EXHIBIT 10.18

LOAN AGREEMENT

among

LITHIA MOTORS, INC.,

THE LENDERS PARTY HERETO FROM TIME TO TIME,

and

U.S. BANK NATIONAL ASSOCIATION,

as Agent

Dated as of August 31, 2006

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TABLE OF CONTENTS

 

          Page

ARTICLE 1. DEFINITIONS AND INTERPRETIVE PROVISIONS

   1

1.1

   Defined Terms    1

1.2

   Other Interpretive Provisions    14

ARTICLE 2. REVOLVING LOANS

   15

2.1

   Revolving Loan Commitment    15

2.2

   Purpose of Revolving Loans    15

2.3

   Revolving Notes    16

2.4

   Requests for Revolving Loans    16

2.5

   Payments    16

2.6

   Revolving Loan Fee    16

ARTICLE 3. SWINGLINE LOANS

   17

3.1

   Swingline Commitment    17

3.2

   Purpose of Swingline Loans    17

3.3

   Swingline Notes    17

3.4

   Requests for Swingline Loans    17

3.5

   Loan Payments    17

3.6

   Participation in Swingline Loans    18

3.7

   Settlement of Swingline Loans    18

3.8

   Credit Sweep    20

ARTICLE 4. LETTERS OF CREDIT

   20

4.1

   Letter of Credit Commitment    20

4.2

   Existing Letters of Credit    21

4.3

   LC Agreements    21

4.4

   Expiry Date    21

4.5

   Requests for Letters of Credit    21

4.6

   Participation in Letters of Credit    22

4.7

   Payments    22

4.8

   Terms Satisfactory to Issuing Lender    23

4.9

   Obligations Absolute    23

4.10

   Letter of Credit Fees    23

ARTICLE 5. CERTAIN ADDITIONAL PROVISIONS

   24

5.1

   Interest    24

5.2

   Borrowing Procedure    24

5.3

   Funding by Lenders    25

5.4

   Obligations Several    25

5.5

   Failure to Fund    25

5.6

   Authorization    25

5.7

   Computations    26

5.8

   Application of Payments    26

 

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5.9

   Manner of Payment    26

5.10

   Payment by Automatic Debit    27

5.11

   Late Charges    27

5.12

   Maximum Charges    27

5.13

   Additional Payments    27

5.14

   Extension of Expiration Date    27

5.15

   Authorization    28

5.16

   Voluntary Reduction or Termination of Commitments    28

ARTICLE 6. TAXES, YIELD PROTECTION AND ILLEGALITY

   28

6.1

   Taxes    28

6.2

   Increased Costs    29

6.3

   Unavailability or Illegality    29

6.4

   Capital Adequacy    29

6.5

   Request for Compensation    30

ARTICLE 7. SECURITY AND GUARANTIES

   30

7.1

   Security    30

7.2

   Guaranties    31

7.3

   Joinder    31 ARTICLE 8. CONDITIONS PRECEDENT    31

8.1

   Initial Conditions Precedent    31

8.2

   Conditions Precedent to Each Loan and Letter of Credit    33

ARTICLE 9. REPRESENTATIONS AND WARRANTIES

   34

9.1

   Existence and Power    34

9.2

   Power and Authority    34

9.3

   Operation of Business    34

9.4

   Governmental Approval    35

9.5

   Litigation    35

9.6

   Financial Condition    35

9.7

   Taxes    35

9.8

   Franchise Agreements; Material Business Relationships    35

9.9

   Other Agreements    36

9.10

   Burdensome Obligations    36

9.11

   Security Interest    36

9.12

   Compliance with Laws    36

9.13

   ERISA    36

9.14

   Information    36

9.15

   Enforceability    37

9.16

   Ownership and Liens    37

9.17

   Ownership of Equity Interests    37

9.18

   Labor Disputes and Acts of God    37

9.19

   Regulated Entities    37

9.20

   Solvency    37

9.21

   Continuing Representations and Warranties    37

 

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ARTICLE 10. FINANCIAL COVENANTS AND INFORMATION

   38

10.1

   Financial Covenants    38

10.2

   Financial Information    40 ARTICLE 11. AFFIRMATIVE COVENANTS    41

11.1

   Maintenance of Existence and Permits    41

11.2

   ERISA Compliance    41

11.3

   Inspection Rights    41

11.4

   Collateral Audits    41

11.5

   Keeping of Books and Records    42

11.6

   Maintenance of Properties, Etc.    42

11.7

   Other Obligations    42

11.8

   Insurance    42

11.9

   Compliance with Laws    43

11.10

   Agreements with Sellers    43

11.11

   Management    43

11.12

   Landlord’s Consents    43

11.13

   Notification    43

11.14

   Further Assurances    44

11.15

   Deposit Accounts    44 ARTICLE 12. NEGATIVE COVENANTS    45

12.1

   Mergers, Etc.    45

12.2

   Guaranties, Etc.    45

12.3

   Liens    45

12.4

   Restricted Payments    47

12.5

   Subordinated Debt    48

12.6

   Loans and Investments    48

12.7

   Transactions with Affiliates    49

12.8

   Type of Business    49

12.9

   Structure    49

12.10

   Debt    49

12.11

   Margin Stock; Speculation    51

12.12

   Restrictive Agreements    51

12.13

   Permitted Acquisition    51

12.14

   Fiscal Year    53

12.15

   Lithia Real Estate, Inc.    53 ARTICLE 13. DEFAULT AND REMEDIES    53

13.1

   Events of Default    53

13.2

   Consequences of Default; Rights and Remedies    55    ARTICLE 14. HAZARDOUS
SUBSTANCES    57

14.1

   Representations and Warranties    57

14.2

   Activities    57

14.3

   Inspections    57

14.4

   Release and Indemnity    57

 

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14.5

   Survival    57

ARTICLE 15. AGENCY PROVISIONS

   57

15.1

   Authorization    57

15.2

   Duties and Obligations    58

15.3

   Agent in Individual Capacity    59

15.4

   Independent Credit Decisions    59

15.5

   Indemnification    59

15.6

   Successor Agent    60

15.7

   Notice of Default    60

15.8

   Defaulting Lenders    60

15.9

   U.S. Bank Deposit Accounts    60

ARTICLE 16. MISCELLANEOUS

   61

16.1

   Payment of Expenses and Taxes    61

16.2

   Successors and Assigns    62

16.3

   Participations    62

16.4

   Assignments    63

16.5

   Register    64

16.6

   Information    64

16.7

   Sharing of Payments    64

16.8

   Setoff; Security Interest    64

16.9

   Amendments and Waivers    65

16.10

   Waiver; Cumulative Remedies    66

16.11

   Notices    66

16.12

   Integration; Conflicting Terms    67

16.13

   Governing Law    67

16.14

   Jurisdiction and Venue    67

16.15

   Documents Satisfactory to Agent and Required Lenders    67

16.16

   Exhibits    67

16.17

   Counterparts    67

16.18

   Severability    67

16.19

   Construction    68

16.20

   USA Patriot Act Notice    68

16.21

   Confidentiality    68

16.22

   Waiver of Jury Trial    68

16.23

   Disclosure    70

 

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SCHEDULE 1

DISCLOSURE SCHEDULE

EXHIBIT A - REVOLVING NOTE

EXHIBIT B - SWINGLINE NOTE

EXHIBIT C - JOINDER AGREEMENT

EXHIBIT D - COMPLIANCE CERTIFICATE

EXHIBIT E - BORROWING BASE CERTIFICATE

EXHIBIT F - ASSIGNMENT AGREEMENT

EXHIBIT G - PLEDGE AGREEMENT

EXHIBIT H - SECURITY AGREEMENT

EXHIBIT I - AIRCRAFT SECURITY AGREEMENT

 

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LOAN AGREEMENT

This Loan Agreement is entered into as of August 31, 2006, among Lithia Motors,
Inc., an Oregon corporation (“Borrower”), each financial institution listed on
the signature pages of this Agreement or which hereafter becomes a party hereto
(each a “Lender” and any two or more, “Lenders”); and U.S. Bank National
Association (“U.S. Bank”), as agent for the Lenders (in such capacity, “Agent”).

ARTICLE 1.

DEFINITIONS AND INTERPRETIVE PROVISIONS

1.1 Defined Terms. As used in this Agreement, the following terms shall have the
following meanings:

“Access Laws” means the Americans With Disabilities Act of 1990; the Fair
Housing Amendments Act of 1988; all other federal, state and local laws or
ordinances related to disabled access; and all statutes, rules, regulations,
ordinances, orders of governmental bodies and regulatory agencies and orders and
decrees of any court adopted, enacted or issued with respect thereto; all as now
existing or hereafter amended or adopted.

“Acquisition” has the meaning set forth in Section 12.13.

“Acquisition Subsidiary” has the meaning set forth in Section 12.13(d).

“Adjusted Funded Debt” has the meaning set forth in Section 10.1.4.

“Affiliate” means with respect to any Person (a) each other Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the stock or other
ownership interests having ordinary voting power of such Person; (b) each Person
that Controls, is Controlled by or is under common Control with such Person or
any Affiliate of such Person; and (c) each of such Person’s executive officers,
directors, joint venturers, members and general partners.

“Agent” has the meaning set forth in the introductory paragraph.

“Agent-Related Persons” has the meaning set forth in Section 15.5.

“Aircraft Security Agreement” means an Aircraft and Flight Equipment Security
Agreement substantially in the form attached hereto as Exhibit I.

“Applicable Law” means all applicable provisions and requirements of all
(a) constitutions, statutes, ordinances, rules, regulations, standards, orders,
and directives of any Governmental Bodies, (b) Governmental Approvals, and
(c) orders, decisions, decrees, judgments, injunctions, and writs of all courts
and arbitrators, whether such Applicable Laws presently exist, or are modified,
promulgated, or implemented after the date hereof.

“Assignee” has the meaning set forth in Section 16.4.

“Assignment Agreement” has the meaning set forth in Section 16.4.2.

 

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“Attorney Costs” means and includes all reasonable fees and disbursements of any
law firm or retained counsel and of any in-house or internal counsel whether or
not litigation or arbitration is commenced, and if litigation or arbitration is
commenced shall include fees and disbursements incurred at trial, in any
appellate proceeding, bankruptcy proceeding (including efforts to modify or
vacate any automatic stay or injunction) or receivership, and post-judgment
attorney fees incurred in enforcing any judgment.

“Borrower” has the meaning set forth in the introductory paragraph.

“Borrowing Base” means, as of any date of determination, the sum, without
duplication, on such date of:

(a) 90% of Vehicle Equity.

(b) 50% of the amount of Eligible Receivables.

(c) 80% of the difference between (i) the net book value of Service Loaner
Vehicles owned by the Collateral Subsidiaries and (ii) the sum of (A) the
aggregate outstanding principal balance of the Floor Plan Financing owed to all
Floor Plan Lenders which is secured by such Service Loaners and (B) the
principal amount of any other indebtedness or obligations to any Person (other
than the Obligations) which is secured by the Service Loaner Vehicles.

(d) 65% of the difference between (i) the net book value of the inventory of
Borrower and its Subsidiaries consisting of new parts and accessories and
materials in which Agent has a perfected first priority security interest, and
(ii) the unpaid acquisition cost owed to sellers or financers of such inventory.

(e) The lesser of (i) 80% of the net book value of aircraft owned by Lithia
Aircraft, Inc., in which Agent has a perfected first priority security interest,
or (ii) $10,000,000.00.

(f) 35% of the net book value of equipment (excluding fixtures and aircraft) of
Borrower and the Collateral Subsidiaries in which Agent has a perfected first
priority security interest.

Notwithstanding any contrary provision of this Borrowing Base definition, the
Borrowing Base shall in no event include any property owned by LRE, except cash
to the extent included in clause (a) (iii) of the definition of Vehicle Equity.

“Business Day” means any day other than a Saturday, Sunday, or other day on
which commercial banks in Minneapolis, Minnesota or New York, New York are
authorized or required by law to close.

“Capital Lease” means any lease which has been or should be capitalized on the
books of the lessee in accordance with GAAP.

“Cash Equivalent Investment” means at any time, (a) direct obligations of, or
which are guaranteed by, the United States of America, or any agency thereof,
maturing not more than one year from the date of acquisition thereof;
(b) commercial paper, maturing not more than one year from the date of issue, or
corporate demand notes, in each case rated at least A-1 (or its

 

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equivalent) by Standard & Poor’s Ratings Group or P-1 (or its equivalent) by
Moody’s Investor Service, Inc.; (c) any certificate of deposit, time deposit
account, or banker’s acceptance, maturing not more than one year after such
time, or overnight Federal Funds transactions that are issued or sold by any
commercial banking institution organized under the laws of the United States or
a state thereof or that is a Lender, and that is a member of the Federal Reserve
System and has a combined capital and surplus and undivided profits of not less
than $500,000,000.00; (d) any repurchase agreement entered into with a
commercial banking institution satisfying the criteria in clause (c) that (i) is
secured by a fully perfected first priority security interest in any obligation
of the type described in any of clauses (a) through (c) and (ii) has market
value at the time of such repurchase agreement is entered into of not less than
100% of the repurchase obligation of such commercial banking institution
thereunder; (e) shares of money market mutual funds within the definition of
Rule 2a-7 promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940; and (f) other cash equivalent investments
approved by the Agent.

“Cash Flow Leverage Ratio” has the meaning set forth in Section 10.1.4.

“Change in Control” means:

(a) Lithia Holding Company, L.L.C. (“LHC”) ceases to directly own more than 51%
of the voting power of Borrower’s capital stock ordinarily having the right to
vote at an election of directors, or the Principal ceases to Control LHC
(through the ownership of voting membership interests or by contract or
otherwise);

(b) Borrower consolidates with or merges into another Person or conveys,
transfers or leases all or substantially all of its property to any Person, or
any Person consolidates with or merges into Borrower, in either event pursuant
to a transaction in which the outstanding capital stock of Borrower is
reclassified or changed into or exchanged for (i) cash or Cash Equivalent
Investments or (ii) securities, and the holders of the capital stock in Borrower
immediately prior to such transaction do not, as a result of such transaction,
own, directly or indirectly, more than 51% of the combined voting power of
Borrower’s capital stock or the capital stock of its successor entity in such
transaction.

“Closing Date” means the date on which all conditions precedent in Section 8.1
are satisfied.

“Code” means the Internal Revenue Code of 1986, as amended, or any successor
federal income tax statute or code and the regulations and published
interpretations promulgated thereunder.

“Collateral” has the meaning set forth in Section 7.1.1.

“Collateral Subsidiary” means all Subsidiaries granting a security interest to
Agent and the Lenders hereunder which shall include all present and future
Subsidiaries.

“Commitment” or “Commitments” means, as to any Lender, such Lender’s Revolving
Loan Commitment, Letter of Credit Commitment, and/or Swingline Commitment.

 

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“Contingent Obligation” means any guarantee of Debt or any other obligation of
any other Person or any assurance with respect to the financial condition of any
other Person, whether direct, indirect or contingent, including, without
limitation, any purchase or repurchase agreement or keep-well, take-or-pay,
through-put or other arrangement of whatever nature having the effect of
assuring or holding harmless any Person against loss with respect to any
obligation of such other Person; provided, however, that the term “Contingent
Obligation” shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined in good faith by the Person subject
to such obligation.

“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise and
“Controlled by” shall have the concomitant meaning.

“Current Assets” has the meaning set forth in Section 10.1.2.

“Current Assets Commitment Amount” means, with respect to any Current Assets
Election, the lesser of (a) the Maximum Amount, minus the sum of the then
outstanding principal balance of the Revolving Loans, Swingline Loans, and LC
Outstandings; or (b) the Specified Current Assets Commitment Amount.

“Current Assets Election” has the meaning set forth in Section 10.1.2. A Current
Assets Election shall become effective on the date on which the Compliance
Certificate electing the same is delivered to Agent and shall remain in effect
until the next Compliance Certificate is due.

“Current Ratio” has the meaning set forth in Section 10.1.2.

“DCFS” has the meaning set forth in Section 8.1.6.

“DCFS Loan Agreement” has the meaning set forth in Section 8.1.6.

“DDA” has the meaning set forth in Section 3.8.2.

“Dealership” means a Subsidiary of Borrower whose primary business is the retail
sales or retail sale and lease of new and/or used automobiles and trucks.

“Debt” means, without duplication, with respect to any Person, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (b) all obligations evidenced by bonds, notes,
debentures, convertible debentures or other similar instruments, (c) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired (even though the rights
and remedies of the seller or lender under such agreement in the event of
default, acceleration, or termination are limited to repossession or sale of
such property), (d) all obligations under letters of credit, bankers’ and trade
acceptances, surety bonds and similar instruments, (e) all obligations under
Interest Rate Protection Agreements, (f) all obligations as lessee under Capital
Leases or Synthetic Leases, (g) all obligations that are required in accordance
with GAAP to be included as

 

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liabilities on such Person’s balance sheet, (h) all Contingent Obligations, and
(i) all Debt referred to in clause (a), (b), (c), (d), (e), (f), (g), and
(h) above secured by (or for which the holder of such Debt has an existing
right, contingent or otherwise, to be secured by) any lien, security interest or
other charge or encumbrance upon or in property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Debt, and (j) if any of the
events described in Section 13.1.12 have occurred with respect to any Plan, the
liability, if any, related thereto. For purposes of this definition, the Debt of
any Person shall include the indebtedness of any partnership or joint venture in
which such Person is a general partner or joint venturer.

“Default” means any Event of Default or any event which with the giving of
notice or the passage of time, or both, would constitute an Event of Default.

“Default Rate” has the meaning set forth in Section 5.1.2.

“Defaulting Lender” has the meaning set forth in Section 15.8.

“Disclosure Schedule” means the Disclosure Schedule attached hereto.

“Dollar” or “$” means lawful money of the United States of America.

“EBITDA” has the meaning set forth in Section 10.1.4.

“EBITDAR” has the meaning set forth in Section 10.1.3.

“Eligible Account” means amounts owed by a customer to Borrower or any
Collateral Subsidiary for parts or accessories sold to such customer or for
services performed for such customer, in which Agent has a perfected first
priority security interest, which is due and payable in full not more than 60
days after date of sale or invoice, and which is not more than 60 days past due.

“Eligible Receivables” means amounts owing to Borrower or a Collateral
Subsidiary (a) in which Agent has a perfected first priority security interest,
which are (i) Eligible Accounts; (ii) insurance receivables; (iii) subject to a
maximum of $50,000.00 to be included in the Borrowing Base, amounts shown on the
consolidated balance sheet of Borrower and its Subsidiaries as “note and lease
receivables,” and (iv) commissions owed to the Dealerships by financial
institutions or finance companies which are not Affiliates of any Loan Party in
connection with the purchase by such institutions of retail installment
contracts and leases arising from the sale or lease of New Vehicles, Used
Vehicles and Program Vehicles (finance receivables) or which are (b) amounts
owed to Borrower or a Collateral Subsidiary by a manufacturer of Vehicles as
factory holdbacks, incentive payments, rebates, factory credits and the like in
which Agent has a perfected security interest, subject to the exclusion by Agent
or Required Lenders of such amounts which are owed to a Borrower by a
manufacturer which has commenced or had commenced against it, any proceeding
under any present or future bankruptcy law.

“Environmental Laws” means all local, state and federal laws, rules, regulations
and ordinances pertaining to Hazardous Substances and environmental regulation,
contamination or clean-up, all as now existing or hereafter amended or adopted
(including, without limitation, the federal statutes known as the Comprehensive
Environmental Response, Compensation and

 

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Liability Act of 1980, Resource Conservation and Recovery Act of 1976, Superfund
Amendments and Reauthorization Act of 1986 and the Hazardous Materials
Transportation Act).

