as the Borrowers thereunder (the "Borrowers"), Pledgees have agreed to make Loans available to Borrowers upon the terms and conditions set forth therein (unless otherwise defined herein, each term used herein with its initial letter capitalized shall have the meaning given to such term in the Credit Agreement); and WHEREAS, in consideration for the agreement of Pledgees to make monies available to Borrowers under the Credit Agreement, each Pledgor has agreed to pledge all shares of capital stock or equity interests of the Subsidiaries of the respective Pledgor. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Pledgors hereby agree with Agent and Pledgees as follows: 1. Pledge. Upon the terms hereof, the Pledgors hereby pledge and assign to Agent, and grant to Agent, for the benefit of Pledgees and any other holder from time to time of any Note or any of the indebtedness evidenced thereby, a security interest in, all of the rights, titles and interests of Pledgors in and to the following: (all of the following being sometimes referred to herein collectively as the "Pledged Interests"): (a) all of the issued and outstanding shares of capital stock or other equity interests (the "Pledged Shares") now or hereafter owned by any Pledgor in all Subsidiaries of such Pledgor, including, without limitation, the shares and interests described on Exhibit A attached hereto and incorporated herein by reference for all purposes (as Exhibit A may be amended or supplemented from time to time)(each such Subsidiary of a Borrower being herein sometimes referred to as a "Company"), but excluding the stock of any Subsidiary acquired or established after the date hereof in the case that any automobile franchise agreement to which such Subsidiary is a party prohibits the pledging or collateral assignment of such Subsidiary's stock; (b) all cash, securities, dividends, and other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of the shares and interests described in clause (a) hereof and any other property substituted or exchanged therefor; and (c) any and all proceeds or other sums arising from or by virtue of, and all dividends and distributions (cash or otherwise) payable and/or distributable with respect to, all or any of the shares and interests described in the preceding clauses (a) and (b) hereof. 2. Secured Obligation. The security interest herein granted (the "Security Interest") shall secure the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of all the Obligations under and as defined in the Credit Agreement. Upon full payment and performance of the Obligations, the Security Interest shall, at the request and expense of Pledgor, be released by Agent and Pledgees. EXHIBIT E-i 2 3. Representations and Warranties; Related Covenants. Pledgors represent, warrant, covenant and agree to and with Agent and Pledgees that: (a) each Pledgor is the legal and beneficial owner of the Pledged Interests; (b) all of the Pledged Shares currently outstanding and described on Exhibit A are duly authorized and issued, fully paid and non-assessable, and all documentary, stamp or other taxes or fees owing in connection with the issuance, transfer and/or pledge thereof have been paid; (c) to the knowledge of Pledgors, no dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Pledged Interests; (d) the Pledged Interests are free and clear of all liens, mortgages, pledges, charges, security interests or other encumbrances, options, warrants, puts, calls and other rights of third persons, and restrictions, other than (i) the Security Interest, (ii) restrictions on transferability imposed by applicable state and federal securities laws, and (iii) the restrictions, if any, contained in each Company's Dealer Franchise Agreements; (e) Pledgors have full corporate or other applicable power, right and authority to pledge the Pledged Interests for the purposes and upon the terms set out herein, and the execution, delivery and performance of this Pledge Agreement are not in contravention of any indenture, agreement or undertaking to which any Pledgor as a party or by which any Pledgor is bound, except where such contravention would not have a Material Adverse Effect or a material adverse effect on Group 1 or the Pledgors; (f) the original stock certificates representing all of the Pledged Shares have been delivered to Agent, together with a duly executed blank stock power with signatures guaranteed, for each certificate; (g) the Pledged Shares and Interests described on Exhibit A constitute (i) all of the issued and outstanding capital stock of each of the Companies and (ii) the indicated number of shares and/or ownership interest percentages of the entities as shown on Exhibit A; (h) none of the Companies have issued, nor are there outstanding, any options, warrants or other rights in favor of any Pledgor to acquire capital stock of any of the Companies nor other interests of any of the Non-Subsidiary Entities; and (i) the Companies constitute all of the Subsidiaries of Pledgor on the date hereof. 