EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of _____________, 1996, and is
entered into between United Auto Group, Inc., a Delaware corporation ("UAG"),
UAG West, Inc., a Delaware corporation (the "Company") and Steven Knappenberger,
an individual resident of the State of Arizona ("Executive").
WHEREAS, Executive and the Company desire to embody in this Agreement
the terms and conditions of Executive's employment by the Company.
NOW, THEREFORE, the parties hereby agree:
ARTICLE
EMPLOYMENT, DUTIES AND RESPONSIBILITIES
SECTION 1.1 EMPLOYMENT.
Executive shall be employed as President, Chief Operating Officer and
Director of the Company, as Chairman of the Board of each subsidiary of the
Company and as dealer principal for the manufacturers of the existing
dealerships of the Company and its subsidiaries. Executive hereby accepts such
employment.
SECTION 1.2 DUTIES AND RESPONSIBILITIES.
(a) Executive shall be required to perform such duties and
responsibilities as are consistent with his positions and as the Chief Executive
Officer of UAG may from time to time reasonably prescribe. Executive's duties
shall include the management and oversight of operations of the Company's
subsidiaries. Executive shall report, in the performance of his duties,
directly to the Chief Executive Officer of UAG. Executive agrees to perform his
duties, responsibilities and obligations hereunder to the best of his ability.
Executive agrees that all of his activities as an employee of the Company shall
be in material conformity with all reasonable and lawful policies, rules and
regulations of the Company not inconsistent with this Agreement.
(b) Executive shall submit annual operating budgets for each of the
Company's subsidiaries to the Chief Executive Officer of UAG for approval, which
approval shall not be unreasonably withheld, and shall obtain approval, which
approval shall not be unreasonably withheld, from the Chief Executive Officer of
UAG for unbudgeted capital expenditures by any of the Company's subsidiaries in
excess of $100,000 per dealership.
SECTION 1.3 EXECUTIVE'S OFFICE.
Executive shall perform his duties hereunder at his offices in Arizona
or California.
SECTION 1.3 UAG'S DUTIES
UAG and UAG West shall permit UAG West's operating subsidiaries to
retain earnings (i) sufficient to operate their respective businesses consistent
with past practices and consistent with the annual operating budgets of such
subsidiaries, and (ii) sufficient to fund any capital expenditures made pursuant
to the provisions of Section 1.2(b) hereof.
ARTICLE 2
TERM
SECTION 2.1 TERM.
The term of this Agreement shall begin on the date hereof (the
"Effective Date") and, unless otherwise earlier terminated pursuant to ARTICLE 5
hereof, shall end on the date which is five years following the Effective Date;
PROVIDED, HOWEVER, that such term shall be extended automatically for an
additional year on each anniversary of the Effective Date unless either party
hereto gives written notice to the other party not to so extend within ninety
(90) days prior to an anniversary, in which case no further extension shall
occur (such term, including any extension thereof, shall herein be referred to
as the "Term").
ARTICLE 3
COMPENSATION AND BENEFITS
SECTION 3.1 SALARY AND BENEFITS.
As compensation and consideration for the performance by Executive of
his obligations under this Agreement, Executive shall be entitled to the
following (subject, in each case, to the provisions of Article 5 hereof):
(a) SALARY. The Company shall pay Executive a salary during the first two
years of the Term, payable in accordance with the normal payment procedures of
the Company and subject to such withholdings and other normal employee
deductions as may be required by law, at the rate of Three Hundred Sixty
Thousand Dollars ($360,000) per annum (or such PRO RATA amount thereof for any
period of less than one year). After the first two years of the Term,
Executive's salary shall be increased to Seven Hundred Fifty Thousand Dollars
($750,000) per annum. At the end of the first year of the Term, and annually
thereafter, the Chief Executive Officer of UAG shall review Executive's salary
and, at the time of such review, Executive's salary may be increased (but not
decreased) by mutual agreement of Executive and the Company.
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(b) BENEFITS. During the Term, the Company shall, either directly or
through UAG or one of its wholly-owned subsidiaries, provide the Executive, at
the Company's expense, with the employee benefits set forth on EXHIBIT A hereto.
(c) EXPENSES. The Company will reimburse Executive for reasonable
business-related expenses incurred by him in connection with the performance of
his duties hereunder during the Term, including travel, facsimile, telephone and
other direct expenses incurred in respect of his California office, subject,
however, to the Company's reasonable policies relating to expense reimbursement.
(d) VACATION. Executive shall be entitled to four weeks paid vacation (or
such additional vacation as the Chief Executive Officer of UAG shall determine)
in accordance with the Companies' policies during the Term.
(e) VEHICLES. Executive shall be entitled to the use of two vehicles
selected by Executive including insurance, maintenance and registration
expenses. Executive shall also be reimbursed for gasoline for the vehicles.