“Equity Interests “ means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
equity interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time and regulations promulgated thereunder.

“ERISA Affiliate,” as applied to a Loan Party, means any Person or trade or
business which is a member of a group which is under common control with such
Loan Party and which, together with such Loan Party, is treated as a single
employer within the meaning of Section 414 of the Code.

“Event of Default” means the occurrence of any event described in Section 13.1.

“Excluded Funded Debt” has the meaning set forth in Section 12.10(m).

“Existing Letters of Credit” has the meaning set forth in Section 4.2.

“Expiration Date” means August 31, 2009, or such earlier date as may be
applicable due to acceleration of Obligations in accordance with the terms of
this Agreement.

“Extension Request” has the meaning set forth in Section 5.14.

“Federal Funds Rate” means, for any day, a 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 on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as published
on the next succeeding Business Day and (b) if such rate is not so published for
any day, the Federal Funds Rate for such day shall be the average of the
quotations for such day on such transactions received by Agent from three
Federal funds brokers of recognized standing selected by Agent.

“Fixed Charge Coverage Ratio” has the meaning set forth in Section 10.1.3.

“Floor Plan Financing” means extensions of credit to Borrower or a Collateral
Subsidiary (other than extensions of credit under this Agreement), all proceeds
of which are used to purchase or finance New Vehicles, Service Loaner Vehicles,
or Program Vehicles.

“Floor Plan Lender” means a Person providing Floor Plan Financing to Borrower or
any Subsidiary of Borrower.

“FLSA” means the Fair Labor Standards Act of 1938, as amended from time to time,
and the regulations promulgated thereunder.

 

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“Franchise Agreement” has the meaning set forth in Section 9.8.

“Funded Debt” means Debt of the type described in clauses (a), (b), (c), and
(f) of the definition of Debt, provided, however, that Funded Debt shall not
include unsecured trade accounts payable incurred in the ordinary course of
business.

“GAAP” means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession) which are applicable to the circumstances as of the date of
application.

“Governmental Approval” means any authorization, consent, approval, certificate
of compliance, license, permit, or exemption from, contract with, registration
or filing with, or report or notice to, any Governmental Body required or
permitted by Applicable Law.

“Governmental Body” means (a) any foreign or domestic federal, state or local
government or municipality or political subdivision of any government or
municipality, (b) any assessment, improvement, community facilities or other
special taxing district, (c) any governmental or quasi-governmental body,
authority, board, bureau, commission, corporation, department, instrumentality
or public body, (d) any court, administrative tribunal, arbitrator, public
utility or regulatory body, or (e) any central bank or comparable authority.

“Guarantor” or “Guarantors” means each Person who at any time executes a
Guaranty for the benefit of Agent and the Lenders which shall include each
present and future Subsidiary of Borrower.

“Guaranty” means each guaranty of any Obligations of Borrower to Agent and the
Lenders heretofore, contemporaneously herewith or hereafter executed by any
Person.

“Hazardous Substance” means (a) any substance or material now or hereafter
defined or designated as a hazardous, toxic or radioactive material, waste or
substance, or as a pollutant or contaminant (or designated by any other similar
term), by any Environmental Law now or hereafter in effect; (b) asbestos and any
substance or compound containing asbestos; (c) petroleum, natural gas, natural
gas liquids, liquefied natural gas, synthetic gas usable for fuel (or mixtures
of natural gas and such synthetic gas) and ash produced by a resource recovery
facility utilizing a municipal solid waste stream, and drilling fluids, produced
waters and other wastes associated with the exploration, development or
production of crude oil, natural gas, or geothermal resources; (d) urea
formaldehyde foam insulation; (e) polychlorinated biphenyls (PCBs); (f) radon;
and (g) any other chemical, material, or substance, exposure to which (because
of its quantity, concentration, or physical or chemical characteristics) is
limited or regulated for health and safety reasons by any governmental
authority, or which poses a significant present or potential hazard to human
health and safety or to the environment if released into the workplace or the
environment.

“Indemnified Persons” has the meaning set forth in Section 14.4.

“Initial Condition” has the meaning set forth in Section 8.1.

 

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“Interest Rate Protection Agreements” means interest rate swap, cap or collar
agreements, options on any of the foregoing, and any other agreements or
arrangements designed to provide protection against fluctuations in interest
rates.

“Investments” has the meaning set forth in Section 12.6.

“Issuing Lender” means U.S. Bank as issuer of Letters of Credit.

“Landlord’s Consent” has the meaning set forth in Section 11.12.

“LC Agreement” has the meaning set forth in Section 4.3.

“LC Application” has the meaning set forth in Section 4.3.

“LC Outstandings” means, as of any date of determination, (a) the aggregate
maximum principal amount available to be drawn under all outstanding Letters of
Credit issued by Issuing Lender for the account of Borrower, plus (b) the
aggregate face amount of all payments made by Issuing Lender under such Letters
of Credit which amounts have not been reimbursed by Borrower.

“LFC Loan Agreement” has the meaning set forth in Section 8.1.7.

“LRE” means Lithia Real Estate, Inc., an Oregon corporation.

“Lender” has the meaning set forth in the introductory paragraph and includes,
as the context requires, the Issuing Lender and Swingline Lender.

“Letter of Credit” or “Letters of Credit” means any one or more of the Existing
Letters of Credit and any letters of credit issued pursuant to Article 4.

“Letter of Credit Commitment” means an amount equal to $500,000.00, as such
amount may be increased or decreased pursuant to Section 4.1.2.

“LIBOR Rate” means the one-month LIBOR rate quoted by Agent from Telerate Page
3750 or any successor thereto, which shall be that one-month LIBOR rate in
effect two Business Days prior to the beginning of each calendar month, adjusted
for any Reserve Requirements and any subsequent costs arising from a change in
government regulation, such rate to be reset at the beginning of each succeeding
month; provided, however, if the first Loan is made other than on the first day
of the month, the initial monthly LIBOR Rate shall be that one-month LIBOR rate
in effect two Business Days prior to the date of the initial Loan, which rate
shall be in effect for the remaining days of the month in which such Loan is
made; such monthly LIBOR Rate to be reset at the beginning of each succeeding
month. Agent’s internal records of applicable interest rates shall be
determinative in the absence of manifest error.

“Lien” means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the

 

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foregoing, the interest of a lessor under a Capital Lease or Synthetic Lease and
the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction to evidence of any of the foregoing).

“Loan” or “Loans” means any one or more of the Revolving Loans and Swingline
Loans.

“Loan Documents” means this Agreement, the Notes, the LC Agreements, the Letters
of Credit, the LC Applications, the Security Documents, the Guaranties, and all
other documents and instruments attached hereto, referred to herein, heretofore
or contemporaneously herewith or hereafter executed or delivered to Agent and
the Lenders by any Loan Party in connection with the Obligations of any Loan
Party to the Lenders.

“Loan Fee” has the meaning set forth in Section 2.6.

“Loan Party” or “Loan Parties” means any one or more of Borrower, Guarantors and
Collateral Subsidiaries.

“Majority Acquisition” means any Acquisition of Equity Interests of an entity,
in which the Borrower is not permitted to hold 100% of such equity interests
because of limitations imposed by the relevant manufacturer’s Franchise
Agreement.

“Material Adverse Effect” means a (a) material adverse change in or material
adverse effect upon the business, management, properties, prospects, condition
(financial or otherwise), assets or operations of the Borrower, or the Borrower
and its Subsidiaries taken as a whole; (b) a material adverse effect upon or
material impairment in (i) the attachment, perfection, or priority of the
security interests of Agent and the Lenders in the Collateral or in the value of
any material part of the Collateral; (ii) the ability of Borrower or Borrower
and the other Loan Parties taken as a whole to perform its or their obligations
under this Agreement or any other Loan Document; or (iii) the legality,
validity, binding effect or enforceability of or the rights and remedies
available to Agent and the Lenders under this Agreement or any other Loan
Document.

“Maximum Amount” means, as of any date of determination, the lesser of (a) the
Total Revolving Loan Commitment; and (b) the Borrowing Base at such time.

“Monthly Payment Date” means the twentieth day of each month.

“Multiemployer Plan” means a Plan described in Section 4001(a)(3) of ERISA.

“New Vehicle” means a Vehicle that is held by a Dealership for sale or lease in
the ordinary course of business, has never been owned except by a manufacturer,
distributor or dealer, and has never been registered or titled.

“Note” or “Notes” means any one or more of the Revolving Notes or the Swingline
Notes.

“Obligations” means all present and future Loans, LC Outstandings, and other
debts, liabilities, obligations, covenants, warranties, duties and obligations
of Borrower to Agent and the Lenders under the Notes, the LC Agreements, LC
Applications, the Letters of Credit, this Agreement and the other Loan
Documents, whether now or hereafter existing or incurred,

 

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whether liquidated or unliquidated, whether absolute or contingent, and
including without limitation principal, interest, fees, Attorney Costs, expenses
and charges relating to any of the foregoing.

“Participant” has the meaning set forth in Section 16.3.1.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.

“Permitted Acquisition” means an Acquisition which is permitted by
Section 12.13.

“Permitted Liens” means Liens permitted by Section 12.3, together with any Liens
to which Required Lenders have consented in writing.

“Permitted Restrictions” means restrictions on the ability of any Subsidiary to
declare or pay any dividend or make other distributions, or to advance or loan
funds, to the Borrower, to grant Liens on the assets of such Subsidiary to
secure Obligations of Borrower or to guaranty the Obligations: (a) as set forth
on the Disclosure Schedule on the Closing Date, including restrictions imposed
by existing Floor Plan Financing arrangements; (b) pursuant to modifications to
Floor Plan Financing arrangements in effect on the Closing Date, provided that
such modifications are not materially more restrictive; (c) pursuant to Floor
Plan Financing arrangements with any Floor Plan Lender other than a Person which
is a Floor Plan Lender on the Closing Date; (d) applicable to a Person at the
time such Person becomes a Subsidiary and not created in contemplation of such
an event; (e) resulting from manufacturer-imposed modifications to any Franchise
Agreement; or (f) imposed by applicable law.

“Person” means any natural person, corporation, general or limited partnership,
joint venture, limited liability company, trust, association, unincorporated
organization, government or governmental agency, political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.

“Plan” means any pension plan which is covered by Title IV of ERISA and in
respect of which any Loan Party or an ERISA Affiliate is an “employer” as
defined in Section 3(5) of ERISA.

“Pledge Agreement” means a pledge agreement substantially in the form attached
hereto as Exhibit G.

“Prime Rate” means the rate established by Agent from time to time as its prime
rate, which is set by Agent in its sole discretion and is not necessarily the
lowest rate charged by Agent to any borrower or class of borrowers. When the
Prime Rate is applicable, the interest rate will change automatically and
correspondingly on the date of each change in the Prime Rate.

“Principal” means Sidney D. DeBoer, Bryan DeBoer or another successor, or
successors, reasonably acceptable to Agent and the Required Lenders.

“Program Vehicle” means a Vehicle (other than a New Vehicle or a Service Loaner
Vehicle) that is held by a Dealership for sale or lease in the ordinary course
of business and that is obtained directly from a manufacturer, distributor, or
Floor Plan Lender (including electronic

 

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or on-line purchases) or through an auction conducted at the direction of, or
sponsored by, a manufacturer, distributor, or Floor Plan Lender.

“Prohibited Transaction” means any transaction set forth in Section 406 of ERISA
or Section 4975 of the Code.

“Properties” has the meaning set forth in Section 11.6.

“Pro Rata Share” means (a) with respect to the Revolving Loan Commitment,
Revolving Loan Exposure, or Revolving Loans of any Lender, the percentage
obtained by dividing (i) the Revolving Loan Exposure of that Lender by (ii) the
aggregate Revolving Loan Exposure of all Lenders; (b) with respect to the
Swingline Loans of the Swingline Lender, the Swingline Lender’s 100% interest in
the Swingline Loans; (c) with respect to any Lender’s participating interest in
the Swingline Loans, or its obligation to make Revolving Loans to repay
Swingline Loans, the percentage obtained by dividing (i) the Revolving Loan
Exposure of that Lender by (ii) the aggregate Revolving Loan Exposure of all
Lenders; (d) with respect to the Letters of Credit issued by the Issuing Lender,
the Issuing Lender’s 100% interest in the Letters of Credit; (e) with respect to
any Lender’s participating interest in Letters of Credit and drawings thereunder
and its obligation to reimburse Issuing Lender for any drawing under Letters of
Credit, the percentage obtained by dividing the Revolving Loan Exposure of that
Lender by the Revolving Loan Exposure of all Lenders; and (f) with respect to
the total Obligations, Commitments, Loans, and Letters of Credit of any Lender,
the percentage obtained by dividing (i) the sum of the Revolving Loan Exposure
of that Lender, by (ii) the sum of the aggregate Revolving Loan Exposure of all
Lenders.

“Refunding Revolving Loan” has the meaning set forth in Section 3.7.1(a)

“Register” has the meaning set forth in Section 16.5.

“Reportable Event” means any of the events set forth in Section 4043 of ERISA
for which reporting has not been waived under applicable regulations.

“Required Lenders” means Lenders holding 66% or more of the sum of the Revolving
Loan Exposure of all Lenders; provided, however, that so long as U.S. Bank,
Toyota Motor Credit Corporation and DaimlerChrysler Financial Services Americas
LLC are the only Lenders, Required Lenders shall mean all Lenders.

“Reserve Requirements” means the maximum reserves (whether basic, supplemental,
marginal, emergency, or otherwise) prescribed by the Board of Governors of the
Federal Reserve System (or any successor) with respect to liabilities or assets
consisting of or including “Eurocurrency liabilities” (as defined in Regulation
D of the Board of Governors of the Federal Reserve System).

“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other property) with respect to any Equity Interests in any Loan
Party or any Subsidiary, or any payment (whether in cash, securities or other
property) on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such Equity Interests in any Loan Party, or
any option, warrant or other right to acquire any such Equity Interests in any
Loan Party.

 

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“Revolving Loan” has the meaning set forth in Section 2.1.1.

“Revolving Loan Borrowing” means a revolving loan borrowing consisting of the
Revolving Loans to be made by the Lenders on any date.

“Revolving Loan Borrowing Rate” has the meaning set forth in Section 5.1.

“Revolving Loan Commitment” means, with respect to any Lender at any time, the
amount set forth as such for such Lender on Schedule 1 hereto as it may be
amended from time to time.

“Revolving Loan Exposure” means, with respect to any Lender at any time
(a) prior to the termination of the availability of Revolving Loans, such
Lender’s Revolving Loan Commitment, and (b) after the termination of the
availability of Revolving Loans, (i) the aggregate outstanding principal amount
of the Revolving Loans of such Lender, plus (ii) the aggregate principal amount
of such Lender’s participation interests (whether funded or unfunded) in the
Swingline Loans (or, in the case of the Swingline Lender, the outstanding
principal amount of the Swingline Loans, net of the participation interests of
the other Lenders), plus (iii) the aggregate amount of such Lender’s
participation interests (whether funded or unfunded) in the Letters of Credit
and drawings thereunder (or, in the case of the Issuing Lender, the aggregate LC
Outstandings, net of the participation interests of the other Lenders).

“Revolving Note” has the meaning set forth in Section 2.3.

“Security Agreement” means a security agreement substantially in the form
attached hereto as Exhibit H.

“Security Documents” means and includes the Security Agreement, the Pledge
Agreement, the Aircraft Security Agreement, and all deeds of trust, assignments,
mortgages, security agreements, bank account control agreements, and other
documents executed by any Person at any time to evidence and/or perfect security
interests in the Collateral, including documents executed pursuant to
Section 7.1.2.

“Seller Agreement” means any material agreement between a Borrower and a
manufacturer, distributor or other seller of New Vehicles (including without
limitation Franchise Agreements, distribution agreements and the like).

“Senior Subordinated Notes” means the $85,000,000 of 2.875% Convertible Senior
Subordinated Notes due 2014 of Borrower issued pursuant to the Indenture dated
as of May 4, 2004, between the Borrower and U.S. Bank, as trustee.

“Service Loaner Vehicle” means a Vehicle that is obtained by a Dealership
directly from a manufacturer or distributor and which is (a) used for short-term
rental in the ordinary course of business or as a service loaner, (b) leased to
employees for terms of up to one year, or (c) a “donation vehicle” which is
loaned to educational institutions for their use.

“Solvent” means, with respect to any Person on any date, that on such date
(a) the fair value of the property of such Person is greater than the total
amount of the liabilities (including, without limitation, the net present value
of contingent liabilities discounted by the probability

 

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that the contingency will occur) of such Person, (b) the present fair saleable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person’s ability to
pay as such debts and liabilities mature and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person’s assets would constitute an unreasonably
small capital.

“Specified Current Assets Commitment Amount” means, with respect to any Current
Assets Election, the amount specified by Borrower as the “Specified Current
Assets Commitment Amount” in such Current Assets Election.

“Subordinated Debt” means (i) the Senior Subordinated Notes and (ii) other
unsecured subordinated debt of Borrower that has subordination terms, covenants,
pricing and other terms that have been approved in writing by the Required
Lenders.

“Subsidiary” of a Person means any corporation, association, partnership,
limited liability company, joint venture or other business entity of which more
than 50% of the voting stock, membership interests or other equity interests (in
the case of Persons other than corporations), is owned or Controlled directly or
indirectly by such Person, or one or more of the Subsidiaries of such Person, or
a combination thereof. Unless the context otherwise requires, each reference to
a Subsidiary shall be deemed to be a reference to a Subsidiary of Borrower.

“Sweep Advance” has the meaning set forth in Section 3.8.1.

“Swingline Borrowing Rate” has the meaning set forth in Section 5.1.

“Swingline Commitment” means an amount equal to $35,000,000.00.

“Swingline Lender” means U.S. Bank.

“Swingline Loan” has the meaning set forth in Section 3.1.1.

“Swingline Note” has the meaning set forth in Section 3.3.

“Synthetic Lease” means any lease of goods or other property, whether real or
personal, which is treated as an operating lease under GAAP and as a loan or
financing for U.S. income tax purposes.

“Taxes” has the meaning set forth in Section 6.1.

“Title Documents” means all manufacturer’s certificates of origin,
manufacturers’ statements of origin, certificates of title, certificates of
ownership and any other documents evidencing ownership of a motor vehicle or the
transfer of ownership of a motor vehicle from a manufacturer or another dealer
to a Dealership, and all warehouse receipts, bills of lading and other
negotiable documents of title.

“Total Net Worth” has the meaning set forth in Section 10.1.1.

 

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“Total Revolving Loan Commitment” means an amount equal to $225,000,000.00.

“Used Vehicle” means a Vehicle which is held by a Dealership for sale in the
ordinary course of business and which is not a New Vehicle, Service Loaner
Vehicle, or Program Vehicle.

“U.S. Bank” means U.S. Bank National Association.

“U.S. Bank Control Agreement” has the meaning set forth in Section 15.9.

“Vehicle” means an automobile, truck, van, or other motor vehicle.