4. Covenants. (a) Further Acts, Assurances. Pledgors covenant and agree to from time to time promptly execute and deliver to Agent all such other assignments, certificates, supplemental writings and financing statements as Agent requests in order to perfect or evidence the Security Interest. Pledgors further agree that if any Pledgor shall at any time acquire any additional shares of the capital stock of any class of any of the Companies, or any additional interests of ownership of any kind of any Subsidiary, and whether such acquisition shall be by purchase, exchange, reclassification, dividend or otherwise, such Pledgor shall, as soon as practically possible, (and without the necessity for any request or demand by Agent) deliver the certificates representing such shares or interests to Agent, in the same manner and with the same effect as described in Sections 1 through 3 hereof. Upon delivery, such shares or evidences of ownership shall thereupon constitute Pledged Interests and shall be subject to the Security Interest herein created, for the purposes and upon the terms and conditions set forth in this Pledge Agreement, the Credit Agreement, the Notes and the other Loan Documents. (b) No Transfer or Hypothecation. Pledgors will not, without the prior written consent of Agent, transfer, assign, dispose of any right, title or interest of Pledgors, or any of them, in the Pledged Interests, or any part thereof, or create directly or indirectly any other security interest or otherwise encumber any of the Pledged Interests, or permit any of the Pledged Interests to ever be or become subject to any warrant, put, option or other rights of third Persons or any attachment, execution, sequestration or other legal or equitable process, or any security interest or encumbrance of any kind, except the Security Interest. Pledgor will warrant and defend the Security Interest created hereby against the claims of all third parties other than Pledgees. (c) Enforcement. Pledgors shall enforce or secure in the name of Agent for the Pledgees the performance of each and every obligation, term, covenant, condition and agreement relating to the Pledged Interests, and Pledgors shall appear in and defend any action or proceeding arising under, occurring out of or in any manner connected with the Pledged Interests, and upon request by Agent, Pledgors will do so in the name and on behalf of Pledgees, but at the expense of Pledgors, and Pledgors shall pay all costs and expenses of Agent and Pledgees, including, but not limited to, attorneys' fees and disbursements, in any action or proceeding in which Pledgees may appear. (d) Inspection. Pledgors shall allow Agent to inspect all records of Pledgors relating to the Pledged Interests, and to make and take away copies of such records. (e) Changes. Pledgors shall promptly notify Agent of any material change in any fact or circumstance warranted or represented by any Pledgor in this Pledge Agreement EXHIBIT E-ii 3 or in any other writing furnished by any Pledgor to Agent in connection with the Pledged Interests or this Pledge Agreement. (f) Claims. Pledgors shall promptly notify Agent of any claim, action or proceeding affecting title to the Pledged Interests, or any part thereof, or the Security Interest, and at the request of Agent, appear in and defend, at Pledgors' expense, any such action or proceeding. (g) Costs. Pledgors shall promptly pay to Agent the amount of all reasonable costs and expenses of Agent and/or the Pledgees, including, but not limited to, reasonable attorneys' fees, incurred by Agent or Pledgees in connection with this Pledge Agreement and the enforcement of the rights of Agent or Pledgees hereunder, in accordance with Section 13.4 of the Credit Agreement. 5. Conversions; etc. Should the Pledged Interests, or any part thereof, ever be in any manner converted by any of the Companies into another property of the same or another type or any money or other proceeds ever be paid or delivered to Pledgors as a result of Pledgors' rights in the Pledged Interests, then in any such event (except as otherwise provided herein), all such property, money and other proceeds shall be and/or become part of the Pledged Interests, and Pledgors covenant forthwith to pay or deliver to Agent all of the same which is susceptible of delivery; and at the same time, if Agent deems it necessary and so requests, Pledgors will properly endorse or assign the same to Agent for the benefit of Pledgees. Without limiting the generality of the foregoing, Pledgors hereby agree that the shares of capital stock of the surviving corporation in any merger or consolidation involving any of the Companies or any of the Pledged Interests shall be deemed to constitute the same property as the Pledged Interests. With respect to any such property of a kind requiring an additional security agreement, financing statement or other writing to perfect a security interest therein in favor of Pledgees, Pledgors will forthwith execute and deliver to Agent, such documentation as Agent shall request to create and perfect its liens and security interests herein. 