(f) EXPENSES. The Companies will reimburse Executive for reasonable
business-related expenses incurred by him in connection with the performance of
his duties hereunder, including a monthly budget of $1,500 for entertainment
expenses for business purposes.
(g) STOCK OPTIONS. Executive shall be entitled to receive, from time to
time, stock options on terms and conditions comparable to the stock options, if
any, that UAG grants to employees of UAG or any of its subsidiaries with
responsibilities and duties similar to the responsibilities and duties of
Executive under this Agreement; PROVIDED, HOWEVER, that the decision to grant
stock options to Executive and to others similarly situated shall be made by UAG
in its sole discretion.
(h) TAXES. The Companies shall not be responsible for the payment of
Executive's tax liabilities (if any) relating to the compensation and benefits
the Companies provide to the Executive pursuant to this Agreement, except that
the Companies shall pay Executive an additional amount equal to the amount of
Executive's tax liability directly related to (i) the benefits set forth in
subparagraph (e) hereof and (ii) the payment of Executive's medical insurance
premiums as set forth in EXHIBIT A hereto.
SECTION 3.2 MANAGEMENT BONUS.
In addition to paying Executive's base salary, UAG West shall pay to
Executive or persons designated by Executive, and agreed upon by UAG West, a
bonus (the "Management Bonus") for each dealership or dealership group (each an
"Acquired Dealership" and collectively, the "Acquired Dealerships") that the
Company acquires
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or opens in the Territory (as defined below) during the period commencing on the
Closing Date and ending at the end of the Term (the "Management Bonus Period").
Each Management Bonus shall consist of a cash payment (of not less than $0)
equal to eight (8%) percent of the Acquired Dealership's Pre-Tax Earnings (as
defined below) for each twelve (12) month period commencing on the date the
Company acquires the Acquired Dealership and ending on the date Executive's
employment with the Company terminates, except as provided in Section 5.4(b);
PROVIDED that if either Jay Beskind or George Brochick are terminated as
employees of UAG West or any subsidiary or affiliate, any similar bonus then
payable to either of them shall also inure to the benefit of Executive. Eighty
percent (80%) of the Management Bonus shall be paid within 15 days of the end of
each quarter and any balance shall be paid within 30 days of the end of each
twelve (12) month period. Bonuses shall be pro rated for partial twelve-month
periods except as provided in Section 5.4(b). For purposes of this Section 3.2,
each Acquired Dealership's Pre-Tax Earnings shall mean the consolidated net
earnings (or losses) before taxes, of such Acquired Dealership, computed in
accordance with generally accepted accounting principles; PROVIDED, HOWEVER,
that the calculation of the Acquired Dealership's Pre-Tax Earnings shall add
back any LIFO inventory adjustment and shall not include any start-up expenses,
depreciation or amortization expense, or expenses incurred in connection with
the acquisition, including acquisition-related indebtedness and covenants not to
compete, or any overhead expenses of UAG or the Company . For purposes of this
Section 3.2, "Territory" shall mean the States of Arizona, Colorado, New Mexico
and Utah and the counties in the State of California listed on EXHIBIT B hereto.
ARTICLE 4
CONFIDENTIALITY; NON-COMPETE
SECTION 4.1 CONFIDENTIALITY.
Executive agrees that he will not, at any time during, or for six
months after the termination of, Executive's employment, make use of or divulge
to any other person, firm or corporation any confidential or proprietary
information concerning the business or policies of the Company, any of its
subsidiaries or their affiliates. Executive agrees and acknowledges that all of
such information, in any form, and copies and extracts thereof, are and shall
remain the sole and exclusive property of the Company, and upon termination of
his employment with the Company (except as provided in the Broker's Agreement or
Stock Purchase Agreement), Executive shall return to the Company the originals
and all copies of any such information provided to or acquired by Executive in
connection with the performance of his duties for the Company, and shall return
to the Company all files, correspondence and/or other communications received,
maintained and/or originated by Executive during the course of his employment,
and no copy of any such materials shall be retained by him. As used herein,
confidential
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information shall mean all information concerning UAG, the Company or any of
their subsidiaries or affiliates except information (i) ascertainable or
obtained from public information, (ii) received from a third party not employed
by or otherwise affiliated with UAG, the Company or any of their subsidiaries or
affiliates, or (iii) which is or becomes known to the public, other than through
a breach by Executive of the terms of this Agreement.
SECTION 4.2 NON-COMPETE.