“Vehicle Equity” means, as of any date of determination, (a) the sum of:
(i) amounts (excluding commissions included in clause (a) (iv) of the definition
of Eligible Receivables) which are owed to the Dealerships by financial
institutions or finance companies which are not Affiliates of any Loan Party for
the purchase by such institutions of retail installment contracts and leases
arising from the sale or lease of New Vehicles, Used Vehicles and Program
Vehicles (contracts in transit) and in which Agent has a perfected first
priority security interest, (ii) amounts which are owed to the Dealerships by
retail customers for the purchase or lease of New Vehicles, Used Vehicles and
Program Vehicles, which have not remained unpaid for more than 30 days and which
consist of interim financing provided by a Dealership prior to the customer’s
obtaining permanent financing, and in which Agent has a perfected first priority
security interest, (iii) cash on deposit in deposit accounts of the Borrower and
its Subsidiaries in which Agent has a perfected first priority security
interest; provided, however, that cash included in the Borrowing Base shall not
exceed (A) $50,000,000.00 as of the last day of any fiscal quarter, or
(B) $10,000,000.00 on any other date, and (iv) the net book value of the New
Vehicles, Program Vehicles and Used Vehicles of the Dealerships in which Agent
has a perfected security interest; minus (b) the sum of (i) the aggregate
outstanding principal balance of the Floor Plan Financing owed to all Floor Plan
Lenders which is secured by such New Vehicles, Program Vehicles and/or Used
Vehicles, and (ii) the principal amount of any other indebtedness or obligation
to any Person (other than the Obligations) which is secured by the New Vehicles,
Program Vehicles and/or Used Vehicles, including but not limited to amounts
owing to holders of any lien or security interest in a Used Vehicle at the time
it is traded in, sold to, or otherwise acquired by any Dealership.

1.2 Other Interpretive Provisions.

1.2.1 Unless otherwise specified, the words “herein,” “hereof,” hereto,”
“hereunder” and similar terms refer to this Agreement as a whole and not to any
particular provision of this Agreement and subsection, Section, and exhibit
references are to this Agreement.

1.2.2 The word “or” shall not be exclusive; the singular includes the plural and
the plural includes the singular; the masculine, the feminine and neuter gender,
each include the masculine, feminine and neuter gender; and the word “including”
is not limiting and means “including without limitation.”

1.2.3 References to any Loan Document shall mean such Loan Document as amended,
modified, supplemented or extended from time to time and any number of
substitutions, renewals, restatements, consolidations, and replacements thereof
or therefor.

 

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1.2.4 References to governmental laws, statutes, ordinances, rules and
regulations shall be construed as including all amendments, consolidations and
replacements thereof or therefor.

1.2.5 Headings in this Agreement and each of the other Loan Documents are for
convenience of reference only and are not part of the substance hereof or
thereof.

1.2.6 Terms used herein without definition which are defined in the Uniform
Commercial Code shall have the meanings given to them in such Uniform Commercial
Code.

1.2.7 Unless otherwise indicated in this Agreement or any other Loan Document,
all accounting terms used in this Agreement or any other Loan Document shall be
construed, and all accounting and financial information or computations shall be
prepared or computed, in accordance with GAAP. If GAAP changes during the term
of this Agreement such that any covenants contained herein would then be
calculated in a different manner or with different components, the Borrower, the
Lenders, and Agent agree to negotiate in good faith to amend this Agreement in
such respects as is necessary to conform those covenants as criteria for
evaluating the Loan Parties’ financial condition to substantially the same
criteria as were effective before such change in GAAP, provided, however, that
until the Borrower, the Lenders and Agent so amend this Agreement, all such
covenants shall be calculated in accordance with GAAP as in effect on the date
of this Agreement.

ARTICLE 2.

REVOLVING LOANS

2.1 Revolving Loan Commitment.

2.1.1 Maximum Amount. Subject to the terms and conditions of this Agreement,
each Lender severally and not jointly agrees to make loans (each a “Revolving
Loan” and collectively, the “Revolving Loans”) to Borrower on a revolving credit
basis during the period from the Closing Date to but not including the
Expiration Date; provided that (a) the aggregate outstanding principal balance
of the Revolving Loans made by each Lender, plus the outstanding principal
balance of such Lender’s participating interest in the Swingline Loans and
Letters of Credit shall not at any time exceed an amount equal to such Lender’s
Revolving Loan Commitment; (b) the outstanding principal balance of all
Revolving Loans shall not at any time exceed, in the aggregate, as to all
Lenders, the Maximum Amount, and (c) the outstanding principal balance of all
Revolving Loans, plus the outstanding principal balance of all Swingline Loans,
plus the LC Outstandings shall not at any time exceed, in the aggregate, as to
all Lenders, the Maximum Amount.

2.1.2 Term. Subject to the terms and conditions hereof, Borrower may borrow,
prepay and reborrow Revolving Loans. The commitment of the Lenders to make
Revolving Loans shall terminate automatically and permanently on the Expiration
Date and no Revolving Loans shall be made on or after that date.

2.2 Purpose of Revolving Loans. Borrower shall use the proceeds of the Revolving
Loans solely to finance used vehicles, for its general corporate purposes and to
finance Permitted Acquisitions.

 

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2.3 Revolving Notes. The Revolving Loans to be made by each Lender shall be
evidenced by a promissory note substantially in the form of Exhibit A hereto,
payable to the order of such Lender and in the principal amount of such Lender’s
Revolving Loan Commitment (each, a “Revolving Note” and collectively, the
“Revolving Notes”).

2.4 Requests for Revolving Loans. Whenever Borrower wishes to obtain Revolving
Loans, Borrower shall give Agent irrevocable notice thereof no later than 11:00
a.m. (Pacific Time) at least two Business Days prior to the date of the
requested borrowing. Such notice shall specify the requested borrowing date
(which must be a Business Day), the amount of the Revolving Loan Borrowing, and
include any other information and documentation reasonably requested by Agent.

2.5 Payments.

2.5.1 Interest Payments. Interest on the unpaid principal balance of the
Revolving Notes shall be paid monthly in an amount equal to all interest accrued
during the prior calendar month. Such interest payments shall be made on each
Monthly Payment Date commencing the month immediately following the Closing Date
and continuing thereafter. All accrued interest outstanding on the Expiration
Date shall be due and payable in full on the Expiration Date. All interest
payments on the Revolving Notes shall be made to Agent for the benefit of the
Lenders based upon their respective Revolving Loan Pro Rata Shares.

2.5.2 Voluntary Principal Payments. Borrower may make voluntary repayments of
all or any portion of the outstanding principal balance of the Revolving Loans
if Borrower gives Agent written or telephonic notice of such voluntary repayment
no later than 11:00 a.m. Pacific Time at least one Business Day prior to the
date of such repayment. Such notice shall specify the anticipated date of the
voluntary repayment and the principal amount of the Revolving Loans that will be
repaid on such date. Any voluntary repayment of the Revolving Loans that is
received by Agent without such notice shall be deemed to have been received by
Agent on the Business Day after such payment is actually received by Agent and
interest shall accrue on the amounts so repaid through the date of such deemed
receipt. All payments under this Section 2.5.2 shall be made to Agent for the
benefit of the Lenders based upon their respective Revolving Loan Pro Rata
Shares.

2.5.3 Principal Payment at Maturity. The entire outstanding principal balance of
the Revolving Notes plus all interest accrued thereon shall be due and payable
in full on the Expiration Date. Such payments shall be made to Agent for the
benefit of the Lenders based upon their respective Revolving Loan Pro Rata
Shares.

2.6 Revolving Loan Fee. Borrower shall pay to Agent, for the account of the
Lenders, a fee (the “Loan Fee”): equal to the sum of the following: (a) for the
Swingline Loans, an amount equal to ____% per annum on the amount, calculated on
a daily basis, by which the Swingline Commitment exceeds the actual aggregate
outstanding principal balance of the Swingline Loans on each day (it being
understood that any portion of the outstanding principal balance of the
Swingline Loans ceases to be outstanding under the Swingline Loans and commences
being a portion of the outstanding principal balance under the Revolving Loans
on the date that the Revolving Loans are funded to repay such portion of the
outstanding principal balance of the Swingline Loans); and (b) for the Revolving
Loans, an amount equal to ____%

 

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per annum on the amount, calculated on a daily basis, by which $190,000,000
exceeds the sum of the actual aggregate outstanding principal balance of the
Revolving Loans plus the LC Outstandings on each day. The accrued Loan Fee shall
be due and payable in arrears on the first Monthly Payment Date in each fiscal
quarter (and on the Expiration Date) for the three month period or other time
period ending on the last day of the preceding fiscal quarter or on the
Expiration Date. One hundred percent (100%) of the fee for the Swingline Loans
(as set forth in Section 2.6(a)) shall be paid by Agent to the Swingline Lender.
The fee for the Revolving Loans (as set forth in Section 2.6(b)) shall be paid
(i) to each Lender other than the Swingline Lender based upon a percentage
determined by dividing such Lender’s Revolving Loan Commitment by $190,000,000
and (ii) to Swingline Lender based upon a percentage determined by dividing
(A) the product of Swingline Lender’s Revolving Loan Commitment minus
$35,000,000, by (B) $190,000,000.

ARTICLE 3.

SWINGLINE LOANS

3.1 Swingline Commitment.

3.1.1 Maximum Amount. Subject to the terms and conditions of this Agreement, the
Swingline Lender agrees to make loans (each, a “Swingline Loan” and
collectively, the Swingline Loans”) to Borrower on a revolving credit basis
during the period from the Closing Date to but not including the Expiration
Date; provided that (a) the aggregate outstanding principal balance of the
Swingline Loans shall not at any time exceed the Swingline Commitment; and
(b) the outstanding principal balance of all Revolving Loans made by all Lenders
plus the outstanding principal balance of all Swingline Loans, plus the LC
Outstandings, shall not at any time exceed the Maximum Amount.

3.1.2 Term. Subject to the terms and conditions hereof, Borrower may borrow,
prepay and reborrow Swingline Loans. The commitment of the Swingline Lender to
make Swingline Loans shall terminate automatically and permanently on the
Expiration Date and no Swingline Loans shall be made on or after that date.

3.2 Purpose of Swingline Loans. Borrower shall use the proceeds for purposes
permitted by Section 2.2 and to fund Sweep Advances pursuant to Section 3.8.

3.3 Swingline Notes. The Swingline Loans shall be evidenced by one or more
promissory notes substantially in the form of Exhibit B hereto, payable to the
order of Swingline Lender and in an aggregate principal amount equal to the
Swingline Commitment (each, a “Swingline Note” and collectively, “Swingline
Notes”).

3.4 Requests for Swingline Loans. Subject to Section 3.8, whenever Borrower
wishes to obtain a Swingline Loan, Borrower shall give Agent irrevocable notice
thereof no later than 1:00 p.m. (Pacific Time) on the requested date of such
Swingline Loan, unless Swingline Lender agrees in each instance, in its sole
discretion, to a shorter time period. Such notice shall specify the requested
borrowing date (which must be a Business Day) and the amount of the Swingline
Loan.

3.5 Loan Payments.

 

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3.5.1 Interest Payments. Interest on the unpaid principal balance of the
Swingline Loans shall be paid monthly in an amount equal to all interest accrued
during the prior calendar month. Such interest payments shall be made on each
Monthly Payment Date commencing the month immediately following the Closing Date
and continuing thereafter. All accrued interest outstanding on the Expiration
Date shall be due and payable in full on the Expiration Date.

3.5.2 Principal Payments. The entire outstanding principal balance of the
Swingline Notes plus all interest accrued thereon shall be due and payable in
full on the Expiration Date. In addition, the principal balance of the Swingline
Loans shall be due and payable as required by Section 3.7.

3.6 Participation in Swingline Loans. Immediately upon the making of a Swingline
Loan by the Swingline Lender, the Swingline Lender shall be deemed to have sold
and transferred to each Lender and each Lender shall be deemed to have purchased
and received from the Swingline Lender, without any further action by any party,
an undivided participating interest in each Swingline Loan in an amount equal to
such Lender’s Revolving Loan Pro Rata Share; provided, however, that (a) no
Lender shall be required to fund its participation in any Swingline Loan except
as set forth in Sections 3.7.2 and 3.7.4, and (b) no Lender shall be entitled to
share in any payments of principal or interest in respect of its participation
except, with respect to any participation funded by such Lender, as set forth in
Sections 3.7.2 and 3.7.3. Such participation shall be subject to the terms and
conditions of this Agreement.

3.7 Settlement of Swingline Loans.

3.7.1 Refunding of Loans.

(a) Upon the request of the Swingline Lender, the Agent from time to time shall,
on behalf of Borrower (and Borrower hereby irrevocably authorizes the Agent to
so act on its behalf) request each Lender (including Swingline Lender in its
capacity as a Lender) to make a Revolving Loan to the Borrower, in accordance
with the provisions of Sections 3.7.1(b) and (c), which shall be applied to
repay all or a portion of the outstanding principal balance of the Swingline
Loans (each such Revolving Loan, a “Refunding Revolving Loan”), in an amount
equal to that Lender’s Revolving Loan Pro Rata Share of all or a portion of the
then outstanding principal balance of the Swingline Loans.

(b) Unless the Agent has requested the Lenders to fund participations in
Swingline Loans pursuant to Section 3.7.2, the Agent shall, by giving notice
thereof within the time required hereunder, request the Lenders to make such
Refunding Revolving Loans on the fifth day and the twentieth day of each month
(or on the next Business Day if such day is not a Business Day) based upon the
outstanding principal balance of the Swingline Loans on the date which is two
Business Days prior to such date.

(c) In addition to the Refunding Revolving Loans required by Section 3.7.1(b),
Agent may request the Lenders to make Refunding Revolving Loans at any time if
(i) a Default has occurred and is continuing, or (ii) in the judgment of
Swingline Lender, taking into account the outstanding principal balance of the
Swingline Loans, the anticipated usage of the Swingline Loans and the operation
of the Credit Sweep pursuant to Section 3.8, such Refunding

 

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Revolving Loans are reasonably necessary to ensure that the outstanding
principal balance of the Swingline Loans will not at any time exceed the
Swingline Commitment or such lesser amount as is permitted to be outstanding on
the Swingline Loans at such time (it being understood that in order to attain
such objective, Swingline Lender may request repayment of the Swingline Loans
even though the principal balance of the Swingline Loans at the time of such
request is less than the Swingline Commitment or the amount permitted to be
outstanding on the Swingline Loans).

(d) If the Agent makes a request for funding under this Section 3.7.1 by 11:00
a.m. Pacific Time on any Business Day, the Lenders will deliver the required
amount to Agent no later than 11:00 a.m. Pacific Time on the Business Day after
such request. The proceeds of all Refunding Revolving Loans shall be paid by the
Agent to the Swingline Lender in repayment of the outstanding principal balance
of the applicable Swingline Loans.

(e) Notwithstanding any contrary provision of this Section 3.7.1, except for
participations funded pursuant to Section 3.7.2, and so long as no Default has
occurred and is continuing, Agent will not ask the Lenders to make Revolving
Loans pursuant to this Section 3.7.1 to repay the Swingline Loans to the extent
that, after giving effect to the making of such Revolving Loans, the principal
balance of the Swingline Loans will be less than $15,000,000.00.

3.7.2 Funding of Participations. In addition to the right of the Swingline
Lender to request refunding of the Swingline Loans pursuant to Section 3.7.1,
upon the request of the Swingline Lender, the Agent shall request each Lender
(including Swingline Lender in its capacity as a Lender) to fund its
participation in the Swingline Loans by paying to the Agent, for the account of
the Swingline Lender, its Revolving Loan Pro Rata Share of the principal amount
of the Swingline Loans. If the Agent makes such request by 11:00 a.m. Pacific
Time on any Business Day, the Lenders will deliver such amount to Agent no later
than 11:00 a.m. Pacific Time on the Business Day after such request. All
participations funded by the Lenders under this Section 3.7.2 shall be treated
as the funding of the Revolving Loans for purposes of the calculation of the
Loan Fee under Section 2.6. If any payment paid to any Lender with respect to
its participating interest in any Swingline Loan is thereafter recovered from or
must be returned or paid over by Swingline Lender for any reason, such Lender
will pay to the Agent for the account of the Swingline Lender, such Lender’s
Revolving Loan Pro Rata Share of such amount and of any interest and other
amounts paid or payable by the Swingline Lender with respect to such amount.
Agent agrees not to request any funding of the Lender’s participations in the
Swingline Loans under this Section 3.7.2 at any time that such participations
may be legally repaid using advances of the Revolving Loan under Section 3.7.1.

3.7.3 Payment to Swingline Lender. Notwithstanding any contrary provision of
this Agreement (a) except as set forth in Section 3.7.3(b) all payments of
principal and interest on the Swingline Loans shall be paid by Agent solely to
the Swingline Lender; and (b) with respect to each participation in Swingline
Loans which is funded by any Lender, such Lender (including Swingline Lender in
its capacity as Lender) shall be entitled to receive its Revolving Loan Pro Rata
Share of payments of (i) principal on such Swingline Loans and (ii) interest on
such Swingline Loans only for the period following the date such participation
is funded.

3.7.4 Obligations Unconditional. The obligation of each Lender to make Revolving
Loans to repay Swingline Loans pursuant to Section 3.7.1 or to fund its
participation interests in Swingline Loans pursuant to Section 3.7.2 shall be
absolute and unconditional and

 

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shall not be affected by the occurrence of a Default or Event of Default, the
fact that any one or more of the conditions in Section 8.1 or 8.2 is not
satisfied, the termination of the availability of Loans, the fact that such
Revolving Loan is made after the Expiration Date, any defense, setoff,
counterclaim or claim for recoupment of any Lender against Agent or Swingline
Lender or any other circumstance, whether or not similar to the foregoing.
Notwithstanding the foregoing, the Lenders shall not be required to repay
Swingline Loans pursuant to Section 3.7.1 or to fund their participation
interests in Swingline Loans pursuant to Section 3.7.2 with respect to any
portions of the outstanding principal balance of the Swingline Loans (including
Sweep Advances) that are funded by Swingline Lender after Agent is deemed to
have knowledge or notice of the occurrence of a Default or after the Expiration
Date.

3.8 Credit Sweep.

3.8.1 Notwithstanding the provisions of Section 3.4, in addition to Swingline
Loans requested pursuant to Section 3.4, Borrower may also obtain and repay
Swingline Loans in accordance with the provisions of this Section 3.8 (each, a
“Sweep Advance”). Sweep Advances shall be Swingline Loans.

3.8.2 Funds may be transferred between one or more deposit accounts maintained
by Borrower with U.S. Bank (each, a “DDA”) and the Swingline Loans. Collected
funds in the DDA may be transferred to the Swingline Loans to reduce the
outstanding principal balance thereof and Sweep Advances may be made to maintain
an agreed upon collected balance in the DDA.

3.8.3 All Sweep Advances shall be deemed to have been requested by Borrower and
shall be subject to the terms and conditions of this Agreement and the other
Loan Documents, and shall also be subject to U.S. Bank’s deposit account,
treasury management and other agreements with Borrower; provided, however, that
if there is any conflict between the terms of such agreements and the Loan
Documents, the terms of the Loan Documents shall control.

3.8.4 Borrower may terminate this service by written notice executed by Borrower
and delivered to Agent. Agent or U.S. Bank may change the terms or discontinue
this service at any time upon written notice to Borrower.

3.8.5 Borrower shall pay such fees for this sweep service as may be disclosed to
Borrower by Agent. Such fees shall be for the sole account of U.S. Bank.

ARTICLE 4.