6. Payments on the Pledged Interests. Subject to the terms of Section 9, with respect to any instruments or warrants that are or become part of the Pledged Interests, Agent, without notice to Pledgors, shall have the right at any time and from time to time, after the occurrence and during the continuance of an Event of Default, to notify and direct each of the Companies to thereafter make all payments on such Pledged Interests directly to Agent, regardless of whether any Pledgor was previously making collections thereon, and, with respect to such instruments or warrants that are stock certificates, shares of capital or permanent reserve fund stock or beneficial interest, or other securities, Agent shall have authority, after the occurrence and during the continuance of an Event of Default, without further notice to Pledgors, either to have them registered in Agent's name, or in the name of Agent's nominee, or, with or without registration, to demand of each of the Companies, and to receive a receipt for, any and all distributions payable with respect thereto, regardless of the medium in which paid and whether they be ordinary or extraordinary. Each of the Companies shall be fully protected in relying on the written statement of Agent that it then holds the Security Interest which entitles it to receive such payment. The receipt of Agent for such payment shall be full acquittance therefor to each of the Companies, and Pledgors agree, at the request of Agent, to execute and deliver a letter to each of the Companies acknowledging this right of Agent; provided, that the failure of any Pledgor to execute and deliver such letter shall not affect or limit the rights of Agent or Pledgees set forth herein. 7. Preservation of Pledged Interests. Neither Agent nor Pledgees shall have any responsibility for or obligation or duty with respect to all or any part of the Pledged Interests or any matter or proceeding arising out of or relating thereto, including, without limitation, any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights against prior parties or any other rights pertaining thereto, it being understood and agreed that Pledgors shall be responsible generally for the preservation of all rights in the Pledged Interests. 8. Collection of the Loan. Neither Agent nor Pledgees shall ever be liable for any failure to use due diligence in the collection of any and all amounts due and owing under the Notes, the Credit Agreement or any other Loan Documents, or any part thereof. EXHIBIT E-iii 4 9. Rights of Parties Before and After the Occurrence of an Event of Default. (a) Exercising Rights Prior to an Event of Default. Unless and until an Event of Default shall occur and be continuing, (i) Each Pledgor shall be entitled to receive all cash dividends paid to such Pledgor in respect of or attributable to the Pledged Interests owned by such Pledgor and any and all other Distributions (hereinafter defined), except as provided in the following sentence. Notwithstanding the foregoing, Agent shall be entitled to receive, whether or not an Event of Default has occurred, any and all Distributions of stock, whether as a result of a stock dividend, stock split or otherwise. As used herein "Distributions" shall mean the retirement, redemption, purchase or other acquisition for value of the Pledged Interests, the declaration or payment of any dividend or other distribution on or with respect to the Pledged Interests, and any other payment made with respect to the Pledged Interests. All such Distributions of stock and, after and during the continuance of an Event of Default, any and all other Distributions, shall if received by any Person other than Agent, be held in trust for the benefit of Pledgees and shall forthwith be delivered to Agent (accompanied by proper instruments of assignment and/or stock and/or bond powers executed by the applicable Pledgor in accordance with Agent's instructions) to be held subject to the terms of this Pledge Agreement. Any cash proceeds of the Pledged Interests which come into the possession of Agent or Pledgees after the occurrence and during the continuance of an Event of Default may, at Agent's option, be applied in whole or in part to the Obligations (to the extent then due), or be released in whole or in part to or on the written instructions of the applicable Pledgor. Neither Agent nor any Pledgees shall be obligated to make any investment of such proceeds or shall have any liability to Pledgors for any