(a) For the Non-Compete Period (defined below), Executive shall not,
directly or indirectly, for himself or on behalf of or in conjunction with any
person, partnership, corporation or other entity, compete, own, operate,
control, or participate or engage in the ownership, management, operation or
control of, or be connected with as an officer, employee, partner, director,
shareholder, representative, consultant, independent contractor, guarantor,
advisor or in any other similar capacity or otherwise have a financial interest
in, a proprietorship, partnership, joint venture, association, firm, corporation
or other business organization or enterprise that competes with the business of
the Company or any of its subsidiaries or their affiliates. For purposes
hereof, the Company shall be deemed to be in the business of operating
dealerships located in the United States of America that engage in the retail
sale of new and used automobiles or light duty trucks and businesses ancillary
thereto, PROVIDED, HOWEVER, that with respect to any post-termination employment
Non-Compete Period, for any business of Executive to be deemed competitive for
purposes hereof, it must be located within a 50 mile radius of any automobile or
truck dealership or ancillary business in which the Company (or any affiliate
thereof), directly or indirectly, has an ownership interest of 20% or more at
the time the competing activities commence. During the Non-Compete Period,
Executive shall not interfere with or disrupt, or attempt to interfere with or
disrupt, the relationship, contractual or otherwise, between the Company or any
of its subsidiaries or their affiliates and any customer, client, supplier,
manufacturer, distributor, consultant, independent contractor or employee of the
Company or any of its subsidiaries or their affiliates.
(b) The Non-Compete Period shall mean (i) the term of Executive's
employment, if he is employed for five (5) years or more or (ii) five (5) years
from execution of this Agreement; provided, however, if Executive is terminated
without Cause (as defined in Section 5.1), the Non-Compete Period shall
terminate on the date of his termination.
(c) Notwithstanding anything herein to the contrary, Executive may
own, directly or indirectly, up to 4.9% of the outstanding capital stock of any
competitive business having a class of capital stock which is traded on any
national stock exchange or in the over-the-counter market. Further, the
activities of
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Executive on behalf of Broker under that Broker's Agreement dated the date
hereof are expressly permitted by UAG and UAG West.
(d) Executive acknowledges that (i) the agreements and covenants
contained in this Section 4.2 are essential to protect the value of the
Company's and its subsidiaries' and their affiliates' business and assets, (ii)
by virtue of his employment with the Company and its subsidiaries, Executive has
obtained and will obtain knowledge, contacts, know-how, training, experience and
other information relating to the Company's and its subsidiaries' and their
affiliates' business operations, and (iii) there is a substantial probability
that such knowledge, know-how, contacts, training, experience and information
could be used to the substantial advantage of a competitor of the Company and
its subsidiaries and their affiliates and to the Company's and its subsidiaries'
and their affiliates' detriment.
ARTICLE 5
TERMINATION
SECTION 5.1 TERMINATION BY THE COMPANY.
Subject to Section 5.4, the Company shall have the right to terminate
Executive's employment at any time for Cause. For purposes of this Agreement,
"Cause" shall mean: (i) Executive's material failure, neglect or refusal to
perform his duties hereunder, which material failure, neglect or refusal shall
not be remedied by Executive within thirty (30) days of receipt by Executive of
written notice from the Company of such neglect, (ii) Executive's refusal to
follow the reasonable and lawful instructions, orders or directives of the Chief
Executive Officer of UAG with respect to his material duties and
responsibilities hereunder which refusal is not remedied promptly after receipt
by Executive of written notice from the Chief Executive Officer of UAG of such
refusal, (iii) Executive's conviction for, or the entry of a plea (including
nolo contendere or its equivalent) by Executive with respect to any act of
fraud, misappropriation or embezzlement or any felony under federal or state
law, or (iv) any wilful or intentional act of Executive that has the effect of
causing injury to the reputation or business of UAG, the Company or their
subsidiaries or affiliates in any material respect.
SECTION 5.2 DEATH.
In the event Executive dies during the Term, this Agreement shall
automatically terminate (subject to Section 5.4 hereof), such termination to be
effective on the date of Executive's death.
SECTION 5.3 DISABILITY.
In the event that Executive shall suffer a disability which shall have
prevented him from performing satisfactorily his
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obligations hereunder for a period of at least 90 consecutive days, or 180 non-
consecutive days within any 365 day period, the Company shall have the right to
terminate this Agreement (subject to Section 5.4 hereof).
SECTION 5.4 EFFECT OF TERMINATION.
(a) In the event of termination of Executive's employment for any
reason, the Company shall pay to Executive (or his beneficiary in the event of
his death) any salary or bonuses earned but not paid to Executive prior to the
effective date of such termination.
(b) In the event that the Company terminates Executive's employment
without Cause prior to the expiration of the Term, the Company shall, for a
period equal to the remainder of the Term, continue to (i) pay to Executive his
salary and Management Bonus and reimburse him for all business-related expenses
incurred through the date of termination, (ii) provide Executive with benefits
on the terms set forth in Section 3.1(b), and (iii) vest in full all stock
options granted to him, the term (exercise period) of which shall remain in full
force and effect notwithstanding Executive's termination.
ARTICLE 6
MISCELLANEOUS
SECTION 6.1 UAG GUARANTY.