LETTERS OF CREDIT

4.1 Letter of Credit Commitment.

4.1.1 Maximum Amount. Subject to and upon the terms and conditions of this
Agreement, Issuing Lender may from time to time during the period from the
Closing Date to the date which is 30 days prior to the Expiration issue one or
more standby letters of credit for the account of Borrower; provided that
(a) the LC Outstandings shall not exceed at any time the Letter of Credit
Commitment; and (b) the outstanding principal balance of all Revolving Loans

 

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made by all Lenders, plus the outstanding principal balance of all Swingline
Loans, plus the LC Outstandings shall not at any time exceed the Maximum Amount.

4.1.2 Increase or Decrease in Letter of Credit Commitment. Notwithstanding any
contrary provision of this Agreement, Issuing Lender may, in its sole
discretion, with the consent of Agent (but without the necessity of obtaining
consent of any Lenders) agree with Borrower to increase or decrease the Letter
of Credit Commitment, so long as the Letter of Credit Commitment does not at any
time exceed $1,000,000.00.

4.2 Existing Letters of Credit. Issuing Lender has previously issued the
following letters of credit (“Existing Letters of Credit”) for the account of
Borrower:

 

Letter of Credit
Number

  

Beneficiary

  

Expiration Date

  

Amount

SLCPPDX01674

      09/10/06    10,000.00

SLCPPDX01879

      09/30/06    33,333.33

SLCPPDX01880

      09/30/06    11,666,78

SLCPPDX01881

      09/30/06    21,666,67

SLCPPDX02784

      02/01/07    22,480.00

SLCPPDX02814

      02/15/08    18,495,00

Each of the Existing Letters of Credit shall be subject to the terms and
conditions of this Agreement.

4.3 LC Agreements. On the Closing Date, and from time to time as required by
Issuing Lender, Borrower shall execute and deliver to Issuing Lender a letter of
credit reimbursement agreement or an amendment to existing agreements executed
by Borrower (each, an “LC Agreement”) in a form acceptable to Issuing Lender.
Whenever Borrower wishes to request the issuance of a Letter of Credit, Borrower
shall execute and deliver to Issuing Lender an application therefor in Issuing
Lender’s standard form appropriately completed with all required information (an
“LC Application”) and such other documents and information as Issuing Lender
reasonably requires. Each Letter of Credit shall be subject to all terms and
conditions of this Agreement and of the applicable LC Application and LC
Agreement. In the event of any express conflict between the terms of this
Agreement and of the applicable LC Agreement, the terms of this Agreement shall
control.

4.4 Expiry Date. No Letter of Credit shall be issued later than the 30 days
prior to the Expiration Date. Each Letter of Credit shall have an expiration
date no later than the earlier of (a) two years after the issuance date (or date
of extension or renewal, if applicable); or (b) 30 days prior to Expiration
Date. Drafts drawn under a Letter of Credit may be sight drafts or time drafts;
provided, however, that no draft shall have a maturity date later than the 30
days prior to Expiration Date.

4.5 Requests for Letters of Credit. Each LC Application shall be submitted to
the Issuing Lender, with a copy to the Agent, at least five Business Days prior
to the date upon which the related Letter of Credit is proposed to be issued
(unless the Issuing Lender, in any instance, in its sole discretion, agrees to a
shorter time period). The Agent shall promptly notify the Issuing Lender whether
such LC Application, and the issuance of a Letter of Credit pursuant thereto,
conforms to the requirements of this Agreement. Upon issuance of a Letter of
Credit,

 

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the Issuing Lender shall promptly notify the Agent, and Agent shall promptly
notify the Lenders, of the amount and terms thereof.

4.6 Participation in Letters of Credit. Upon the issuance of a Letter of Credit
in accordance with this Agreement (or on the Closing Date with respect to
Existing Letters of Credit), each Lender shall be deemed to have purchased a pro
rata participation in such Letter of Credit and all unreimbursed drawings
thereunder, from the Issuing Lender in an amount equal to that Lender’s
Revolving Loan Pro Rata Share of the face amount of the Letter of Credit.
Without limiting the scope and nature of each Lender’s participation in any
Letter of Credit, to the extent that the Issuing Lender is not reimbursed by
Borrower for any payment made by the Issuing Lender under any Existing Letter of
Credit or any other Letter of Credit issued in accordance with the terms hereof,
or if any reimbursement received by Issuing Lender is rescinded or must be
returned, each Lender shall reimburse Agent, for the benefit of the Issuing
Lender, an amount equal to its Revolving Loan Pro Rata Share of such
reimbursement amount as set forth below. To obtain funding by the Lenders of any
reimbursement amount, Agent must request, before 11:00 a.m. Pacific Time on a
Business Day, each Lender (including the Issuing Lender in its capacity as a
Lender) to fund an amount equal to each Lender’s respective Revolving Loan Pro
Rata Share of the reimbursement amount. The Lenders shall fund to Agent the
amounts so requested no later than 11:00 a.m. Pacific Time on the Business Day
after the date that such request is delivered to the Lenders and all amounts so
funded shall be paid by the Agent to the Issuing Lender in satisfaction of each
Lender’s participation obligations on the Business Day that such funds are
received by Agent. The obligation of each Lender to so reimburse Agent, on
behalf of the Issuing Lender, shall be absolute and unconditional and shall not
be affected by the occurrence of a Default or Event of Default, the termination
of the availability of Letters of Credit, the fact that reimbursement is
requested after the Expiration Date, any defense, setoff, counterclaim or claim
for recoupment against Agent or Issuing Lender, or any other circumstance,
whether or not similar to the foregoing. Any such reimbursement shall not
relieve or otherwise impair the obligation of Borrower to reimburse the Issuing
Lender for the amount of any payment made by the Issuing Lender under any Letter
of Credit, together with interest as provided herein.

4.7 Payments. Borrower agrees to pay to the Issuing Lender, on the date any
payment is made by the Issuing Lender, an amount equal to any payment made by
the Issuing Lender with respect to each Letter of Credit, together with interest
on such amount from the date of any payment made by the Issuing Lender at the
Revolving Loan Borrowing Rate for the first three days and thereafter at the
Default Rate. The principal amount of any such payment shall be used to
reimburse the Issuing Lender for the payment made by it under the Letter of
Credit and, to the extent that the Lenders have not reimbursed the Agent
pursuant to Section 4.6, the interest amount of any such payment shall be solely
for the account of the Issuing Lender. Each Lender that has reimbursed the Agent
pursuant to Section 4.6 for its Revolving Loan Pro Rata Share of any payment
made by the Issuing Lender under a Letter of Credit shall thereupon acquire a
Revolving Loan Pro Rata Share participation, to the extent of such
reimbursement, in the claim of the Issuing Lender against Borrower for
reimbursement of principal and interest under this Section 4.7 and shall share,
in accordance with that pro rata participation, in any principal payment made by
Borrower with respect to such claim and in any interest payment made by Borrower
(but only with respect to periods subsequent to the date such Lender reimbursed
the Agent) with respect to such claim. The Issuing Lender shall promptly make
available to the Agent, in immediately available funds, any amounts due to the
Lenders under this Section 4.7.

 

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The Issuing Lender shall notify the Borrower and the Agent whenever any demand
for payment is made under any Letter of Credit by the beneficiary thereof.

4.8 Terms Satisfactory to Issuing Lender. Notwithstanding any contrary provision
of this Agreement, any LC Agreement, LC Application, or any other Loan Document,
all terms and conditions of each Letter of Credit must be acceptable to Issuing
Lender in its sole discretion and each Letter of Credit must conform to all
requirements of the Issuing Lender.

4.9 Obligations Absolute. The obligation of Borrower to pay to the Issuing
Lender the amount of any payment made by the Issuing Lender under any Letter of
Credit shall be absolute, unconditional, and irrevocable. Without limiting the
foregoing, Borrower’s obligation shall not be affected by any of the following
circumstances, except in the event of Issuing Lender’s gross negligence or
intentional misconduct:

(a) any lack of validity or enforceability of the Letter of Credit, this
Agreement, the other Loan Documents, or any other agreement or instrument
relating thereto;

(b) the existence of any claim, setoff, defense, or other rights which Borrower
may have at any time against the Issuing Lender, any beneficiary of the Letter
of Credit (or any Persons for whom any such beneficiary may be acting) or any
other Person, whether in connection with the Letter of Credit, this Agreement,
or any other agreement or instrument relating thereto, or any unrelated
transactions;

(c) any draft, demand, statement, or any other document presented under the
Letter of Credit proving to be forged, fraudulent or invalid in any respect or
any statement therein being untrue or inaccurate in any respect whatsoever;

(d) the solvency or financial responsibility of any party issuing any documents
in connection with a Letter of Credit;

(e) any failure or delay in notice of shipments or arrival of any property;

(f) any error, omission, or loss in the transmission or delivery of any draft,
notice or other communication relating to a Letter of Credit or any delay or
interruption in any such message;

(g) any error, neglect or default of any correspondent of the Issuing Lender in
connection with a Letter of Credit;

(h) any error in interpretation of technical terms or any consequence arising
from circumstances beyond the control of the Issuing Lender;

(i) any other circumstance whatsoever, whether or not similar to any of the
foregoing that might constitute a legal or equitable discharge of, or provide a
right of set-off against, the Obligations of Borrower.

4.10 Letter of Credit Fees.

 

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4.10.1 Borrower agrees to pay to Agent, for the account of the Lenders (based
upon each Lender’s Revolving Loan Pro Rata Share), on the date any Letter of
Credit is issued, renewed or extended, with respect to each Letter of Credit, an
issuing fee of 1.5% per annum on the face amount thereof, calculated from the
date of issuance (or renewal or extension) to the expiry date thereof. All
issuing fees paid under this Section 4.10.1 are non-refundable, even if the
Letter of Credit for which they are paid is terminated before its anticipated
expiration or extended expiration date.

4.10.2 Borrower agrees to pay to Issuing Lender on demand, for its sole account,
with respect to each Letter of Credit and each draft drawn thereunder, Issuing
Lender’s customary fees and charges, including processing, drawing, transfer,
amendment, negotiation, acceptance, and other fees.

ARTICLE 5.

CERTAIN ADDITIONAL PROVISIONS

5.1 Interest.

5.1.1 Interest Rate. Unless the Default Rate is applicable, (a) the Revolving
Loans shall bear interest at a variable per annum rate equal to the LIBOR Rate
plus ____% (“Revolving Loan Borrowing Rate”); and (b) the Swingline Loans shall
bear interest at a variable per annum rate equal to the LIBOR Rate plus ____%
(“Swingline Borrowing Rate”), in each case adjusted without notice on the date
of each change in the LIBOR Rate.

5.1.2 Default Interest Rate. Upon the occurrence and during the continuance of
any Event of Default, at the option of the Required Lenders, the Loans shall
bear interest at a per annum rate equal to the Revolving Loan Borrowing Rate
plus ___% (“Default Rate”).

5.1.3 Determination of Rate. Notwithstanding any provision of this Agreement to
the contrary, each Lender shall be entitled to fund and maintain its funding of
all or any part of the Loans in any manner it elects; it being understood,
however, that with respect to the LIBOR Rate, all determinations hereunder shall
be made as if each Lender had actually funded and maintained its Loans through
the purchase of deposits in the London interbank eurodollar market.

5.2 Borrowing Procedure.

5.2.1 Requests for Loans. Whenever Borrower wishes to request a Loan, Borrower
shall give Agent irrevocable notice thereof within the time required by
Section 2.4 or 3.4, as applicable. Borrower may request a Loan in writing or by
telephone promptly confirmed in writing (or with respect to Sweep Advances, as
set forth in Section 3.8) for deposit into Borrower’s deposit account(s) with
Agent. Requests for Loans to be deposited or forwarded elsewhere shall be in
writing in such form and containing such additional information as Agent may
reasonably require in order to confirm the request and transmit funds.

5.2.2 Notice to Lenders. Agent will promptly (but in any event no later than
11:00 a.m. Pacific Time on the Business Day that is one Business Day before the
Business Day upon which each Lender is required to make its Pro Rata Share of
such Revolving Loan available

 

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to Agent) notify each Lender of its receipt of any request for a Revolving Loan
and of the amount of its Pro Rata Share of such Revolving Loan.

5.3 Funding by Lenders. Each Lender will make the amount of its Pro Rata Share
of each Revolving Loan available to Agent for the account of Borrower by 11:00
a.m. (Pacific Time) on the date of any Revolving Loan Borrowing in immediately
available funds; provided that such Lender has received notice from Agent of
such request for funding as set forth in Section 5.2.2.

5.4 Obligations Several. The failure of any Lender to make any Loan shall not
relieve any other Lender of its obligation to make its Loan on such date, but no
Lender shall be responsible for the failure of any other Lender to make any Loan
to be made by such other Lender.

5.5 Failure to Fund. Unless the Agent has received prior written notice from a
Lender that such Lender will not make available to the Agent an amount equal to
its Pro Rata Share of any Loan or participation, the Agent may assume that such
Lender has made such amount available to the Agent on the dates required under
Section 3.7.1, 3.7.2, 3.7.4, 4.6, or 5.3 (as applicable) and the Agent may, in
reliance upon such assumption, make available to Borrower, Issuing Lender, or
Swingline Lender (as applicable) on such date an amount equal to such Pro Rata
Share. If and to the extent such Lender has not made its Pro Rata Share
available to the Agent and the Agent has made such amount available to Borrower,
Issuing Lender, or Swingline Lender, such Lender and Borrower severally agree to
pay to the Agent on demand such amount (to the extent not previously paid by the
other), together with interest thereon for each day from the date such amount is
made available to Borrower, Issuing Lender, or Swingline Lender until the date
such amount is paid to the Agent, at a rate per annum equal to (a) in the case
of Borrower, the Revolving Loan Borrowing Rate, and (b) in the case of any
Lender, the daily Federal Funds Rate for the first two Business Days after such
payment was to be made by the Lender to Agent, and thereafter, the Revolving
Loan Borrowing Rate. Such payment by Borrower, however, shall be without
prejudice to Borrower’s rights against such Lender. If such Lender shall pay to
the Agent such corresponding amount, the amount so paid shall constitute such
Lender’s Loan.

5.6 Authorization. Any Loan made to Borrower shall be conclusively presumed to
have been made to or for the benefit of Borrower when the proceeds of such Loan
(a) is deposited to the credit of Borrower in an account of Borrower with Agent,
or (b) is transmitted to any other bank with directions to credit the same to
the account of any Borrower at such bank, regardless of whether Persons other
than those authorized to make requests for Loans have authority to draw against
any such account. Borrower acknowledges that Agent cannot effectively determine
whether a particular request for a Loan is valid, authorized, or authentic.
Therefore, Borrower assumes all risk of the validity, authenticity, and
authorization of such requests, whether or not the individual making such
requests has authority to request Loans. Agent shall be entitled to act on the
instructions of anyone identifying himself or herself as authorized to request
Loans and Borrower shall be bound thereby in the same manner as if the Person
were actually so authorized. Agent is authorized to credit any account of a
Borrower with Agent (or any account Borrower designates in writing) for Loans
made to Borrower. Borrower’s failure to confirm any telephonic request or
otherwise comply with the provisions of this Section 5.6 shall not in any manner
affect the obligation of Borrower to repay such Loans in

 

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accordance with the terms of this Agreement. Borrower agrees not to hold Agent
or the Lenders liable for any errors or misunderstanding in complying with any
written or oral directions for Loans; and Borrower agrees to indemnify and hold
Agent and the Lenders harmless from any and all claims, damages, liabilities,
losses, costs and expenses (including Attorney Costs) which may arise or be
created by the acceptance of instructions (telephonic or otherwise) for making
Loans by wire transfer or otherwise, or for application of payments, other than
as a result of Agent’s gross negligence or willful misconduct.

5.7 Computations. All interest rates and fees referred to herein shall be
computed on the basis of a 360-day year and applied to the actual number of days
elapsed.

5.8 Application of Payments. If at any time insufficient funds are received by
and available to the Agent to fully pay all fees, costs, expenses, principal,
interest and other amounts due to Agent and the Lenders under this Agreement and
the other Loan Documents, such funds shall be applied: first, to the payment of
fees, costs, disbursements, indemnities and other expenses owing to Agent,
including without limitation, if applicable, amounts incurred in realizing on
Collateral or otherwise enforcing the Loan Documents; second, to the payment of
fees, costs, disbursements, indemnities, and other expenses owing to the
Lenders, including without limitation, if applicable, amounts incurred in
realizing on Collateral or otherwise enforcing the Loan Documents and amounts
owing pursuant to Article 5 and Section 16.1; third, to the payment of accrued
interest on all of the Loans and other Obligations, allocated pro rata to the
Lenders based upon their Pro Rata Shares determined under subsection (f) of the
definition of Pro Rata Share; fourth, to fully cash collateralize the undrawn
face amount of all Letters of Credit; and, fifth, to the payment of the
remaining principal owing to all of the Lenders on all of the Loans, LC
Outstandings, and other Obligations, allocated pro rata to the Lenders based
upon their Pro Rata Shares determined under subsection (f) of the definition of
Pro Rata Share.

5.9 Manner of Payment. All sums payable by Borrower pursuant to this Agreement
(including, without limitation, principal, interest, fees, late charges, costs,
expenses, and other payments) shall be paid directly to Agent in immediately
available United States funds. Whenever any payment to be made hereunder or on
any of the Notes becomes due and payable on a day other than 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 computing interest on such payment.
All payments due on any day shall be paid to the office specified by Agent no
later than 3:00 p.m. Pacific time on such date. Any payment made after such time
may, in the discretion of the Agent, be deemed made on the following Business
Day. Agent shall distribute to the applicable Lender or Lenders, the applicable
Pro Rata Share of any payments received by Agent (including, without limitation,
payments of principal, interest, fees, late charges, costs, expenses, and other
payments) which such Lender or Lenders is entitled to receive under this
Agreement. Such distributions shall be made by Agent to the applicable Lenders
no later than 11:00 a.m. Pacific Time on the first Business Day after Agent’s
receipt of such payments. If and to the extent any Lender has not received its
applicable Pro Rata Share of any such distribution on or before 11:00 a.m.
Pacific Time on the first Business Day after Agent’s receipt of such payments,
Agent agrees to pay such amount to the non-receiving Lender, on demand, together
with interest thereon at the daily Federal Funds Rate for the first two Business
Days after such distribution was to be made by the Agent to the non-receiving
Lender and, thereafter, at the Revolving Loan Borrowing Rate.

 

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5.10 Payment by Automatic Debit. Borrower hereby authorizes Agent to
automatically deduct the amount of all principal and interest payments and fees
from a deposit account with Agent specified in a writing provided to Agent.
Borrower will pay all the fees on the account which result from the automatic
deductions, including any overdraft and non-sufficient funds charges. If for any
reason Agent does not charge the account for a payment, or if an automatic
payment is reversed, the payment is still due. Borrower may change the account
number by notifying Agent of the new account number.

5.11 Late Charges. Subject to any limitations imposed by Applicable Law, if any
payment of principal or interest on any Note or the LC Outstandings is fifteen
(15) days or more past due, Borrower shall pay to Agent on demand, for the
account of the Lenders based upon their applicable Pro Rata Shares, a late
charge of five percent of the delinquent payment. Each party hereto agrees that
it would be difficult or costly to determine the actual costs incurred by any
Lender by reason of late payment. Therefore, the parties agree that this late
charge represents a fair and reasonable estimate of the costs incurred by each
Lender and is reasonable under the circumstances existing as of the date hereof.
Collection of the late payment fee shall not be deemed to be a waiver of any
Default hereunder.