loss which may result therefrom. All interest and other amounts earned from any investment of such proceeds may be dealt with by Agent for the Pledgees in the same manner as other cash proceeds. (ii) Each Pledgor shall have the right to vote and give consents with respect to all of the Pledged Interests owned by it and to consent to, ratify, or waive notice of any and all meetings; provided that such right shall in no case be exercised for any purpose contrary to, or in violation of, any of the terms or provisions of this Pledge Agreement, the Notes, the Credit Agreement, or any other Loan Document. (b) Exercising Rights After the Occurrence of an Event of Default. Upon the occurrence and during the continuance of an Event of Default, Agent, without the consent of Pledgors, may: (i) At any time vote or consent in respect of any of the Pledged Interests and authorize any Pledged Interests to be voted and such consents to be given, ratify and EXHIBIT E-iv 5 waive notice of any and all meetings, and take such other action as shall seem desirable to Agent, in its discretion, to protect or further the interests of Pledgees in respect of any of the Pledged Interests as though it were the outright owner thereof, and, each Pledgor hereby irrevocably constitutes and appoints Agent, after the occurrence and during the continuance of an Event of Default, its sole proxy and attorney-in-fact, with full power of substitution to vote and act with respect to any and all Pledged Interests standing in the name of such Pledgor or with respect to which such Pledgor is entitled to vote and act. The proxy and power of attorney herein granted are coupled with interests, are irrevocable, and shall continue throughout the term of this Pledge Agreement; (ii) In respect of any Pledged Interests, join in and become a party to any plan of recapitalization, reorganization or readjustment (whether voluntary or involuntary) as shall seem desirable to Agent in respect of any such Pledged Interests, and deposit any such Pledged Interests under any such plan; make any exchange, substitution, cancellation or surrender of such Pledged Interests required by any such plan and take such action with respect to any such Pledged Interests as may be required by any such plan or for the accomplishment thereof; and no such disposition, exchange, substitution, cancellation or surrender shall be deemed to constitute a release of Pledged Interests from the Security Interest of this Pledge Agreement; (iii) Receive all payments of whatever kind made upon or with respect to any Pledged Interests; and (iv) Transfer into its name, or into the name or names of its nominee or nominees, all or any of the Pledged Shares or the Pledged Interests. (c) Right of Sale After the Occurrence of an Event of Default. Upon the occurrence and during the continuance of an Event of Default, Agent may sell, without recourse to judicial proceedings, by way of one or more contracts, with the right (except at private sale) to bid for and buy, free from any right of redemption, the Pledged Shares and/or Pledged Interests or any part thereof, upon five (5) days' notice (which notice is agreed to be reasonable notice for the purposes hereof) to Pledgor of the time and place of sale, for cash, upon credit or for future delivery, at Agent's option and in Agent's complete discretion: (i) At public sale, including a sale at any broker's board or exchange; or (ii) At private sale in any manner which will not require the Pledged Interests, or any part thereof, to be registered in accordance with The Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder, or any other law or regulation, at the best price reasonably obtainable by Agent at any such private sale or other disposition in the manner mentioned above. Agent is also hereby authorized, but not obligated, to take such actions, give such notices, obtain such consents, and do such other things as Agent may deem required or appropriate in the event of sale or disposition of any EXHIBIT E-v 6 of the Pledged Interests. Pledgors understand that Agent may in its discretion approach a restricted number of potential purchasers and that a sale under such circumstances may yield a lower price for the Pledged Interests, or any portion thereof, than would otherwise be obtainable if the same were registered and sold in the open market. Pledgors agree (A) that in the event Agent shall so sell the Pledged Interests, or any portion thereof, at such private sale or sales, Agent shall have the right to rely upon the advice and opinion of any member firm of a national securities exchange as to the best price reasonably obtainable upon such a private sale thereof (any expense borne by Agent in obtaining such advice to be paid by Pledgors as an expense related to the exercise by Agent of its rights hereunder), and (B) that such reliance shall be conclusive evidence