UAG hereby guarantees the due and punctual performance of the
obligations of the Company hereunder.
SECTION 6.2 NO VIOLATION.
Executive represents and warrants to the Company that neither the
execution and delivery of this Agreement nor the performance of his duties
hereunder violates or will violate the provisions of any other agreement to
which he is a party or by which he is bound. The Company represents and
warrants to Executive that neither the execution and delivery of this Agreement
nor the performance of its duties hereunder violates or will violate the
provisions of any other agreement to which it is a party or by which it is
bound.
SECTION 6.3 BENEFIT OF AGREEMENT; ASSIGNMENT; BENEFICIARY.
This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns, including, without limitation, any
corporation or person which may acquire all or substantially all of the
Company's assets or business, or with or into which the Company may be
consolidated or merged. This Agreement shall also inure to the benefit of, and
be enforceable by,
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Executive and his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amount would still be payable to Executive hereunder if he had
continued to live, all such amounts shall be paid in accordance with the terms
of this Agreement to Executive's beneficiary, devisee, legatee or other
designee, or if there is no such designee, to Executive's estate.
SECTION 6.4 NOTICES.
Any notice required or permitted hereunder shall be in writing and
shall be sufficiently given if personally delivered or if sent by telegram or
telex or by registered or certified mail, postage prepaid, with return receipt
requested, addressed: (a) in the case of the Company to c/o United Auto Group,
Inc. 375 Park Avenue, New York, New York 10022, facsimile no. (212) 223-5148,
Attention: General Counsel, or to such other address and/or to the attention of
such other person as the Company shall designate by written notice to Executive;
and (b) in the case of Executive, to Steven Knappenberger at 6725 E. McDowell
Road, Scottsdale, Arizona 85257-3103, or to such other address as Executive
shall designate by written notice to the Company. Any notice given hereunder
shall be effective and deemed to have been given as of the date received.
SECTION 6.5 AMENDMENT.
This Agreement may not be changed or modified except by an instrument
in writing signed by both of the parties hereto.
SECTION 6.6 WAIVER.
The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a continuing waiver or as a
consent to or waiver of any subsequent breach hereof. Any waiver must be in
writing and signed by Executive or the Company, as the case may be.
SECTION 6.7 HEADINGS.
The Article and Section headings herein are for convenience of
reference only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
SECTION 6.8 AGREEMENT TO TAKE ACTIONS.
Each party hereto shall execute and deliver such documents,
certificates, agreements and other instruments, and shall take such other
actions, as may be reasonably necessary or desirable in order to perform his or
its obligations under this Agreement or to effectuate the purposes hereof.
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SECTION 6.9 SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
SECTION 6.10 VALIDITY.
The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any other
provision or provisions of this Agreement, which shall remain in full force and
effect.
SECTION 6.11 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
SECTION 6.12 GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Arizona
without regard to conflict of law principles.
SECTION 6.13 INDEMNIFICATION.
UAG, the Company and the Company's subsidiaries (a) shall indemnify
and hold Executive harmless to the full extent permitted by law, if Executive is
made or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding (other than an action, suit or proceeding commenced by
Executive without approval of the Company's Board of Directors) by reason of the
fact that he is or was an officer or employee of the Company or its subsidiaries
after the date hereof against all liability and loss suffered and expenses
reasonably incurred by Executive, (b) shall maintain (or cause to be maintained)
in the certificate of incorporation of the Company and the articles of
incorporation of its subsidiaries, provisions limiting the liability of officers
and directors from stockholders to the full extent permitted by law and (c)
shall maintain directors and officers liability insurance with terms,
deductibles and coverages customary for companies of similar size and nature.
Nothing herein shall be interpreted as requiring UAG, the Company or its
subsidiaries to indemnify Executive for any claim arising out of a breach by
Executive of the terms of this Agreement or of the terms of that certain Stock
Purchase Agreement dated June 6, 1996 between Executive, UAG, the Company and
certain other parties.
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IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement effective as of the date first above written.
UNITED AUTO GROUP, INC.
By: _______________________________
Its: _______________________________
UAG WEST, INC.
By: _______________________________
Its: _______________________________
____________________________________
Steven Knappenberger, Individually
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EXHIBIT A
EXECUTIVE BENEFITS
- - family health insurance coverage
- - annual health physical
- - $2.5 million life insurance coverage - at rate not to exceed premium paid
in 1996
- - directors / officers liability insurance
- - $10 million umbrella liability insurance coverage - as additional insured
under Company policy
- - Arizona Country Club and Arizona Club dues
- - first class air travel for business
- - personal secretarial services - as part of secretary's duties
- - home personal computer
- - YPO time / expenses
EXHIBIT "B"
Counties
State of California
Los Angeles
Orange
Riverside
Ventura
San Bernadino
San Diego