5.12 Maximum Charges. Notwithstanding any contrary provision of this Agreement
or any other Loan Document, the interest rate, fees and other charges under the
Loan Documents shall not exceed the maximum amount permitted by Applicable Law.
If any interest, fee or other charge is finally determined by a court of
competent jurisdiction to exceed the maximum amount permitted by Applicable Law,
the interest, fee or other charge shall be reduced to the maximum permitted by
Applicable Law and Agent, acting on behalf of the Lenders, may credit any excess
amount previously collected against the principal balance of the Loans or other
amounts owing by Borrower or refund such excess to Borrower.

5.13 Additional Payments. The Lenders shall have no obligation whatsoever, and
they have no present intention, to make any Loan after the Expiration Date or
which would cause the principal amount outstanding under this Agreement to
exceed any of the limitations stated in this Agreement. Notwithstanding the
foregoing, Borrower is and shall be and remain unconditionally liable to the
Lenders for, and Borrower hereby promises to pay to Agent for the account of the
Lenders the amount of all Loans and other Obligations hereunder, including
without limitation Loans in excess of the limitations set forth herein and Loans
made after the Expiration Date. Borrower shall promptly pay to Agent upon demand
(and Agent shall promptly demand payment of) the amount of: (a) any Loans and LC
Obligations in excess of any limitation contained in this Agreement; and (b) any
Loans and LC Obligations made after the Expiration Date; together with interest
on the principal amount of such Loans and LC Obligations, as set forth herein.

5.14 Extension of Expiration Date. If Borrower wishes to extend the Expiration
Date then in effect, Borrower shall deliver to the Agent a written notice
requesting the Lenders to extend the Expiration Date for an additional year past
the then current Expiration Date (an “Extension Request”). Such notice shall be
given no more than 24 months and no less than 18 months prior to the then
current Expiration Date. Such notice shall include Borrower’s certification that
as of the date thereof, all representations and warranties in this Agreement are
true and correct in all material respects, except to the extent they relate to
another date or as previously disclosed to and accepted by Agent in writing, and
that no Default then exists. If

 

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Borrower makes a timely Extension Request, Agent will notify all of the Lenders
of such Extension Request and will notify Borrower no less than three months
after receipt of the request whether all Lenders have agreed to extend the
Expiration Date for an additional year; provided, however, that if Agent does
not so notify Borrower or if all Lenders do not agree to such extension, the
Expiration Date shall not be extended. In connection with any Extension Request,
Borrower shall provide to Agent any financial or other information requested by
Agent or any Lender.

5.15 Authorization. Borrower authorizes Agent and the Lenders (a) to furnish
information about the Loans to each manufacturer or distributor of Vehicles, and
(b) to advise each such manufacturer or distributor of any change or termination
which may occur with respect to the Loans.

5.16 Voluntary Reduction or Termination of Commitments. Borrower may from time
to time on at least ten (10) Business Day’s prior written notice to the Agent
(which shall promptly advise each Lender thereof) permanently reduce the Total
Revolving Loan Commitment to an amount not less than the then outstanding
principal balance of the Revolving Loans and Swingline Loans plus the LC
Outstandings. Concurrently with any reduction of the Total Revolving Loan
Commitment to zero, (a) no further Revolving Loans or Swingline Loans will be
made and no further Letters of Credit will be issued, (b) Borrower shall pay all
principal and interest on the Revolving Loans and Swingline Loans and all fees
and other amounts owing to Agent and the Lenders, and (c) Borrower shall grant
to Agent a security interest in cash collateral in an amount equal to the LC
Outstandings at such time. All reductions of the Total Revolving Loan Commitment
shall reduce the Revolving Loan Commitments pro rata among the Lenders according
to their respective Pro Rata Shares and the Swingline Commitment shall be
reduced in proportion to the reduction of the Total Revolving Loan Commitment;
provided, however, that the Swingline Commitment shall not be reduced to less
than $20,000,000.00.

ARTICLE 6.

TAXES, YIELD PROTECTION AND ILLEGALITY

6.1 Taxes.

6.1.1 No Deductions. All payments (including fees) in respect of the Loans and
Letters of Credit shall be made free and clear of and without any deduction for
or on account of any present and future income, excise, stamp or franchise taxes
and other taxes, fees, duties, levies, withholdings or other charges imposed by
any Governmental Body, excluding franchise taxes or net income taxes imposed on
Agent or any Lender (all such non-excluded items are collectively “Taxes”). If
any Taxes are imposed and required by law to be paid or withheld from any amount
payable to any Lender, then Borrower shall (a) increase the amount of such
payment so that such Lender will receive a net amount (after deduction of all
Taxes) equal to the amount due hereunder, (b) pay such Taxes to the appropriate
taxing authority for the account of such Lender in a timely manner, and (c) as
promptly as possible thereafter, send Agent evidence showing payment thereof,
together with such additional documentary evidence as Agent may from time to
time require. If Borrower fails to perform its obligations under (a) or
(b) above, Borrower shall indemnify Agent and the Lenders for any incremental
taxes, interest or penalties that may become payable as a result of any such
failure.

 

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6.1.2 Non-U.S. Lenders. Each Lender (including any Assignee) which is not
incorporated under the laws of the United States of America or a state thereof
shall, on the Closing Date or before becoming a Lender, as applicable, and from
time to time when requested by Agent, deliver to Borrower and Agent two duly
completed copies of United States Internal Revenue Service Form W8BEN or W8ECI
(or other applicable form), as the case may be, certifying in each case that
such Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes, together
with such other documentation as Agent may from time to time require. Borrower
shall not be required to pay additional amounts to any Lender pursuant to
Section 6.1 to the extent that the obligation to pay such additional amounts
would not have arisen if the Lender had complied with the requirements of this
Section 6.1.2.

6.2 Increased Costs. If at any time after the date hereof (a) any revision in or
adoption of any Applicable Law, rule, or regulation or in the interpretation or
administration thereof (i) shall subject any Lender or its Eurodollar lending
office to any tax, duty, or other charge, or change the basis of taxation of
payments to any Lender with respect to any Loans or Obligations bearing interest
based on the LIBOR Rate, or (ii) shall impose, modify or deem applicable any
Reserve Requirements or other reserve, insurance, special deposit, or similar
requirements against assets of, deposits with or for the account of, credit
extended by any Lender or its Eurodollar lending office (other than any Reserve
Requirement reflected in the LIBOR Rate), or impose on Lender or its Eurodollar
lending office any other condition affecting any Loans or Letters of Credit, and
(b) the result of any of the foregoing is (i) to increase the cost to any Lender
of making or maintaining any Loans or Letters of Credit, or (ii) to reduce the
amount of any sum receivable by any Lender or its Eurodollar lending office,
Borrower shall pay to Agent for the account of the affected Lender within 15
days after demand by Agent such additional amount as will compensate such Lender
for such increased cost or reduction. The determination hereunder by Agent or
any Lender of such additional amount shall be conclusive in the absence of
manifest error.

6.3 Unavailability or Illegality. If at any time Agent determines that the LIBOR
Rate is unascertainable or unavailable or if, because of the introduction of or
any change in, or because of any judicial, administrative or other governmental
interpretation of, any law or regulation, it becomes unlawful for any Lender to
make, fund or maintain Loans based on the LIBOR Rate, then the Lenders’
obligation to make, fund or maintain any such loans at the Revolving Loan
Borrowing Rate or Swingline Borrowing Rate shall terminate and the Loans shall,
on the earlier of the date specified by Agent in a notice to Borrower or on date
the making, funding or maintaining of such Loans becomes unlawful, be converted
to Loans bearing interest at a variable rate equal to the Prime Rate.

6.4 Capital Adequacy. If after the date hereof, any revision in or adoption of
any Applicable Law, rule or regulation or in the interpretation or
administration thereof (whether or not having the force of law) imposes,
modifies or deems applicable any capital adequacy, capital maintenance or
similar requirement or has the effect thereof (including a request or
requirement which affects the manner in which any Lender (or its parent holding
company) allocates capital resources to any of its loans or commitments,
including its Loans, Letters of Credit, and Commitments hereunder, and as a
result thereof, in the opinion of any Lender in its sole and absolute
discretion, the rate of return on such Lender’s (or its parent holding
company’s) capital as a consequence of its Loans, Letters of Credit, or
Commitments hereunder is reduced to a level

 

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below that which such Lender (or its parent holding company) could have achieved
but for such circumstances (taking into consideration the Lender’s (or its
parent holding company’s) policies with respect to capital adequacy and capital
maintenance) by an amount deemed by such Lender to be material, then and in each
such case within fifteen days after receipt of notice from time to time by
Borrower from Agent, Borrower shall pay to the applicable Lender such additional
amount or amounts as shall compensate such Lender for such reduction in rate of
return. A statement of any Lender as to any such additional amount or amounts
(including calculations thereof in reasonable detail) shall, in the absence of
manifest error, be conclusive and binding on Borrower. In determining such
amount, each Lender may use any method of averaging and attribution as it in its
reasonable discretion shall deem applicable.

6.5 Request for Compensation. Failure or delay on the part of any Lender to
demand compensation for any amounts payable under this Article shall not
constitute a waiver of such Lender’s right to demand such compensation;
provided, that no Lender shall be entitled to compensation for any increased
costs or reductions incurred or suffered with respect to any date unless such
Lender or the Issuing Lender, as the case may be, shall have notified the
Borrower not more than 120 days after the later of (a) such date and (b) the
date on which such Lender and shall have become aware of such costs or
reductions.

ARTICLE 7.

SECURITY AND GUARANTIES

7.1 Security.

7.1.1 Collateral. All present and future Loans, Letters of Credit, and
Obligations of Borrower to Agent and the Lenders under this Agreement, the Notes
and the other Loan Documents shall be secured by a perfected security interest,
subject only to Permitted Liens, in the property described in the Security
Documents, including, without limitation, the following property of Borrower and
all of its present and future Collateral Subsidiaries, whether now owned or
existing or hereafter acquired and wherever located, and all products and
proceeds thereof (collectively, “Collateral”):

(a) All inventory (including, without limitation, all Vehicles, automobiles,
trucks and other motor vehicles of whatever make, model and description, trade
ins, repossessions and inventory held for display or demonstration purposes);
equipment other than fixtures; investment property (excluding the capital stock
or other Equity Interests of the Dealerships and, to the extent prohibited by
any manufacturer of Vehicles, any Subsidiary of Borrower that is the holder of
five percent (5%) or more of the Equity Interests of a Dealership); accounts;
instruments; documents; chattel paper; general intangibles; deposit accounts;
contract rights and other rights to payment; leases, rebates, credits, factory
holdbacks, incentive payments and other payments from any manufacturer, factory
or distributor.

(b) All attachments, accessions, accessories, tools, parts, supplies, increases
and additions to, and all replacements of, and substitutions for any property
described in this Section 7.1.1; all products, produce, and supporting
obligations of any of the property described in this Section 7.1.1; all proceeds
(including insurance proceeds) of any of the property described in this
Section 7.1.1; and all records and data relating to any of the property
described in this Section 7.1.1, whether in the form of a writing, photograph,
microfilm, microfiche, or

 

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electronic media, together with Borrower’s and each Collateral Subsidiary’s
right, title and interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on electronic media.

7.1.2 Security Documents. The security interests in the Collateral shall be
evidenced by such security agreements, assignments, Uniform Commercial Code
financing statements, Title Documents, trust deeds, mortgages, and other
Security Documents covering the Collateral as Agent or Required Lenders may at
any time reasonably require.

7.1.3 Additional Acts. As a condition precedent to the effectiveness of this
Agreement, and from time to time at Agent’s or any Lender’s request, each Person
granting Collateral shall execute and/or deliver to Agent such security
agreements, assignments, pledge agreements, control agreements, Title Documents,
deeds of trust, landlord and owner consents, amendments to any of the foregoing
documents and any other documents and instruments (endorsed or assigned to Agent
as Agent may request), and shall take such other actions, as may be required
under Applicable Law or which Agent or any Lender may reasonably request to
effectuate the transactions contemplated hereunder and to grant, preserve,
protect, perfect and continue the validity and priority of their security
interests (subject to Permitted Liens).

7.1.4 Limitations. Notwithstanding any contrary provision of this Agreement or
any Security Document, unless Agent otherwise requires (which Agent may do at
any time) (a) the security interest of Agent and the Lenders in any Loan Party’s
patents, trademarks, copyrights, trade names and other intellectual property
will not be perfected by filing with the United States Patent and Trademark
Office or any other agency of the United States government; (b) the security
interest of Agent and the Lenders will not be noted on the Title Document for
any Vehicle; and (c) the security interest of Agent in deposit accounts
maintained by any Loan Party with a bank other than U.S. Bank may not be
perfected if Agent reasonably determines that the amounts generally maintained
in such deposit accounts are not material.

7.2 Guaranties. All present and future Loans, Letters of Credit, and Obligations
of Borrower to Agent and the Lenders shall be guaranteed by each of the
Guarantors.

7.3 Joinder. Each Person which becomes a Subsidiary of Borrower shall execute a
Joinder Agreement substantially in the form attached hereto as Exhibit C and
shall execute such other documents as Agent reasonably requires so that such
Person becomes a Guarantor and grants a security interest in the Collateral
owned by such Person. Each such Person shall satisfy all requirements in
Section 12.13(h), (j), (l), and (m) which are applicable to an Acquisition
Subsidiary.

ARTICLE 8.

CONDITIONS PRECEDENT

8.1 Initial Conditions Precedent. The effectiveness of this Agreement and the
obligation of the Lenders to make the initial Loans and issue the initial
Letters of Credit is subject to satisfaction of the following conditions (each,
an “Initial Condition”):

 

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8.1.1 Agent has received the following:

(a) Such fully executed original Loan Documents as Agent or any Lender requires,
including, without limitation, this Agreement, the Notes, the Security
Agreement, the Pledge Agreement, the Aircraft Security Agreement, other Security
Documents, Guaranties of each Guarantor, any required LC Agreement, and each
other Loan Document required by Agent or any Lender.

(b) Documentation satisfactory to the Agent to establish the due organization,
valid existence and (if applicable) good standing of each Loan Party, its
qualification to engage in business in each jurisdiction in which it is engaged
in business or required to be so qualified, its authority to execute, deliver
and perform any Loan Documents to which it is a party and the identity,
authority and capacity of each Person authorized to act on its behalf, which
shall, without limitation, include certified copies of articles or certificates
of incorporation and amendments thereto, bylaws and amendments thereto,
certificates of good standing, existence and/or qualification to engage in
business, corporate resolutions, incumbency certificates, and the like.

(c) A favorable opinion of acceptable independent counsel for each Loan Party
covering such matters as Agent or any Lender may reasonably request, including
without limitation the matters specified in Sections 9.1, 9.2, 9.4, 9.5 and
9.15.

(d) A Borrowing Base Certificate, dated as of the last day of the calendar month
preceding the Closing Date.

(e) A Compliance Certificate, dated as of the last day of the calendar month
preceding the Closing Date.

(f)(i) One or more intercreditor agreements between Agent and each of the
existing Floor Plan Lenders, in form and content satisfactory to Agent and the
Lenders, and (ii) any other subordination or intercreditor agreements required
by Agent or the Lenders (including a subordination agreement from U.S. Bank as
the counterparty to one or more Interest Rate Protection Agreements with
Borrower or its Subsidiaries), all in form and content satisfactory to Agent and
the Lenders.

8.1.2 Agent has conducted such audits of the Collateral as it requires, the
results of which are satisfactory to Agent.

8.1.3 Agent has received copies of any Seller Agreements which it has requested,
other than those disclosure of which by Borrower or Borrower’s Subsidiary is
prohibited by the relevant manufacturer or distributor, which must be reasonably
satisfactory to Agent, and has received such evidence as it requires that all
Seller Agreements which are necessary for the conduct of Borrower’s business,
are in full force and effect.

8.1.4 Agent shall have a valid and perfected security interest in the Collateral
(subject to the limitation found in Section 7.1.4) with a priority acceptable to
Agent and the Required Lenders and subject only to Permitted Liens and Agent
shall have received satisfactory evidence of perfection and the priority of such
security interests, including without limitation such Uniform Commercial Code
and other searches, termination statements, and other filings as it deems
appropriate.

 

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8.1.5 All required insurance shall be in full force and effect and Agent shall
have received such evidence thereof as it requires.

8.1.6 All indebtedness and obligations of Borrower and each Loan Party to
Daimler Chrysler Financial Services Americas LLC (“DCFS”) and Toyota Motor
Credit Corporation pursuant to the Credit Agreement dated as of February 25,
2003 among Borrower, various financial institutions and Daimler Chrysler
Services North America LLC, the predecessor by merger to DCFS (the “DCFS Loan
Agreement”) shall have been permanently repaid in full or will be paid in full
with the proceeds of the Loans to be made on the Closing Date, all commitments
to lend pursuant to the DCFS Loan Agreement shall have been terminated, and all
security interests securing the DCFS Loan Agreement shall have been terminated
(or, if acceptable to Agent, in its sole discretion, Agent shall have received
authority to terminate such security interests).

8.1.7 All indebtedness and obligations of Borrower, Lithia Financial
Corporation, and Lithia Aircraft, Inc. to U.S. Bank pursuant to the Amended and
Restated Loan Agreement dated as of December 28, 2001 among such parties (“LFC
Loan Agreement”) shall have been permanently repaid in full or will be paid in
full with the proceeds of the Loans to be made on the Closing Date and all
commitments to lend, pursuant to the LFC Loan Agreement shall have been
terminated, and all security interests securing the LFC Loan Agreement (except
to the extent such security interests also secure the Interest Rate Protection
Agreements) shall have been terminated (or, if acceptable to Agent, in its sole
discretion, Agent shall have received authority to terminate such security
interests).

8.1.8 The representations and warranties contained in this Agreement and in each
Loan Document shall be correct, accurate and complete in all material respects
as of the Closing Date.

8.1.9 No Default shall have occurred and is continuing on the Closing Date or
will exist after giving effect to the making of the Loans to be made on the
Closing Date, Existing Letters of Credit and Letters of Credit to be issued on
the Closing Date.

8.1.10 All fees and Attorney Costs payable on or prior to the Closing Date shall
have been paid.

8.1.11 Agent shall have received such additional documents, opinions, approvals,
consents and information and each Loan Party shall have satisfied such
additional requirements as Agent or any Lender may reasonably require.

8.2 Conditions Precedent to Each Loan and Letter of Credit. Except as otherwise
set forth herein (including without limitation Section 3.7.4), all of the
following conditions must be satisfied on the date any Loan is made or any
Letter of Credit is issued:

8.2.1 Agent shall have received a request for the Loan or Letter of Credit as
required by the provisions of this Agreement.

8.2.2 No Default shall have occurred and be continuing or will exist after
giving effect to the making of such Loan or issuance of such Letter of Credit.

 

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8.2.3 All representations and warranties in this Agreement and the other Loan
Documents shall be true and correct in all material respects as of such date,
except to the extent they relate to another date, and except as previously
disclosed to and accepted by Agent in writing.

8.2.4 All Initial Conditions have been satisfied at the time of the initial
Loans.

8.2.5 Agent, and/or any Lender, as applicable, has received such documents and
information as they reasonably require.

8.2.6 All conditions in any other provision of this Agreement or any other Loan
Document have been satisfied as of the time required.

ARTICLE 9.

REPRESENTATIONS AND WARRANTIES

Except as set forth in the Disclosure Schedule, Borrower hereby represents and
warrants to and agrees with Agent and the Lenders:

9.1 Existence and Power. Each Loan Party is duly qualified and in good standing
or current status, as applicable, in each jurisdiction where the conduct of its
business or the ownership of its properties requires such qualification, and
each Loan Party has full power, authority and legal right to carry on its
business as presently conducted, to own and operate its properties and assets,
and to execute, deliver and perform the Loan Documents to be executed and
delivered by it.