that Agent handled such matter in a commercially reasonable manner. Pledgees shall be under no obligation to take any steps to permit the Pledged Interests to be sold at a public sale or to delay a sale to permit the Companies to register the Pledged Interests for public sale under The Securities Act of 1933 or applicable state securities law. In case of any sale by the Agent of the Pledged Interests on credit or for future delivery, the Pledged Interests sold may be retained by Agent until the selling price is paid by the purchaser, but Agent shall incur no liability in case of failure of the purchaser to take up and pay for the Pledged Interests so sold. In case of any such failure, such Pledged Interests so sold may be again similarly sold. In connection with the sale of the Pledged Interests, Agent is authorized, but not obligated, to limit prospective purchasers to the extent deemed necessary or desirable by Agent to render such sale exempt from the registration requirements of The Securities Act of 1933, as amended, and any applicable state securities laws, and no sale so made in good faith by Agent shall be deemed not to be "commercially reasonable" because so made. (d) Other Rights After an Event of Default. Upon the occurrence and during the continuance of an Event of Default, Agent, at its election, may exercise any and all rights available to a secured party under the Uniform Commercial Code as enacted in the State of Texas or other applicable jurisdiction, as amended, in addition to any and all other rights afforded hereunder, under the Notes, under the other Loan Documents, at law, in equity or otherwise. (e) Application of Proceeds. Any and all proceeds ever received by Pledgees from any disposition of the Pledged Interests, or any part thereof or the exercise of any other right pursuant hereto shall be applied as provided in Section 12.1(d) of the Credit Agreement. 10. Notices. Whenever this Pledge Agreement requires or permits any consent, approval, notice, request or demand from any one party to another, the consent, approval, notice, request or demand shall be deemed given if given in accordance with Section 13.1 of the Credit Agreement. 11. Right to File as Financing Statement. Agent shall have the right at any time to execute and file this Pledge Agreement as a financing statement, but the failure of Agent to do so shall not impair the validity or enforceability of this Pledge Agreement or the Security Interest. 12. Waiver of Certain Rights. (a) To the full extent that it may lawfully so agree Pledgors agree that Pledgors will not at any time plead, claim or take the benefit of any appraisement, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Pledge Agreement, or the absolute sale of all or any part of the Pledged Interests or the EXHIBIT E-vi 7 possession thereof by any purchaser at any sale hereunder, and Pledgors hereby waive the benefit of all such laws to the extent Pledgors lawfully may do so. Each right, power and remedy of Agent or Pledgees provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Agent or Pledgees of any one or more of such rights, power or remedies shall not preclude the simultaneous or later exercise by Agent or Pledgees of any or all such other rights, powers or remedies. No failure or delay on the part of Agent or Pledgees to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgors by Agent or Pledgees with respect to any such remedies shall operate as a waiver thereof, or limit or impair Agent's or Pledgees' right to take any action or to exercise any power or remedy hereunder, under the Notes or under any of the other Loan Documents, without notice or demand, or prejudice its rights as against Pledgors in any respect. (b) Except for any notices required hereunder, or pursuant to specific provisions of the Credit Agreement or any other Loan Document, each Pledgor hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever in respect of the Notes (including, without limitation, notice of intent to accelerate and of acceleration) or the Credit Agreement, as well as any requirement that Agent or Pledgees or any other holder of the Notes exhaust any right or remedy or take any action in connection with the Notes or any of the other Loan Documents before exercising any right or remedy under this Pledge Agreement. The obligations of Pledgors hereunder shall not be affected or impaired by reason of the happening from time to time of any of the following, although without notice to or the consent of Pledgors: (i) the renewal or extension of the maturity of or the acceptance of partial payments with respect to any and all amounts due and owing under the Notes, the Credit Agreement or any other Loan Document, or any part thereof; (ii)the alteration in any manner of the terms of any of the Loan Documents or any part thereof either as to the maturities thereof, rates