Exhibit 1
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STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is dated as of August
3, 1999, and is entered into between United Auto Group, Inc., a Delaware
corporation (the "Company"), and Xxxxx X. Penske ("Optionee").
W I T N E S S E T H:
WHEREAS, the Company is a party to a Stockholders Agreement by
and among AIF II, L.P., a Delaware limited partnership, Aeneas Venture
Corporation, a Delaware corporation, International Motor Cars Group I,
L.L.C. ("IMCG I"), International Motor Cars Group II, L.L.C. ("IMCG II"),
Trace International Holdings, Inc. and the Company (as amended,
supplemented or otherwise modified from time to time, the "Stockholders
Agreement"); and
WHEREAS, in consideration of the Optionee's agreement to serve as
the Chairman of the Company until the third anniversary of the Second
Closing Date (as defined in the Stockholders Agreement) and as Chief
Executive Officer of the Company until the second anniversary of the Second
Closing Date, the Company is, among other things, granting the Optionee an
option to purchase shares of voting Common Stock, par value $.0001 per
share (the "Common Stock"), of the Company, on the terms and conditions set
forth herein and in the Stockholders Agreement.
NOW, THEREFORE, the parties hereby agree:
1. GRANT OF OPTIONS. The Company hereby grants to the Optionee an
option (the "Option") to purchase, at the purchase price of $10.00 per
share, up to 400,000 shares of Common Stock, such number to be adjusted as
provided in Section 7(b) hereof.
2. EXERCISABILITY OF OPTIONS. (a) Unless otherwise provided in
this Agreement, the Option will vest and become exercisable ratably in
three installments as follows: the Option shall be vested and exercisable
with respect to one-third of the aggregate number of shares covered thereby
from and after May 3, 2000; the Option shall be vested and exercisable with
respect to two-thirds of the aggregate number of shares covered thereby
from and after May 3, 2001; and the Option shall be fully (100%) vested and
exercisable from and after May 3, 2002. Any fractional numbers of shares of
Common Stock resulting from the application of the foregoing fractions
shall be rounded to next higher whole number of shares of Common Stock.
(b) In the event of a Change of Control (as defined
below), the Option shall become immediately and fully vested and
exercisable.
(c) In the event that the Optionee's service as
Chairman of the Company is terminated by the Company for Cause (as defined
below) or by the Optionee other than for Good Reason (as defined below)
(provided that for this purpose the death of the Optionee shall be deemed
to be Good Reason) prior to May 3, 2002, then the portion of the Option
that is not vested and exercisable as of the date of such termination shall
expire and be of no further force and effect as of such date.
(d) In the event the Optionee's service as the Chairman
of the Company is terminated prior to May 3, 2002 (i) as a result of the
Optionee's death, (ii) by the Company other than for Cause or (iii) by the
Optionee for Good Reason, the unexercised portion of the Option as of such
date shall become immediately and fully vested and exercisable; PROVIDED,
HOWEVER, that if the Optionee's service as the Chairman of the Company is
terminated prior to May 3, 2002 pursuant to clause (ii) or (iii) of this
paragraph (d), and PCP Directors (as defined in the Stockholders Agreement)
constitute a majority of the members of the Company's Board of Directors on
the date of such termination, then the portion of the Option that is not
vested and exercisable as of the date of such termination shall expire and
be of no further force or effect as of such date.
3. METHOD OF EXERCISING OPTIONS. (a) The Optionee may exercise
all or any portion of the vested and exercisable portion of the Option by
delivering to the Company a written notice stating the number of shares
that the Optionee has elected to purchase at that time from the Company and
full payment of the purchase price of the shares then to be purchased.
Payment of the purchase price of the shares may be made (i) by certified or
bank cashier's check payable to the order of the Company, or (ii) in the
discretion of the Board of Directors of the Company or duly authorized
committee thereof, by such other method as may be approved by such board or
committee from time to time.
(b) At the time of exercise, payment in cash of an
amount equal to that necessary to satisfy the Company's obligation to
withhold Federal, state or local income or other taxes incurred by reason
of the exercise of the Option or the transfer of shares thereupon shall be
made by the Optionee to the Company.
4. ISSUANCE OF SHARES. As promptly as practicable after receipt
of notification of exercise, full payment of purchase price and
satisfaction of tax withholding as provided in Section 3, the Company shall
issue or transfer to the Optionee the number of shares as to which the
Options have been so exercised and shall deliver to the Optionee a
certificate or certificates therefor, registered in his name.
5. TERMS AND CONDITIONS OF EXERCISE. (i) The Option shall have a
term of ten years from the date hereof.
(ii) The Option shall not be transferable, except by
will or the laws of descent and distribution, provided that Optionee may at
any time transfer all or a portion of the Option to members of his
immediate family, trusts solely for the benefit of the Optionee and/or such
family members and partnerships in which the Optionee, such family members
and/or trusts are the only partners (each, a "Permitted Transferee" and,
collectively, the "Permitted Transferees"). For this purpose, "immediate
family" of a Person means the Person's spouse, parents, children,
stepchildren and grandchildren and the spouses of such parents, children,
stepchildren and grandchildren.
(iii) Whenever the word "Optionee" is used in any
provision of this Agreement under circumstances where the provision should
logically be construed to apply to the executors, the administrators,
personal representatives, or the person or persons to whom the Option may
be transferred pursuant to clause (ii) of this Section 5, the word
"Optionee" shall be deemed to include such person or persons.
6. RIGHTS AS STOCKHOLDER. Neither the Optionee nor any transferee
of the Option shall have any rights as a stockholder with respect to any
shares of Common Stock covered by the Option until he shall have become the
holder of record of such shares.