9.2 Power and Authority. The execution, delivery and performance of the Loan
Documents by each Loan Party has been duly authorized by any necessary
corporate, limited liability company, partnership, trust or other entity action,
and does not and will not (a) require any consent or approval of stockholders,
members, partners or other holders of Equity Interests in any Loan Party (except
for such consents and approvals as have been obtained and are in full force and
effect); (b) contravene the charter, bylaws, operating agreement, partnership
agreement, trust agreement or other governing documents of any Loan Party;
(c) violate any applicable provision of any law, rule, regulation (including,
without limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination, or award presently in effect; (d) result in a breach of or
constitute a default under any indenture or loan or loan agreement or any other
agreement, lease, or instrument to which any Loan Party is a party or by which
any Loan Party or its properties may be bound or affected; (e) result in, or
require, the creation or imposition of any Lien upon or with respect to any of
the properties now owned or hereafter acquired by any Loan Party except Liens in
favor of Swap Provider and in favor of Agent under the Loan Documents; or
(f) cause any Loan Party to be in default under any such law, rule, regulation,
order, writ, judgment, injunction, decree, determination, or award or any such
indenture, agreement, lease, or instrument.

9.3 Operation of Business. Each Loan Party possesses all licenses, permits,
franchises, patents, copyrights, trademarks, trade names, or rights thereto,
material to the conduct of its business substantially as now conducted and as
presently proposed to be conducted and

 

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none of the Loan Parties are in material violation of any valid rights of others
with respect to any of the foregoing.

9.4 Governmental Approval. No Governmental Approval of any Governmental Body is
required for the due execution, delivery and performance of the Loan Documents
except such as have been obtained and are in full force and effect.

9.5 Litigation. (a) As of the Closing Date, there are no actions, proceedings,
investigations, or claims pending against any Loan Party, or to Borrower’s
knowledge, threatened against or affecting any Loan Party, before any
Governmental Body which would be likely to result in one or more judgments or
orders against any Loan Party (in excess of insurance coverage) for more than
$5,000,000.00 individually or in the aggregate; and (b) there are no actions,
proceedings, investigations, or claims pending against any Loan Party, or to
Borrower’s knowledge, threatened against or affecting any Loan Party, before any
Governmental Body which purport to affect or relate to the Loan Documents or the
transactions contemplated thereby or if determined adversely would materially
impair the ability of any Loan Party to perform its obligations under the Loan
Documents.

9.6 Financial Condition. The financial statements that have heretofore been
delivered to Agent or any Lender, and all schedules and notes included in such
financial statements, are true and correct in all material respects and present
fairly (a) the financial position of Borrower and its Subsidiaries as of the
date of such statements and (b) the results of its operations for the periods
covered thereby; and with respect to the consolidated financial statements of
Borrower and its Subsidiaries, there are not any material liabilities that
should have been reflected in the financial statements or the notes thereto
under GAAP, contingent or otherwise, including liabilities for taxes or any
unusual forward or long-term commitments, that are not disclosed or reserved
against in the statements referred to above or in the notes thereto or that are
not disclosed herein. The consolidated financial statements of Borrower and its
Subsidiaries have been prepared in accordance with GAAP, except, as to interim
financial statements, for the absence of footnotes and subject to year-end
adjustments. Since the date of the most recent financial statements, no event or
circumstance has occurred which has had a Material Adverse Effect.

9.7 Taxes. Each Loan Party has filed all tax returns (federal, state, and local)
required to be filed and has paid all taxes, assessments, and governmental
charges and levies, including interest and penalties, except such taxes, if any,
as are being contested in good faith and by proper proceedings and as to which
adequate reserves have been maintained in accordance with GAAP.

9.8 Franchise Agreements; Material Business Relationships. As of the Closing
Date, neither Borrower nor any of its Subsidiaries is a party to any dealer
franchise agreement, dealer agreement, dealer sales and service agreement or
similar agreement (each, a “Franchise Agreement”) other than those specifically
listed in the Disclosure Schedule, which schedule shows the applicable
manufacturer or distributor and Borrower or Subsidiary, as the case may be, that
is a party to each such agreement, the date such agreement was entered into and
the expiration date of such agreement. Each of such Franchise Agreements is
currently in full force and effect, and neither the Borrower nor any Subsidiary
has received any notice of termination with respect to any such agreement; and,
except as disclosed on the Disclosure Schedule, neither

 

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the Borrower nor any Subsidiary is aware of any event that with notice, lapse of
time or both would allow any manufacturer or distributor that is a party of any
Franchise Agreement to terminate any such agreement. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between Borrower or any of its Subsidiaries
and any customer or any group of customers or with any manufacturer or
distributor that, in any case, could reasonably be expected to have a Material
Adverse Effect with respect to Borrower or the Borrower and its Subsidiaries as
a whole.

9.9 Other Agreements. Each Loan Party which is a Dealership is in material
compliance with all Seller Agreements. No Loan Party is in breach of or in
default under any agreement to which it is a party or which is binding on it or
any of its assets, which such breach or default has or may have a Material
Adverse Effect.

9.10 Burdensome Obligations. No Loan Party is a party to any agreement or
contract or subject to any corporate, limited liability, partnership or other
restriction which might reasonably be expected to have a Material Adverse
Effect.

9.11 Security Interest. The Liens created or to be created in favor of Agent and
the Lenders under the Security Documents do and will at all times on and after
the Closing Date, constitute perfected priority security interests (subject to
Section 7.1.4), subject only to the Permitted Liens, in the Collateral as
security for the Obligations of Borrower under the Loan Documents.

9.12 Compliance with Laws. Each Loan Party is in compliance in all material
respects with all Applicable Laws, including without limitation all
environmental permits, Environmental Laws, Access Laws, and the FLSA.

9.13 ERISA. Each Loan Party is in compliance in all material respects with all
applicable provisions of ERISA; (b) neither a Reportable Event nor a Prohibited
Transaction has occurred and is continuing with respect to any Plan; (c) no
notice of intent to terminate a Plan has been filed nor has any Plan been
terminated; (d) no circumstances exist which constitute grounds entitling the
PBGC to institute proceedings to terminate, or appoint a trustee to administer,
a Plan, nor has the PBGC instituted any such proceedings; (e) neither any Loan
Party nor any ERISA Affiliate has completely or partially withdrawn from a
Multiemployer Plan; (f) each Loan Party and each ERISA Affiliate have met their
minimum funding requirements under ERISA with respect to all of their Plans and
the present value of all vested benefits under each Plan does not exceed the
fair market value of all Plan assets allocable to such benefits, as determined
on the most recent valuation date of the Plan and in accordance with the
provisions of ERISA; and (g) neither any Loan Party nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA except for payment of PBGC
premiums.

9.14 Information. All reports, financial statements, representations, and other
information heretofore or contemporaneously herewith furnished in writing by any
Loan Party to Agent or any Lender in connection with or relating to this
Agreement and the transactions contemplated hereby is, and all information
hereafter furnished by or on behalf of any Loan Party to the Agent or any Lender
pursuant hereto or in connection herewith will be, true and accurate in every
material respect on the date as of which such information is dated or certified,
and none of such information is or will be incomplete by omitting to state any
material fact

 

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necessary to make such information not misleading in light of the circumstances
under which made.

9.15 Enforceability. This Agreement constitutes, and each other Loan Document to
which any Loan Party is a party when executed and delivered to Agent will
constitute a legal, valid and binding obligation of such Loan Party, enforceable
in accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium, fraudulent transfer
and other similar laws affecting creditors’ rights generally.

9.16 Ownership and Liens. Each Loan Party is the true and lawful owner of and
has good title to, or valid leasehold interests in, all properties and assets
material to its business, real and personal, intangible and tangible which it
now owns or leases and it will have good title to or a leasehold interest in,
all Collateral and other property acquired hereafter, free of any liens and
encumbrances, except Permitted Liens.

9.17 Ownership of Equity Interests. Set forth in the Disclosure Schedule is a
complete and accurate list as of the Closing Date of the Subsidiaries of the
Borrower and its Subsidiaries and Affiliates excluding, as to Affiliates,
(i) persons included in clause (c) of the definition of Affiliate, and
(ii) Persons holding 5% or more of the Borrower’s Class A Common Stock who have
filed required reports under Sections 13(d), 13(g) or 16 of the Securities
Exchange Act of 1934, as amended, or are not required to file such reports,
showing the jurisdiction of incorporation of each and showing the percentage of
the Borrower’s ownership of the outstanding stock of each Subsidiary and
Affiliate. All of the outstanding capital stock or other Equity Interests of
each such Subsidiary and Affiliate has been validly issued, is fully paid and
nonassessable, and is owned directly or indirectly by the Borrower free and
clear of all Liens, other than those to be released to comply with Sections
8.1.6 and 8.1.7 hereof.

9.18 Labor Disputes and Acts of God. Neither the business nor the properties of
any Loan Party are affected by any fire, explosion, accident, strike, lockout,
or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or
of the public enemy, or other casualty (whether or not covered by insurance),
that have or could reasonably be expected to have a Material Adverse Effect.

9.19 Regulated Entities. No Loan Party, any Person Controlling any Loan Party,
or any Subsidiary is an “Investment Company” within the meaning of the
Investment Company Act of 1940. No Loan Party is subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, any state
public utilities code, or any other federal or state statute or regulation
limiting its ability to incur indebtedness.

9.20 Solvency. Each Loan Party is Solvent and, after the execution and delivery
of the Loan Documents and the consummation of the transactions contemplated
thereby, including any Loan or Letter of Credit and the use of the proceeds
thereof, will be Solvent.

9.21 Continuing Representations and Warranties. Each request by Borrower for a
Loan or Letter of Credit shall be deemed to be the Borrower’s representation and
warranty that (a) such Loan may be made or Letter of Credit issued without
exceeding the applicable maximum amount determined in accordance with the
provisions of this Agreement, (b) no Default has occurred, or will exist after
giving effect to the making such Loan or issuance of

 

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such Letter of Credit, and (c) all representations and warranties set forth in
this Agreement, the Security Documents and the other Loan Documents are true,
accurate and complete in all material respects as of the date of such request
with the same effect as if made on each date, except as previously disclosed to
and accepted by Agent in writing, and except for representations and warranties
which specifically refer only to another date.

ARTICLE 10.

FINANCIAL COVENANTS AND INFORMATION

10.1 Financial Covenants.

10.1.1 Total Net Worth. The Total Net Worth for Borrower and its Subsidiaries,
on a consolidated basis, shall not be less than $300,000,000.00 as of the last
day of any fiscal quarter.

As used herein, “Total Net Worth” means for any Person (a) the net book value of
all of such Person’s assets; minus (b) all of such Person’s liabilities.

10.1.2 Current Ratio. The Current Ratio for Borrower and its Subsidiaries on a
consolidated basis, shall not be less than 1.20 to 1.0 as of the last day of any
fiscal quarter.

As used herein,

“Current Assets” means the total assets of any Person that may properly be
classified as current assets in accordance with GAAP, but excluding all loans to
and notes and receivables from officers, employees, directors, owners and
affiliates of such Person; provided, however, that at the election of Borrower
given by written notice to Agent, delivered with any quarterly Compliance
Certificate (a “Current Assets Election”), Current Assets shall be deemed to
include the Current Assets Commitment Amount at any time while such Current
Assets Election is in effect.

“Current Liabilities” means the total liabilities of any Person that may
properly be classified as current liabilities in accordance with GAAP; provided
that at any time during which a Current Assets Election is in effect, if the
Expiration Date is within one year, Current Liabilities shall be deemed to
include the Current Assets Commitment Amount at such time.

“Current Ratio” means, for any Person at any time, the ratio at such time of
such Person’s Current Assets to such Person’s Current Liabilities.

10.1.3 Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio for Borrower
and its Subsidiaries, on a consolidated basis, shall not be less than 1.30 to
1.0 as of the last day of any fiscal quarter, for the period of four consecutive
fiscal quarters ending on such date.

As used herein,

“EBITDAR” means, for any Person, for any time period, such Person’s net income
(or loss) for such time period excluding extraordinary gains or losses plus,
without duplication, the amounts which in determining net income or loss have
been deducted for interest

 

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expense, income tax expense, and depreciation, amortization, and other non-cash
charges (less non-cash gains) and rental or lease expense

“Fixed Charge Coverage Ratio” means, as of the last day of any fiscal quarter,
the ratio for the period of four consecutive fiscal quarters ending on such date
of (a) (i) EBITDAR, (ii) minus dividends and other distributions in respect of
Equity Interests, (iii) minus income tax expense to the extent paid in cash,
(iv) minus an allowance for maintenance capital expenditures in an amount equal
to $110,000 for each Dealership location for such four consecutive fiscal
quarters; (v) plus, if a Permitted Acquisition has occurred during such time
period, EBITDA attributable to any new Acquisition Subsidiary or business
acquired on a pro forma basis, calculated as if such Permitted Acquisition had
occurred on the first day of such time period (it being understood and agreed
that pro forma EBITDA may not be included in this calculation to the extent that
it results in an annualized increase of more than 10% in Borrower’s consolidated
EBITDA prior to such adjustment, unless the Borrower provides to the Agent and
the Required Lenders the supporting calculations for such adjustment and such
other information as they may reasonably request to determine the accuracy of
such calculations); to (b) the sum of (i) cash interest, plus (ii) required
principal payments on Debt, plus (iii) rental or lease expense, for such four
consecutive fiscal quarters.

10.1.4 Cash Flow Leverage Ratio. The Cash Flow Leverage Ratio for Borrower and
its Subsidiaries, on a consolidated basis, shall not be more than 3.75 to 1.0 as
of the last day of any fiscal quarter for the period of four consecutive fiscal
quarters ending on such date.

As used herein:

“Adjusted Funded Debt” means (a) all Funded Debt excluding Subordinated Debt and
Debt consisting of Floor Plan Financing, plus (b) at any time during which a
Current Assets Election is in effect, the Current Assets Commitment Amount.

“Cash Flow Leverage Ratio” means, for any Person, as of any date of
determination, the ratio of (a) the principal balance of Adjusted Funded Debt as
of such date to (b) EBITDA for the period of four consecutive fiscal quarters
ending on such date, minus interest expense for Floor Plan Financing for such
period.

“EBITDA” means, for any Person, for any time period, such Person’s net income
(or loss) for such time period excluding extraordinary gains or losses plus,
without duplication, the amounts which in determining net income or loss have
been deducted for interest expense, income tax expense, and depreciation,
amortization, and other non-cash charges (less non-cash gains); provided,
however, that if a Permitted Acquisition has occurred during any time period,
EBITDA may include EBITDA attributable to any new Acquisition Subsidiary or
business acquired on a pro forma basis, calculated as if such Permitted
Acquisition had occurred on the first day of such time period (it being
understood and agreed that any pro forma adjustment of EBITDA may not be
included in this calculation to the extent that it results in an annualized
increase of more than 10% in Borrower’s consolidated EBITDA prior to such
adjustment, unless the Borrower provides to the Agent and the Required Lenders
the supporting calculations for such adjustment and such other information as
they may reasonably request to determine the accuracy of such calculations).

 

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10.2 Financial Information. Borrower shall provide to Agent and each Lender:

10.2.1 As soon as available and in any event 120 days after the end of each
fiscal year of the Borrower: (a) the Form 10(k) for Borrower and its
Subsidiaries as filed with the Securities and Exchange Commission, reported on
by independent public accountants of recognized national standing which are
reasonably acceptable to Agent (without a “going concern” or like qualification
or exception and without any qualification or exception as to the scope of such
audit and without any other material qualification or exception) to the effect
that such financial statements present fairly in all material respects the
financial condition and results of operations of the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied; and (b) a consolidating balance sheet and income statement for Borrower
and its Subsidiaries for such fiscal year.

10.2.2 As soon as available and in any event within 45 days after the end of
each of the first three fiscal quarters of each fiscal year of the Borrower, the
Form 10-Q for Borrower and its Subsidiaries, as filed with the Securities and
Exchange Commission certified by Borrower’s chief financial officer or other
officer acceptable to Agent as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence of
footnotes.

10.2.3 As soon as available and in any event within 45 days after the end of
each month which is not the last day of a fiscal quarter, the internally
prepared consolidated balance sheet and statement of operations for Borrower and
its Subsidiaries for such month and for the fiscal year to date, certified by
Borrower’s chief financial officer or other officer acceptable to Agent as
presenting fairly in all material respects the financial condition and results
of operations of the Borrower and its Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes.

10.2.4 Within 10 days following delivery thereof, copies of all financial
statements, proxy statements, and all material written reports and information
provided to its shareholders generally, and copies of all registration
statements, regular, periodic or special reports, and other documents of
Borrower or any Subsidiary filed with the Securities and Exchange Commission (or
any successor agency), any other national securities exchange, or any other
governmental securities regulatory authority having jurisdiction over Borrower
or its Subsidiaries.

10.2.5 Within 45 days after the end of each fiscal quarter, a Compliance
Certificate substantially in the form attached hereto as Exhibit D, signed by
Borrower’s chief financial officer or other officer acceptable to Agent.

10.2.6 Within 20 days after the end of each month (or more frequently if
required by Agent or Required Lenders during the existence of a Default), a
Borrowing Base Certificate, prepared as of the last day of such month, showing
the calculation of the Borrowing Base, substantially in the form attached hereto
as Exhibit E.

10.2.7 Promptly following Agent’s or any Lender’s reasonable request, a
projected consolidated balance sheet for Borrower and its Subsidiaries and
related statements of

 

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income and cash flows for the time period requested by Agent or any Lender,
signed by Borrower’s chief financial officer or other officer acceptable to
Agent, acknowledging his or her review of such projections.

10.2.8 Promptly following any request therefor, such other information regarding
the operations, business affairs and financial condition of the Borrower or any
Subsidiary, or compliance with the terms of this Agreement, as the Agent or any
Lender may reasonably request.

ARTICLE 11.

AFFIRMATIVE COVENANTS

Until termination of the availability of Loans and Letters of Credit and payment
and performance in full of all Obligations of each Loan Party under the Loan
Documents, Borrower agrees that:

11.1 Maintenance of Existence and Permits. Except as permitted by
Section 12.1.2, Borrower will, and will cause each Loan Party to, preserve and
maintain its corporate, limited liability, partnership, trust or other existence
and good standing or current status in the jurisdiction of its incorporation or
organization and qualify and remain qualified, as a foreign corporation, limited
liability company or other entity in each jurisdiction in which such
qualification is required, and to maintain all patents, trademarks, copyrights,
trade names, intellectual property, franchises, licenses, and permits necessary
for the conduct of its business and the transactions contemplated by the Loan
Documents.

11.2 ERISA Compliance. Borrower will, and will cause each Loan Party to,
maintain each Plan in substantial compliance with all statutes, orders, rules
and regulations, including but not limited to ERISA and the Code, applicable to
such Plan; administer and enforce each Plan substantially in accordance with its
terms; and ensure that no Reportable Event, Prohibited Transaction, or
“accumulated funding deficiency”, as such term is used in Section 412 or
Section 4971 of the Code (whether or not such accumulated funding deficiency has
been waived) shall occur.