of interest, methods of payment, parties thereto or otherwise (except for any notices to or consents of Pledgors expressly required pursuant to the Credit Agreement or any other Loan Document); (iii) the waiver by Agent or Pledgees or any other holder of the Notes of the performance or observance by any Pledgor of any of its agreements, covenants, terms or conditions contained in the Notes or in any of the other Loan Documents; (iv)the voluntary or involuntary liquidation, dissolution, sale of all or substantially all of the assets, marshalling of assets and liabilities, receivership, conservatorship, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, winding up, or other similar proceedings affecting any Pledgor; (v) the release by operation of law or otherwise of any of the other obligors from the performance or observance of any of the agreements, covenants, terms or conditions contained in the Notes or in any of the other Loan Documents (except to the extent, if any, that the obligations of Pledgors hereunder are specifically affected pursuant to or in connection with any such release); or EXHIBIT E-vii 8 (vi) the release of any security for the Notes, whether under this Pledge Agreement or any of the other Loan Documents (except to the extent, if any, that the obligations of Pledgors hereunder are specifically affected pursuant to or in connection with any such release). 13. Amendments. This Pledge Agreement may be amended only by an instrument in writing executed jointly by Pledgors, Agent and the Required Banks (or Agent on behalf of the Required Banks) and supplemented only by documents delivered or to be delivered in accordance with the express terms hereof. 14. Multiple Counterparts. This Pledge Agreement may be executed in a number of identical counterparts, each of which shall be deemed an original for all purposes and all of which shall constitute, collectively, one agreement; but, in making proof of this agreement, it shall not be necessary to produce or account for more than one such counterpart. 15. Parties Bound; Assignment. This Pledge Agreement shall be binding on Pledgors and Pledgors' successors and assigns and shall inure to the benefit of Agent and Pledgees and Agent's and Pledgees' permitted successors and assigns in accordance with the terms of the Credit Agreement. 16. Invalid Provisions. If any provision of this Pledge Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable; and this Pledge Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Pledge Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 17. No Control by Agent or Pledgees. Notwithstanding anything herein to the contrary, this Pledge Agreement, the Notes and the other Loan Documents, and the transactions contemplated hereby and thereby, do not and will not, prior to the occurrence of an Event of Default, constitute, create or have the effect of constituting or creating, directly or indirectly, the actual or practical ownership of any of the Companies by Agent or Pledgees, or control, affirmative or negative, direct or indirect, by Agent or Pledgees over the management or any other aspect of the day-to-day operation of the Companies, which ownership and control remains exclusively and at all times in each of the Companies. 18. Paragraph Headings. The paragraph headings used in this Pledge Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 19. Conflicts With Credit Agreement. In the event of any conflict or inconsistency between the terms of this Pledge Agreement and the terms of the Credit Agreement, the terms of the Credit Agreement will control. 20. Agreement to Supplement. Pledgors acknowledge and agree that this Pledge Agreement shall be amended and supplemented from time to time to specifically include a description of all Pledged Shares subject hereto subsequent to the date hereof, and Agent shall be entitled to supplement Exhibit A from time to time, without any action or joinder of Pledgors to reflect the addition of all such additional Pledges Shares. Administrative Agent shall have a valid first priority security interest in all additional Pledged Shares which come into existence after the date hereof, whether or not reflected on a supplement to Exhibit A. Pledgors hereby agree to execute, deliver and cause the filing of all stock certificates, stock powers, financing statements and other documents and to take such further action as deemed necessary in Administrative Agent's discretion with respect to each such additional Pledged Shares to ensure Administrative Agent's rights hereunder with respect thereto. EXHIBIT E-viii 9 21. TEXAS LAW. THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND OF THE UNITED STATES OF AMERICA. 