7. RECAPITALIZATIONS, REORGANIZATIONS, ETC. (a) The existence of
the Option shall not affect the power of the Company or its stockholders to
accomplish adjustments, recapitalizations, reorganizations or other changes
in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of stock or of options, warrants
or rights to purchase stock or securities ahead of or affecting any of the
shares of Common Stock or the rights thereof or convertible into or
exchangeable for shares of Common Stock, or the dissolution or liquidation
of the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act.
(b) Upon any change in the outstanding shares of Common
Stock by reason of any recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other corporate change, or any
distributions to common shareholders other than ordinary cash dividends,
the Company shall make such substitutions or adjustments as are appropriate
and equitable in order to preserve the economic value of the Option to the
Optionee, as to the number or kind of shares of Common Stock or other
securities covered by the Option and the purchase price thereof; such
substitution or adjustment shall be equivalent to the adjustment of the
conversion price for the Company's Series B Convertible Preferred Stock
pursuant to the Certificate of Designation as in effect as of the date
hereof.
8. NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be sufficiently given if personally delivered or if sent
by telegram, telex, facsimile transmission or by registered or certified
mail, postage prepaid, with return receipt requested, as follows:
(a) If to the Company:
United Auto Group, Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attn: General Counsel
or to such other address or to the attention of such other person as the
Company shall designate by written notice to the Optionee; and
(b) If to the Optionee:
Xx. Xxxxx X. Penske
Penske Corporation
00000 Xxxxx Xxxxx Xxxx
Xxxxxxx, XX 00000
or to such other address as the Optionee shall designate by written notice
to the Company. Any notice given hereunder shall be deemed to have been
given at the time of receipt thereof by the party to whom such notice is
given.
9. NON-QUALIFIED OPTION. The Option is not an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
10. CERTAIN DEFINITIONS. (a) For purposes of this Agreement, the
Company shall be deemed to have terminated the Optionee for "Cause" only in
the event the Company has terminated the Optionee's employment following
such time as the Optionee has (A) committed an act of fraud or embezzlement
against the Company or an act in which he knew to be in material violation
of his duties to the Company; (B) failed to perform in any material respect
the essential functions of his job as the Chairman of the Company, which
failure (I) amounts to gross neglect of his duties to the Company and (II)
is not remedied within 30 days after written notice thereof by the Company;
or (C) been convicted of a felony (other than with respect to traffic
violations).
No termination of the Optionee's service as the Chairman of the
Company shall be for Cause unless effected in accordance with the following
procedures. The Company shall give the Optionee written notice ("Notice of
Termination for Cause") of its intention to terminate the Optionee's
service as the Chairman of the Company for Cause, setting forth in
reasonable detail the specific conduct of the Optionee that it considers to
constitute Cause, and stating the date, time and place of the Special Board
Meeting for Cause (as defined below). The term "Special Board Meeting for
Cause" shall mean a meeting of the Board of Directors called and held
specifically for the purpose of considering termination of the Optionee's
service as the Chairman of the Company for Cause, that takes place not less
than ten (10) and not more than twenty (20) business days after the
Optionee receives the Notice of Termination for Cause. The Optionee shall
be given an opportunity, together with counsel and such others as the
Optionee reasonably desires, to be heard at the Special Meeting for Cause.
Termination of the Optionee's service as the Chairman of the Company for
Cause shall be effective when and if a resolution is duly adopted at the
Special Board Meeting for Cause by affirmative vote of a majority of the
entire membership of the Board of Directors (the "Termination Resolution")
and, thereafter, the Option will cease to vest and become exercisable;
PROVIDED, HOWEVER, that if within ten (10) business days after the Special
Board Meeting for Cause the Optionee in good faith notifies the Company
that he disputes the finding by the Board of Directors that his termination
was for Cause, and the dispute is finally resolved, either by mutual
written agreement of the parties or by a final judgment, order or decree of
any court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected), in favor of the Optionee,
then the unvested and unexercised portion of the Option as of the date of
the Termination Resolution shall be deemed to have become fully vested and
exercisable as of the date of the Termination Resolution.
(b) The term "Change of Control" shall mean the
acquisition of any voting securities of the Company (the "Voting
Securities") by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of seventy-five percent (75%) or more of the combined voting power of
the Company's then outstanding Voting Securities.
(c) For purposes of this Agreement, the Optionee
shall be deemed to have terminated his employment with the Company for
"Good Reason" in the event the Optionee has terminated his employment
following (A) any adverse change in the Optionee's position, duties,
responsibilities or status with the Company as the Chairman of the Company
(whether or not Optionee serves as Chief Executive Officer); for purposes
of this Agreement, an isolated, insubstantial, immaterial and inadvertent
action not taken in bad faith and which is promptly remedied after notice
shall not constitute a basis for termination for "Good Reason".
11. MODIFICATION. This Agreement may be modified, amended,
suspended or terminated, and any terms or conditions may be waived, but
only by a written instrument executed by the parties hereto.
12. SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable or invalid for any
reason, the remaining provisions of this Agreement shall not be affected by
such holding and shall continue in full force in accordance with their
terms.
13. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
New York without giving effect to the conflicts of laws principles thereof.
14. SUCCESSORS IN INTEREST. This Agreement shall be binding upon
any successor to the Company. This Agreement shall inure to the benefit of
the Optionee's legal representatives.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
UNITED AUTO GROUP, INC.
By: /s/ Xxxxxx X. Xxxx
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Name: Xxxxxx X. Xxxx
Title: Vice President and
Secretary
/s/ Xxxxx X. Penske
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Xxxxx X. Penske