11.3 Inspection Rights. Borrower will, and will cause each Loan Party to, permit
representatives of Agent and the Lenders to visit and inspect any of its
properties, audit and inspect any of the Collateral and examine any of its books
and records (and make copies at Borrower’s expense) wherever located, including,
but not limited to, all manufacturers’ statements of origin, titles,
demonstrator agreements, factory invoices, purchase orders, buy-back agreements
and other agreements with manufacturers, distributors or other sellers of
Vehicles (excluding agreements between Borrower and American Honda Motors or
Toyota Motor Sales, to the extent that disclosure is specifically prohibited by
the terms of such agreements), and all other instruments, documents and records
at any reasonable time and as often as Agent or any Lender may reasonably
desire; and Borrower shall assist Agent and the Lenders in so doing.

11.4 Collateral Audits. Borrower will, and will cause each Collateral Subsidiary
to, permit Agent by or through any of Agent’s representatives, third party
inspectors, independent contractors, attorneys or accountants, at such intervals
as may be required by Agent in its sole discretion, to conduct audits of and to
verify, the Collateral. Collateral audits shall, prior to the

 

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occurrence of an Event of Default be at Agent’s expense, and thereafter shall be
at Borrower’s expense.

11.5 Keeping of Books and Records. Borrower will keep adequate records and books
of account in which complete entries will be made reflecting all material
financial transactions. Borrower will prepare all financial statements,
computations and information required hereunder for Borrower and its
Subsidiaries consolidated in accordance with GAAP.

11.6 Maintenance of Properties, Etc. Borrower will, and will cause each Loan
Party to, maintain, repair, and preserve all of such Loan Party’s properties
(whether owned, leased or subleased) that are used or useful in the conduct of
the business of the Loan Parties, or where any Collateral is located
(“Properties”) in good working order and condition, ordinary wear and tear
excepted, and will from time to time make or cause to be made all necessary and
proper replacements, repairs, renewals, and improvements so that the efficiency
and value of its Properties and facilities shall not be materially impaired.

11.7 Other Obligations. Borrower will, and will cause each Loan Party to, file
all required tax returns and reports and shall pay and discharge before the same
become delinquent all indebtedness, taxes and other obligations for which it is
liable or to which its income or property is subject and all claims for labor
and materials or supplies which, if unpaid, might become by law a lien upon its
assets, unless it is contesting the indebtedness, taxes, or other obligations in
good faith and provision has been made for the payment thereof through setting
aside on its books appropriate reserves with respect thereto in accordance with
GAAP.

11.8 Insurance.

11.8.1 Maintenance of Insurance. Borrower will, and will cause each Loan Party
to, maintain policies of insurance upon all of the insurable Collateral, and on
its properties and operations, carried with companies reasonably acceptable to
Agent, in such form and amounts and covering such risks as Agent may reasonably
require and as are required by Applicable Law. Without limiting the foregoing,
each Loan Party shall maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons.

11.8.2 Form of Policies. All policies shall be written in form, amounts,
coverages and basis reasonably acceptable to Agent and shall be issued by a
company or companies reasonably acceptable to Agent. Agent shall be designated
as loss payee with a “Lender’s Loss Payable” or mortgagee endorsement on
casualty policies covering the Collateral and as an additional insured on
liability policies. All policies shall include a provision that such policies
will not be cancelled or materially amended, which term shall include any
reduction in the scope or limits of coverage, without at least thirty (30) days
prior written notice to Agent. Each policy also shall include an endorsement
providing that coverage in favor of Agent will not be impaired in any way by any
act, omission or default of any Loan Party.

11.8.3 Delivery of Certificates. Borrower shall furnish to Agent a certificate
of insurance in a form reasonably acceptable to Agent evidencing such insurance
coverage. At

 

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least thirty (30) days prior to the expiration date of each policy, Borrower
shall furnish Agent a renewal certificate, together with evidence that the
renewal premium has been paid. Agent will provide copies of all insurance
certificates and renewal policies (or certificates) to the Lenders promptly
after Agent’s receipt of the same.

11.9 Compliance with Laws. Borrower shall, and shall cause each Loan Party to,
comply in all material respects with all Applicable Laws (including but not
limited to all Environmental Laws, Access Laws and the FLSA) and promptly
provide written notice to Agent of the receipt of any notice of violation
thereof from any Governmental Body which violation, alone or together with any
other such violations, could reasonably be expected to have a Material Adverse
Effect.

11.10 Agreements with Sellers. Borrower shall, and shall cause each Loan Party
to, comply with Franchise Agreements, other Seller Agreements, and all other
agreements between such Person and any manufacturer or distributor of New
Vehicles in all material respects and shall maintain all such agreements in full
force and effect, except in accordance with the disposition of a Dealership or
Subsidiary in accordance with Section 12.1.2, and except as a result of
termination or cessation of business not restricted by Section 12.8.

11.11 Management. Borrower will, maintain and will cause each Loan Party to,
maintain a Chief Executive Officer, President, Executive Vice President and
Chief Financial Officer with qualifications and experience at least comparable
to those currently holding such positions.

11.12 Landlord’s Consents. If required by Agent or Required Lenders, Borrower
shall and shall cause each Loan Party to, use its best efforts to obtain and
deliver to Agent from time to time an agreement, release and consent to the
security interest of Agent and the Lenders in the Collateral, in form and
substance reasonably acceptable to Agent from any owner or landlord of any real
property leased by a Borrower as lessee (each a “Landlord’s Consent”).

11.13 Notification. Promptly after learning thereof, Borrower will notify Agent
in writing of:

11.13.1 The occurrence of any Default, and if such Default is then continuing,
deliver to Agent a certificate of its chief financial officer or other
authorized officer setting forth the details thereof and the action which it is
taking or proposes to take with respect thereto.

11.13.2 The occurrence of any of the following that could reasonably be expected
to have a Material Adverse Effect: (i) the release of any Hazardous Substances
on, under, about, from, or affecting any of the Properties, any adjacent
property as a result of contamination, release or activity on the Properties, or
any Collateral, (ii) or any other condition threatened or asserted with respect
to any such property arising under any Environmental Laws.

11.13.3 The details of any lien, litigation, administrative proceeding or
judgment involving $5,000,000.00 or more individually or in the aggregate
threatened, instituted or completed against Borrower, any Loan Party, any
Collateral, or any assets of any Loan Party (or involving $25,000,000.00 or more
in the aggregate with respect to the Loan Parties taken as a

 

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whole), including but not limited to any and all enforcement, cleanup, removal
or other governmental or regulatory proceedings pursuant to any Environmental
Laws.

11.13.4 Any citation, order to show cause, or other legal process or order that
has or could reasonably be expected to have a Material Adverse Effect, directing
Borrower or any Loan Party to become a party to or to appear at any proceeding
or hearing by or before any Governmental Body that has granted to it any
Governmental Approval, and include with such notice a copy of any such citation,
order to show cause, or other legal process or order.

11.13.5 Any (a) refusal, denial, threatened denial, or failure by any
Governmental Body to grant, issue, renew, or extend any material Governmental
Approval; (b) proposed or actual revocation, termination, or modification
(whether favorable or adverse) of any material Governmental Approval by any
Governmental Body; (c) dispute or other adverse action with regard to any
material Governmental Approval by any Governmental Body; (d) notice from any
Governmental Body of the imposition of any material fines or penalties or
forfeitures; or (e) written threats or written notice with respect to any of the
foregoing or with respect to any proceeding or hearing that might result in any
of the foregoing.

11.13.6 Any dispute concerning or any threatened nonrenewal or modification of
any material lease for real or personal property to which it is a party.

11.13.7 Any material change in the relationship between any Dealership and any
Vehicle manufacturer or distributor including, without limitation, the loss or
cancellation, or threatened loss or cancellation, of a franchise, or any notice
of the existence of a default under any Franchise Agreement or other Seller
Agreement.

11.13.8 Any other event or circumstance which has or could reasonably be
expected to have a Material Adverse Effect.

11.13.9 Copies of any material notices (including notices of default or
acceleration) received from any holder or trustee of, under or with respect to
any Subordinated Debt.

11.14 Further Assurances. From time to time, when requested by Agent or any
Lender, it shall duly execute and deliver or cause to be duly executed and
delivered to Agent such further instruments, agreements, and documents and do or
cause to be done such further acts as Agent or any Lender deems reasonably
necessary to carry out more effectively the provisions and purpose of this
Agreement and the other Loan Documents.

11.15 Deposit Accounts. Except as consented to in writing by Agent and Required
Lenders, Borrower shall and shall cause each Subsidiary to, maintain its primary
operating deposit accounts with U.S. Bank. Except as provided in Subsection
(c) of Section 7.1.4, all such deposit accounts other than trust accounts shall
be subject to a control agreement (in form and content satisfactory to the Agent
and the Required Lenders) between U.S. Bank, Agent, the Borrower, and all
account holding Subsidiaries of Borrower, which control agreement shall
establish a perfected priority security interest (subject only to the Permitted
Liens) in favor of Agent, for the benefit of the Lenders, in all such deposit
accounts.

 

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ARTICLE 12.

NEGATIVE COVENANTS

Until termination of the availability of Loans and Letters of Credit and payment
and performance in full of all Obligations of each Loan Party under the Loan
Documents, Borrower agrees that:

12.1 Mergers, Etc.

12.1.1 Borrower will not, and will not permit any Loan Party to, wind up,
liquidate or dissolve or reorganize, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
convey, sell, transfer, lease or otherwise dispose of (in one transaction or in
a series of transactions) all or any substantial part of its assets (except,
with respect to sales of less than substantially all of its assets, for sales of
inventory, chattel paper and equipment in the ordinary course of business), or
all or substantially all of the stock or other Equity Interests of any of its
Subsidiaries (in each case, whether now owned or hereafter acquired), or wind
up, liquidate or dissolve or take any action to authorize winding up,
dissolution, or liquidation, except that, if at the time thereof and after
giving effect thereto no Default shall have occurred and be continuing (a) any
Subsidiary may merge into Borrower in a transaction in which Borrower is the
surviving corporation, (b) any wholly owned Subsidiary may merge into another
wholly-owned Collateral Subsidiary in a transaction in which the surviving
entity is a Collateral Subsidiary, and (c) any wholly-owned Subsidiary may sell,
transfer, lease or otherwise dispose of its assets to the Borrower or to another
wholly-owned Collateral Subsidiary, so long as Agent and the Lenders shall
continue to have a perfected security interest in the transferred assets,
subject to no Liens other than Permitted Liens existing on the date of the
transfer.

12.1.2 Notwithstanding the foregoing, (a) Borrower or any Subsidiary may sell
all or substantially all of the assets (including Equity Interests) of any
Dealership or other Subsidiary (or of any business unit or franchise of a
Dealership or other Subsidiary) for not less than fair market value, if
(i) (A) the sales price (excluding real property and Vehicle inventory) for any
individual Subsidiary is not more than $10,000,000.00 and the sale price
(excluding real property and Vehicle inventory) for all sales pursuant to this
Section 12.1.2 does not exceed $25,000,000.00 in any period of twelve
consecutive months, and (B) no Default shall exist immediately prior to or upon
giving effect to any such sale, or (ii) Required Lenders have consented in
writing to the sale and, if any Default exists, such Default is one that can be
waived by the Required Lenders; and (b) any Subsidiary that no longer has assets
(or that has assets with an aggregate book value less than $25,000.00) may
discontinue operations and dissolve or liquidate unless such action would
constitute a Material Adverse Effect or any Default shall exist immediately
prior to or upon giving effect thereto.

12.2 Guaranties, Etc. Borrower shall not and shall not, permit any Loan Party
to, enter into or permit to exist any Contingent Obligations, except Contingent
Obligations permitted by Section 12.10.

12.3 Liens. Borrower shall not, and shall not permit any Loan Party to, grant or
permit to exist a security interest in or Lien on its presently owned or
hereafter acquired real or personal property except:

 

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(a) Liens in favor of Agent and the Lenders which secure the Obligations.

(b) Liens for taxes, assessments or other government charges or levies not yet
due and payable or, if due and payable, if they are being contested in good
faith by appropriate proceedings and for which appropriate reserves are
maintained.

(c) Liens imposed by law, such as mechanics’, materialmen’s, landlords’,
warehousemen’s, and carriers’ Liens, and other similar Liens, securing
obligations incurred in the ordinary course of business which are not past due
for more than 30 days or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established.

(d) Liens under workers’ compensation, unemployment insurance, Social Security,
or similar legislation (excluding, however, Liens arising under ERISA) which are
not past due for more than 30 days or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves have been
established.

(e) Liens, deposits, or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases (permitted
under the terms of this Agreement), public or statutory obligations, surety,
stay, appeal, indemnity, performance or other similar bonds, or other similar
obligations arising in the ordinary course of business which are not past due
for more than 30 days or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established.

(f) Judgment and other similar Liens arising in connection with court
proceedings, in an aggregate amount not in excess of $5,000,000.00 for any Loan
Party or in excess of $25,000,000.00 in the aggregate for the Loan Parties taken
as a whole; provided the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being actively contested
in good faith and by appropriate proceedings, and the existence thereof does not
constitute a Default hereunder.

(g) Easements, rights-of-way, zoning restrictions, and other similar
encumbrances in existence on the date of this Agreement or which, in the
aggregate, do not materially interfere with the occupation, use, and enjoyment
by any Loan Party of the property or assets encumbered thereby in the normal
course of its business or materially impair the value of the property subject
thereto.

(h) Liens on the assets of a Dealership securing Floor Plan Financing permitted
by Section 12.10(f), and which are, only as to liens in existence on the Closing
Date, listed on the Disclosure Schedule; provided that the Floor Plan Lender
providing such financing has entered into an intercreditor agreement with Agent
in form and content reasonably satisfactory to Agent and the Required Lenders.

(i) Purchase money Liens hereafter created by any Borrower or any Collateral
Subsidiary to secure the purchase price of equipment acquired after the Closing
Date, so long as (i) such equipment is acquired in the ordinary course of such
Person’s business, (ii) such Lien attaches to such equipment no later than 10
days after the acquisition thereof; (iii) such Lien does not extend to any
equipment other than the equipment acquired, (iv) such Lien secures only the

 

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obligation to pay the purchase price of such equipment, and (v) the Debt secured
is permitted by Section 12.10(k) hereof.

(j) Liens in existence on the Closing Date securing Debt permitted by
Section 12.10 hereof (if such Debt is permitted to be secured), which are
consented to by Agent and listed on the Disclosure Schedule.

(k) Liens securing obligations in respect of Capital Leases provided that such
Capital Leases are otherwise permitted under this Agreement, and such Liens
attach only to the property being leased.

(l) Liens in favor of U.S. Bank or another Lender to secure such Lender’s
exposure under Interest Rate Protection Agreements, provided that such Liens are
fully subordinated to the Liens in favor of Agent and the Lenders which secure
the Obligations, pursuant to a subordination agreement in form and content
satisfactory to Agent and the Required Lenders.

(m) Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off or similar rights and remedies as
to deposit accounts or other funds maintained with a creditor depository
institution (provided that such deposit accounts are permitted) and, if such
deposit accounts are with U.S. Bank (or with another financial institution, if
required by Agent), such liens are subordinated to the Liens in favor of Agent
and the Lenders which secure the Obligations pursuant to the control agreement
required under Section 11.15).

(n) Liens on property (excluding Collateral) acquired after the Closing Date
which are in existence at the time such property is acquired, which were not
incurred in contemplation of the acquisition, and which secure Debt permitted by
this Agreement.

(o) Liens on assets owned by LRE which secures Debt permitted by this Agreement.

(p) Liens consented to in writing by the Required Lenders.

Notwithstanding the foregoing, except for Liens in favor of Agent, there shall
not be any Liens on any of the capital stock or other Equity Interests of
Borrower or any Subsidiary.

12.4 Restricted Payments. Borrower will not, and will not permit any Loan Party
to (a) declare or pay, or agree to declare or pay, or set aside funds for the
payment, directly or indirectly of, any Restricted Payment, or (b) pay or agree
to pay or set aside funds to pay any management fees or similar fees in the case
of Borrower, to any direct or indirect Affiliate thereof, or in the case of any
other Loan Party, to any direct or indirect owner of its Equity Interests or any
direct or indirect Affiliate thereof, except (c) Subsidiaries of Borrower may
make Restricted Payments or payments of such fees to Borrower or to any
Subsidiary of Borrower which is a Guarantor or Collateral Subsidiary.
Notwithstanding the foregoing, so long as no Default or Event of Default has
occurred and is continuing or would exist after giving effect thereto,
(i) Borrower may pay dividends on its capital stock in an aggregate amount not
to exceed $15,000,000.00 in any fiscal year, and (ii) Borrower may repurchase
shares of its capital stock in an aggregate amount, for all such repurchases,
not to exceed $20,000,000.00 in any

 

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fiscal year, provided that any funds not expended for repurchase in any fiscal
year may not be carried forward to any subsequent fiscal year.

12.5 Subordinated Debt. Borrower will not and will not permit any Loan Party to,
make any redemption, prepayment, defeasance or repurchase of any Subordinated
Debt, or agree to modify the terms of any Subordinated Debt, except that
Borrower or any Loan Party may take any of the foregoing actions so long as no
Event of Default has occurred or will exist after giving effect to such action.

12.6 Loans and Investments. Borrower will not, and will not permit any
Subsidiary to, (a) make or contract to make any loan or advance to any Person
(other than short term trade advances in the ordinary course of business), or
incur Contingent Obligations with respect to the obligations of any Person;
(b) purchase or otherwise acquire, any capital stock, obligations, or other
securities of, make any capital contributions to, or otherwise invest in or
acquire any interest in any Person, or participate as a partner or joint
venturer with any other Person (the matters described in clause (a) and (b) are
collectively, “Investments”), except:

(a) Investments by Borrower in any Subsidiary or Affiliate or by any Subsidiary
in any of its Subsidiaries or Affiliates, in each case, which exist as of the
Closing Date;

(b) contributions by the Borrower to the capital of any of its Collateral
Subsidiaries, or by any such Collateral Subsidiary to the capital of any of its
Collateral Subsidiaries;

(c) in the ordinary course of business, Investments by Borrower in any
Collateral Subsidiary or by any Subsidiary in Borrower, or by any Subsidiary in
any Collateral Subsidiary, by way of intercompany loans, advances or guaranties,
to the extent permitted by this Agreement;

(d) Contingent Obligations permitted by Section 12.10.

(e) Cash Equivalent Investments;

(f) Bank deposits in the ordinary course of business;

(g) Investments in securities of account debtors received pursuant to any plan
of reorganization or similar arrangement upon the bankruptcy or insolvency of
such account debtors;

(h) Investments pursuant to an acquisition permitted by Section 12.13;

(i) Investments, in an aggregate amount for Borrower and its Subsidiaries not to
exceed $5,000,000.00, in equity securities of companies which are not Affiliates
of Borrower;

(j) Investments listed on the Disclosure Schedule;

(k) Extensions of credit to customers made in the ordinary course of business
and in connection with the sale or lease of inventory in the ordinary course of
business;

 

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(l) Investments not exceeding $20,000,000 in the aggregate in equity interests
representing up to 49% ownership in minority owned automobile dealers in
accordance with the guidelines of the National Association of Minority
Automobile Dealers (“Minority Dealer Affiliates”) (it being understood that any
entities in which such investments are made shall not be considered Subsidiaries
for the purposes of the Agreement and shall not be included as Subsidiaries in
any of the financial statements of the Borrower and its Subsidiaries that are
required under Section 10.2); and

(m) Such other Investments as are consented to by the Required Lenders in their
sole discretion;

provided that (x) any Investment which when made complies with the requirements
of the definition of the term “Cash Equivalent Investment” may continue to be
held notwithstanding that such Investment if made thereafter would not comply
with such requirements; (y) no Investment otherwise permitted by clause (b),
(d), (h), (i), or (l) shall be permitted to be made if, immediately before or
after giving effect hereto, any Default or Event of Default exists; and (z) the
Borrower shall not, and shall not permit any Subsidiary to, create or acquire,
or make any Investment in any Subsidiary, not organized under the laws of a
State of the United States.