22. COMPLETE AGREEMENT. THIS PLEDGE AGREEMENT, THE NOTES, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG PLEDGEES, AGENT AND PLEDGORS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF PLEDGORS, AGENT AND PLEDGEES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN PLEDGORS, AGENT AND PLEDGEES. [SEE NEXT PAGE FOR SIGNATURES] EXHIBIT E-ix 10 EXECUTED effective as of December 31, 1997. ADDRESS FOR ALL PLEDGORS: PLEDGORS: c/o Group One Automotive, Inc. GROUP 1 AUTOMOTIVE, INC., a Delaware 950 Echo Lane corporation Suite 350 Houston, Texas 77024 By: /s/ SCOTT THOMPSON Telecopy No.: (713) 467-6268 --------------------------------- Scott Thompson, Vice President SOUTHWEST TOYOTA, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President SMC LUXURY CARS, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President FOYT MOTORS, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President SMITH, LIU & CORBIN, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President COURTESY NISSAN, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President EXHIBIT E-x 11 ROUND ROCK NISSAN, INC., a Texas By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President SMITH, LIU & KUTZ, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President TOWN NORTH NISSAN, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President TOWN NORTH IMPORTS, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President TOWN NORTH SUZUKI, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President MIKE SMITH AUTOPLAZA, INC., a Texas corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President EXHIBIT E-xi 12 HOWARD PONTIAC-GMC, INC., an Oklahoma corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President BOB HOWARD CHEVROLET, INC., an Oklahoma corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President BOB HOWARD MOTORS, INC., an Oklahoma corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President BOB HOWARD AUTOMOTIVE-H, INC., an Oklahoma corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President BOB HOWARD DODGE, INC., an Oklahoma corporation By: /s/ SCOTT THOMPSON --------------------------------- Scott Thompson, Vice President EXHIBIT E-xii 13 ACCEPTED AND AGREED as of the 31ST day of December, 1997 AGENT: TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as Agent By: /s/ CURTIS D. KARGES ------------------------------------------- Name: Curtis D. Karges ---------------------------------------- Title: Senior Vice President --------------------------------------- ADDRESS: 707 Travis Street Houston, Texas 77002 Attn: David Jones Telecopy No.: (713) 216-4940 EXHIBIT E-xiii 14 EXHIBIT A PLEDGED SHARES AND INTERESTS
1. Group 1 Automotive, Inc. a. Pledged Shares NO. OF TYPE OF COMPANY SHARES SHARES CERT. NO. --------- --------- --------- b. Other Equity Interests 2. Repeat 1 for each other Borrower
EXHIBIT E-xiv EX-10.55 26 SWAP TRANSACTION LETTER AGREEMENT - DATED 1/23/98 1 EXHIBIT 10.55 [CHASE LETTERHEAD] Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, Texas 77024 Attn: Scott L. Thompson Re: SWAP TRANSACTION (OUR REFERENCE NO. 898) Ladies and Gentlemen: The purpose of this letter agreement is to set forth the terms and conditions of the Swap Transaction entered into between us on the Trade Date below (the "Swap Transaction"). It constitutes a "Confirmation" as referred to in the Master Agreement described below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swap Dealers Association, Inc., now known as the International Swaps and Derivatives Association, Inc. ("ISDA")) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. Each party represents and warrants to the other that (i) it is duly authorized to enter into this Swap Transaction and to perform its obligations hereunder and (ii) the person executing this Confirmation is duly authorized to execute and deliver it. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement in the form published by ISDA (the "Agreement"), as if you and we had executed that agreement (but without any Schedule thereto) and the Agreement shall be governed by and construed in accordance with the laws of the State of Texas. All provisions contained or incorporated by reference in the Agreement shall govern this Confirmation except as expressly modified below. In addition, you and we agree to use our best efforts promptly to negotiate, execute and deliver a Master Agreement (in the form published by ISDA). Upon execution and delivery by you and us of that agreement (i) this Confirmation shall supplement, form a part of, and be subject to that agreement and (ii) all provisions contained or incorporated by reference in that agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the particular Rate Swap Transaction to which this Confirmation relates are as follows: Notional Amount: USD 75,000,000 Trade Date: January 23, 1998 Effective Date: January 27, 1998 Termination Date: December 15, 2000
FIXED AMOUNTS: -------------- Fixed Rate Payer: Group 1 Automotive ("Counterparty") Fixed Rate Payer Payment Dates: The 15th day of each month of each year,
2 commencing February 15, 1998 to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention. Fixed Rate: 5.66 percent Fixed Rate Day Count Fraction: Actual/360
FLOATING AMOUNTS: ----------------- Floating Rate Payer: Chase Bank of Texas National Association ("CBT") Floating Rate Payer Payment Dates: Same as the Fixed Rate Payer Payment Dates Floating Rate for the Initial Calculation Period: 5.60547 percent Floating Rate Option: USD-LIBOR-BBA Designated Maturity: One month Floating Rate Day Count Fraction: Actual/360 Reset Dates: The first day of each Calculation Period
Compounding: Inapplicable Business Days: New York Business Days and London Business Days Calculation Agent: CBT Payments to TCB: Chase Bank of Texas - Houston ABA No. 113-000-609 Capital Markets Dept. - Rate Swaps CR Acct. No. 00100381608 Attn: Ginger Vollert Payments to Counterparty: Comerica ABA No. 072-000-096 Account No. 1850-796648 Favor of: Rate Swap Governing Law: The laws of the State of Texas
Each party has entered into this Swap Transaction solely in reliance on its own judgment. Neither party has any fiduciary obligation to the other party relating to this Swap Transaction. In addition, neither party has held itself out as advising, or has held out any of its employees or agents as having the authority to advise, the other party as to whether or not the other party should enter into this Swap Transaction, any subsequent actions relating to this Swap Transaction or any other matters relating to this Swap Transaction. Neither party shall have any responsibility or liability whatsoever in respect of any advice of this nature given, or views expressed, by it or any of such 3 persons to the other party relating to this Swap Transaction, whether or not such advice is given or such views are expressed at the request of the other party. THE AGREEMENT AND THIS WRITTEN CONFIRMATION REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within one (2) Business Days by returning via facsimile an executed copy of this Confirmation to the attention of JIM SHIELDS (facsimile no. (713) 216-4919; telephone no. (713) 216-5482.) Chase Bank of Texas is pleased to have concluded this transaction with you. Very truly yours, CHASE BANK OF TEXAS NATIONAL ASSOCIATION By: /s/ CAROLYN BETTI --------------------------------- Carolyn Betti Vice President Accepted and confirmed as of the date first written: GROUP 1 AUTOMOTIVE By: /s/ SCOTT THOMPSON --------------------------- Scott Thompson Senior Vice President EX-21.1 27 GROUP I AUTOMOTIVE, INC. SUBSIDIARY LIST 1 EXHIBIT 21.1 10-K SUBSIDIARY LIST Bob Howard Automotive-H, Inc. Oklahoma corporation d/b/a Bob Howard Acura, Bob Howard Honda Bob Howard Chevrolet, Inc. Oklahoma corporation d/b/a Bob Howard Chevrolet, Howard Chevrolet, Bob Howard Chevrolet-Geo, Bob Howard Subaru Bob Howard Dodge, Inc. Oklahoma corporation Bob Howard Motors, Inc. Oklahoma corporation d/b/a Bob Howard Toyota Bob Howard Nissan, Inc. Oklahoma corporation Howard Pontiac-GMC, Inc. Oklahoma corporation d/b/a Bob Howard Automall, Bob Howard KIA, Bob Howard Gmc Truck, Bob Howard Pontiac, Bob Howard Chrysler-Plymouth, Bob Howard Jeep-Eagle, Bob Howard Isuzu, Bob Howard Mazda Courtesy Nissan, Inc. Texas corporation Foyt Motors, Inc. Texas corporation d/b/a A.J. Foyt Honda, A.J. Foyt Isuzu, A.J. Foyt Used Cars, Southwest Auto Credit Corp. Group 1 Ford, Inc. Texas corporation d/b/a Elgin Ford 2 Mike Smith Autoplaza, Inc. Texas corporation d/b/a Mike Smith Honda, Mike Smith Oldsmobile, Mike Smith GMC Truck, Mike Smith Kia, Mike Smith Lincoln-Mercury, Mike Smith Mitsubishi Round Rock Nissan, Inc. Texas corporation SMC Luxury Cars, Inc. Texas corporation d/b/a Sterling Mccall Lexus Smith, Liu & Corbin, Inc. Texas corporation d/b/a Acura Southwest Smith, Liu & Kutz, Inc. Texas corporation Town North Nissan, Inc. Texas corporation Town North Suzuki, Inc. Texas corporation Town North Imports, Inc. Texas corporation d/b/a Town North Mitsubishi Southwest Toyota, Inc. Texas corporation d/b/a Sterling Mccall Toyota Koons Ford, Inc. Florida corporation d/b/a World Ford/Hollywood, Pines Leasing Courtesy Ford, Inc. Florida corporation d/b/a World Ford/Kendall Perimeter Ford, Inc. Delaware corporation EX-23.1 28 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated March 6, 1998, included herein in this Form 10-K into the Company's previously filed Registration Statement on Form S-8 No. 333-42165 filed on December 12, 1997. ARTHUR ANDERSEN LLP Houston, Texas March 30, 1998 EX-27 29 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 35,091,188 0 11,130,977 520,207 105,421,371 161,681,659 24,989,509 3,403,108 213,149,153 111,472,603 7,053,467 0 0 146,730 89,224,776 213,149,153 393,556,747 403,966,897 349,366,318 349,366,318 44,223,988 0 3,985,621 6,390,970 573,254 5,817,716 0 0 0 5,817,716 0 0
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