12.7 Transactions with Affiliates. Borrower will not, and will not permit any
Loan Party to, enter into any transaction with any Affiliate, except a
wholly-owned Subsidiary which is a Guarantor or a Collateral Subsidiary,
including without limitation, the purchase, sale, or exchange of property or the
rendering of any service, except in the ordinary course of business and upon
fair and reasonable terms no less favorable to it than those that would prevail
in a comparable arm’s-length transaction with a Person not an Affiliate.

12.8 Type of Business. Borrower will not, and will not permit any Loan Party to,
make any material change in the type, character or nature of its business
activities, engage in any new type of business activity unrelated to its
existing business or, interrupt or cease to engage in, for a time deemed
material by Agent, any portion of its business activities or operations that
would represent a reduction in annual revenues of $175,000,000.00 or more.

12.9 Structure. Borrower will not, and will not permit any Loan Party to, make
any material change in its organizational structure or capital structure, or
make any material modification in its Articles of Organization or Incorporation,
Partnership Agreement, Operating Agreement, Bylaws, or other organizational
documents.

12.10 Debt. Borrower will not, and will not permit Loan Party to, incur or
permit to exist any Debt to any Person except:

(a) Debt (including Contingent Obligations) incurred pursuant to this Agreement
and the Loan Documents.

(b) Short-term unsecured trade obligations incurred in the ordinary course of
business which are not past due.

(c) Debt in respect of Interest Rate Protection Agreements.

 

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(d) Funded Debt of LRE which is secured primarily by real estate owned by LRE.

(e) Funded Debt of the Dealerships with respect to Floor Plan Financing provided
by DCFS, General Motors Acceptance Corporation, Ford Motor Credit Corporation,
Toyota Motor Credit Corporation, VW Credit, Inc. or other Floor Plan Lenders
approved by Agent and the Lenders which have satisfied the requirements of
Section 12.3(h).

(f) Subordinated Debt.

(g) Unsecured guarantees by Borrower of (i) Floor Plan Financing obligations of
Dealerships to Floor Plan Lenders, (ii) debt of LRE which is permitted under
Subsection 12.10(d), (iii) operating leases of its Subsidiaries and Minority
Dealer Affiliates, and (iv) extensions of credit to a Minority Dealer Affiliate,
all proceeds of which are used to purchase New Vehicles, Service Loaner
Vehicles, or Program Vehicles to be held by the Minority Dealer Affiliate for
sale and/or lease in the ordinary course of business, which notwithstanding any
contrary provisions hereof shall be the only guarantees by Borrower.

(h) Unsecured Debt of Borrower to any Collateral Subsidiary.

(i) Unsecured Debt of any Subsidiary to Borrower or to any Collateral
Subsidiary.

(j) Debt existing on the Closing Date and set forth on the Disclosure Schedule,
provided that such Debt shall not be increased and that no additional collateral
shall be provided for such Debt.

(k) Funded Debt in an aggregate principal amount not to exceed for Borrower and
all Subsidiaries $5,000,000.00 at any time outstanding, provided that such
indebtedness is either unsecured or is purchase money indebtedness incurred to
acquire equipment which is secured only by the equipment acquired and such
equipment secures only the obligation to pay the purchase price.

(l) Unsecured guaranties by a Subsidiary of the obligations of LRE on (i) real
estate leases between LRE and an owner of real estate which has been subleased
by LRE to such Subsidiary, and (ii) debt incurred by LRE which is permitted
under Subsection 12.10(d) and which is obtained to finance real estate leased by
LRE to such Subsidiary.

(m) Additional Funded Debt, which together with all other Funded Debt permitted
by this Section 12.10, excluding Debt described in Sections 12.10(a) and
12.10(e) (“Excluded Funded Debt”), does not at any time for Borrower and all
Subsidiaries exceed an aggregate outstanding principal amount of
$375,000,000.00; provided that any such Debt incurred after the Closing Date,
shall be unsecured, unless permitted to be secured by the terms of this
Agreement. Notwithstanding any contrary provision hereof, the Funded Debt of
Borrower and its Subsidiaries (excluding Excluded Funded Debt, but including all
other Funded Debt described in this Section 12.10) shall not at any time exceed
an aggregate principal amount of $375,000,000.00.

 

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12.11 Margin Stock; Speculation. Borrower will not, and will not permit any Loan
Party to, use any part of the proceeds of any Loan, either directly or
indirectly, for the purpose, whether immediate, incidental, or ultimate, of
purchasing or carrying any margin stock (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System as amended from time to
time) or extending credit to others for the purpose of purchasing or carrying
any margin stock or for any purpose which violates any applicable provision of
any regulation of the Board of Governors of the Federal Reserve System. Neither
Borrower nor any Loan Party shall be engaged principally or as one of its
important activities in the business of extending credit for the purpose of
purchasing or conveying any margin stock. No part of the proceeds of any Loan
will be used for speculative investment purposes, including without limitation
speculating or hedging in the commodities and/or futures market.

12.12 Restrictive Agreements. Except for Permitted Restrictions and the
provisions of this Agreement and the other Loan Documents, Borrower will not,
nor will it permit any Loan Party to (a) enter into or permit to exist any
arrangement, contract, or agreement which directly or indirectly prohibits
Borrower or any Loan Party from or imposes any restrictions on creating,
assuming or incurring any Lien upon all or any portion of its properties,
revenues or assets or those of any of its Subsidiaries whether now owned or
hereafter acquired, or (b) enter into or permit to exist any agreement, contract
or arrangement restricting the ability of any Subsidiary to pay or make
dividends or distributions in cash or kind to Borrower or any other Subsidiary,
to make loans, advances or other payments of whatsoever nature to Borrower or
any other Subsidiary, to make transfers or distributions of all or any part of
its assets to the Borrower or any other Subsidiary, or to borrow money from
Borrower or any other Subsidiary, (c) enter into or permit to exist any
agreement, contract or arrangement which directly or indirectly prohibits any
Subsidiary from guarantying or imposes restrictions on the ability of any
Subsidiary to guaranty, the Obligations, or (d) enter into or permit to exist
any agreement or arrangement which would be violated by the extensions of credit
contemplated hereunder or the performance by any Loan Party of its obligations
under the Loan Documents.

12.13 Permitted Acquisitions. Except as otherwise permitted by Section 12.6 and
except for acquisitions of real estate by LRE, Borrower shall not, and shall not
permit any Subsidiary to, acquire Control of any Person or acquire all or
substantially all of the assets of any Person or of any business unit or line of
business of any Person (an “Acquisition”) except upon satisfaction of the
following requirements:

(a) The Acquisition consists of the acquisition by Borrower, directly or
indirectly, of (i) 100% of the Equity Interests of a Person that following the
Acquisition will be a Dealership (“New Dealership”) or, in the case of a
Majority Acquisition, at least 80% of the Equity Interests, or (ii) all or
substantially all of the assets of a dealership, or of a business unit or line
of business of a dealership.

(b) Borrower shall give Agent at least 30 days prior written notice of the
proposed Acquisition, and if the aggregate consideration paid for the assets
acquired (other than real property and New Vehicles, Service Loaner Vehicles and
Program Vehicles financed with a Floor Plan Lender) or for the Equity Interests
acquired, exceeds $25,000,000.00, Required Lenders shall have consented to such
Acquisition.

 

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(c) The Board of Directors (or other Persons exercising similar functions) of
the seller have not disapproved the transaction or recommended that such
transaction be disapproved.

(d) Upon consummation of the Acquisition, the Person being acquired (or the
Person acquiring the assets in an asset purchase) shall be a wholly owned (or in
the case of a Majority Acquisition, at least 80% owned), direct or indirect,
Subsidiary of Borrower (an “Acquisition Subsidiary”) or shall be merged into
Borrower.

(e) Each Acquisition Subsidiary (including Subsidiaries acquired in Majority
Acquisitions) shall execute a Joinder Agreement and any other documents
reasonably required by Agent or any Lender so that such Acquisition Subsidiary
becomes a Guarantor and grants a security interest in the Collateral of such
Acquisition Subsidiary.

(f) All representations and warranties in this Agreement shall be true and
correct in all material respects as of the date of any Acquisition unless such
representation or warranty refers to another date and except as previously
disclosed to and accepted by Agent in writing, and no Default shall have
occurred and be continuing or will exist after giving effect to the Acquisition.
For purposes of this determination, all requirements applicable to any
Guarantor, Collateral Subsidiary, or Subsidiary shall be deemed to apply to any
Acquisition Subsidiary.

(g) Borrower shall deliver to Agent (i), in the case of an Acquisition
representing aggregate consideration paid for the assets acquired (other than
real property and New Vehicles, Service Loaner Vehicles and Program Vehicles
financed with a Floor Plan Lender) or for the Equity Interests acquired
exceeding $25,000,000.00, a Compliance Certificate, together with all supporting
documentation reasonably required by Agent or any Lender, prepared on a pro
forma basis as of the most recent date for which a Compliance Certificate was
furnished to Agent, demonstrating that Borrower and its Subsidiaries would have
been in compliance with the requirements of Section 10.1 if the Acquisition had
occurred on the first day of the period covered by the Compliance Certificate;
and (ii) if obtained by Borrower and requested by Agent or any Lender, copies of
the seller’s financial statements.

(h) Agent shall have received the organizational documents, status or good
standing certificates and resolutions, or other authorizations demonstrating the
due organization, valid existence, qualification to do business and (where
applicable) good standing of any Acquisition Subsidiary, and the authority of
the Acquisition Subsidiary to become a Loan Party.

(i) Agent shall have received copies of the purchase agreement and lease, if
any, relating to that Acquisition.

(j) Agent shall have priority security interests in the Collateral owned by the
Acquisition Subsidiary as security for all of the Obligations, subject only to
the Permitted Liens, and shall have received satisfactory evidence of perfection
and the priority of such security interests, including without limitation such
Uniform Commercial Code and other searches, signed termination statements or
payoff letters and other filings as Agent or any Lender deems appropriate, which
shall include evidence of the termination of, or reasonably satisfactory

 

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arrangements for the termination of, all security interests of any secured party
in any of the assets acquired or of the Acquisition Subsidiary.

(k) Agent shall have conducted such audits of any Collateral being acquired or
which is owned by any Acquisition Subsidiary as is desired by Agent, the results
of which shall be satisfactory to Agent.

(l) Borrower or any Acquisition Subsidiary shall have received approval of all
material Seller Agreements (including without limitation Franchise Agreements),
between any Acquisition Subsidiary and any manufacturer or distributor of
Vehicles for which the Acquisition Subsidiary will act as a dealer as may be
necessary for Acquisition Subsidiary to conduct its intended business following
the Acquisition. Borrower or the Acquisition Subsidiary shall deliver to Agent
copies of all such Seller Agreements promptly upon receipt, if requested by
Agent or any Lender.

(m) All insurance required under Section 11.8.2 shall have been obtained and
Agent shall have received evidence thereof in the form of a certificate of
insurance as required under Section 11.8.3.

(n) Borrower has delivered to Agent a certificate in a form acceptable to Agent
and signed by Borrower’s chief financial officer or other officer acceptable to
Agent, certifying that all conditions in Section 12.13(a), (c), (d), (f) and
(l) have been satisfied or will be satisfied as of the date of the Acquisition.

(o) Agent has received such additional documents, approvals, consents and
information and Borrower has satisfied such additional requirements as Agent or
any Lender reasonably requests.

12.14 Fiscal Year. Borrower will not, and will not permit any Subsidiary to,
change its fiscal year.

12.15 Lithia Real Estate, Inc. LRE shall not own any assets other than real
estate, cash, and assets incidental to the operation of specific real estate;
provided, however that LRE shall in no event own any equipment (except fixtures
attached to real estate) or inventory.

ARTICLE 13.

DEFAULT AND REMEDIES

13.1 Events of Default. The occurrence of any of the following shall constitute
an Event of Default under this Agreement and each of the Loan Documents:

13.1.1 Any Loan Party shall fail to pay (a) when due, any principal owing under
this Agreement, any Note, Letter of Credit, LC Agreement, or any other Loan
Document, or (b) within 3 days after it is due, any interest or fee payable
under this Agreement, any Note, Letter of Credit, LC Agreement, or any other
Loan Document or (c) when due and uncured within 5 days after notice from Agent
that such amount remains unpaid, any other amount payable under this Agreement,
any Note, Letter of Credit, LC Agreement, or any other Loan Document.

 

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13.1.2 Any default under or any failure of any Loan Party to perform or comply
with any term, condition, covenant or obligation (a) set forth in Section 10.1,
11.1, 11.10 or Article 12 of this Agreement or (b) set forth in any provision of
this Agreement (except an Event of Default specified in Section 13.1.1,
13.1.2(a) or elsewhere in Section 13.1), any other Loan Document or any other
Agreement between Agent or any Lender and any Loan Party, and such default or
failure is not cured within 30 days after the earlier of the date any Loan Party
knows or reasonably should know thereof or the date on which Agent gives written
notice thereof to Borrower (provided, however, that such cure period is
available only if the applicable default or failure is reasonably capable of
being cured).

13.1.3 Any default occurs in the payment or performance of any material
provisions of any agreement or condition relating to the Subordinated Debt or
any other Debt in an aggregate amount outstanding for such Debt for all Loan
Parties that is in excess of $5,000,000.00 (other than Debt owing under the Loan
Documents) and the period of grace, if any, to cure such default shall have
passed, and the default constitutes (a) nonpayment, or (b) any event or
condition, the effect of which is to cause or permit the holder of such Debt to
cause such Debt to become due prior to its maturity date.

13.1.4 Any default occurs under or any Loan Party fails to pay, perform or
comply with any material terms, conditions or obligations in any security
instrument securing the Obligations or any Lien created or purported to be
created by any Security Document shall cease to be, or shall be asserted by any
Person not to be, a valid, perfected Lien with a priority that is subject only
to the Permitted Liens.

13.1.5 Any Guaranty or other Loan Document ceases to be, or shall be asserted by
Borrower or any Guarantor not to be, in full force and effect, or any Guarantor
shall attempt to revoke or repudiate any Guaranty.

13.1.6 Any warranty, representation, statement, or information made or furnished
to Lender by or on behalf of any Loan Party proves to have been false or
misleading in any material respect when made, furnished, or certified, or when
deemed made, furnished, or certified.

13.1.7 Custody or control of any substantial part of the property of any Loan
Party is assumed by any Governmental Body or any Governmental Body takes any
final action, the effect of which would be a Material Adverse Effect.

13.1.8 (a) Any Loan Party shall commence any case, proceeding, or other action
(i) under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition, or other relief
with respect to it or its debts, or (ii) seeking appointment of a receiver,
trustee, custodian, or other similar official for it or for all or any
substantial part of its assets, or any Loan Party shall make a general
assignment for the benefit of its creditors; or (b) there shall be commenced
against any Loan Party any case, proceeding, or other action of a nature
referred to in clause (a) above which (iii) results in the entry of an order for
relief or any such adjudication or appointment or (iv) remains undismissed,
undischarged, unstayed, or unbonded for a period of

 

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30 days; or (c) there shall be commenced against any Loan Party any case,
proceeding, or other action seeking issuance of a warrant of attachment,
execution, distraint, or similar process against all or any substantial part of
its assets that results in the entry of an order for any such relief which shall
not have been vacated, discharged, stayed, or bonded pending appeal within 30
days from the entry thereof; or (d) any Loan Party shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in
any of the acts set forth in clauses (a), (b), or (c) above; (e) any Loan Party
shall admit in writing its inability to pay its debts as they become due or
shall, within the meaning of the United States Bankruptcy Code (11 U.S.C. §101
et seq.), generally not pay its debts as they become due; or (f) any Loan Party
is not Solvent.

13.1.9 Except as permitted by Section 12.1, (a) any Loan Party which is a
corporation, partnership, limited liability company or other type of entity is
dissolved or liquidated or takes any action to authorize a dissolution or
liquidation; or (b) any Loan Party which is a trust (or trustee acting with
respect to property held in trust) is revoked, amended or terminated.

13.1.10 Any refusal or failure by any Governmental Body to issue, renew, or
extend any material lease or Governmental Approval with respect to the operation
of the business of any Loan Party or its Subsidiaries, or any denial, forfeiture
or revocation by any Governmental Body of any Governmental Approval that could
reasonably be expected to have a Material Adverse Effect.

13.1.11 One or more judgments, writs of attachment, or similar process, in an
aggregate amount in excess of $5,000,000.00 (in excess of insurance coverage)
shall be entered or filed against any Loan Party or any property of any Loan
Party and remains unpaid, unvacated, unbonded or unstayed for a period of 30
days or more.

13.1.12 Any of the following events shall occur or exist with respect to any
Loan Party or any ERISA Affiliate: (a) any Reportable Event shall occur; (b) any
Prohibited Transaction shall occur; (c) complete or partial withdrawal from any
Multiemployer Plan shall take place; a notice of intent to terminate a Plan
shall be filed, or a Plan shall be terminated, the result of which is to result
in a liability or obligation in excess of $5,000,000; or (d) circumstances shall
exist which constitute grounds entitling the PBGC to institute proceedings to
terminate a Plan, or the PBGC shall institute such proceedings.

13.1.13 Borrower or any Collateral Subsidiary fails to pay, perform or comply
with any material term, condition or obligation in any Seller Agreement, or any
such agreement ceases to be, or is asserted by any Person not to be, in full
force and effect, or the other party to such agreement gives notice of default
to Borrower or any Collateral Subsidiary, and the result of such failure,
cessation, or notice of default has, or might reasonably be expected to have, a
Material Adverse Effect.

13.1.14 There is any Change in Control.

13.2 Consequences of Default; Rights and Remedies. Time is of the essence of
this Agreement.

 

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13.2.1 Upon the occurrence or existence of any Event of Default (other than an
Event of Default referred to in Section 13.1.8 and at any time thereafter during
the continuance of such Event of Default, Agent shall have the right, by written
notice to Borrower, to: (a) terminate the commitments to make Loans and issue
Letters of Credit; (b) declare all outstanding Obligations payable by Borrower
to be immediately due and payable without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the Loan Documents to the contrary notwithstanding;
and/or (c) direct Borrower to deliver to Agent funds in an amount equal to the
aggregate stated amount of all outstanding Letters of Credit. Borrower
immediately shall deliver to Agent all such funds required by Agent and Agent
shall hold such funds in a non-interest bearing account as collateral for the
Obligations. Borrower hereby grants to Agent, for the benefit of the Agent,
Issuing Lender and the Lenders, a security interest in such funds and such
account.

13.2.2 Upon the occurrence or existence of any Event of Default described in
Section 13.1.8, immediately and without notice, (a) the Commitments and the
availability of Loans and Letters of Credit shall automatically terminate,
(b) all outstanding Obligations payable by Borrower hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the Loan Documents to the contrary
notwithstanding, and (c) Borrower shall automatically become obligated to
deliver to the Agent funds in an amount equal to the aggregate stated amount of
all outstanding Letters of Credit, which funds shall be held by the Agent in a
non-interest bearing account as collateral for the Obligations. Borrower hereby
grants to Agent, for the benefit of the Agent, Issuing Lender and the Lenders, a
security interest in such funds and such account.

13.2.3 In addition to the foregoing remedies, upon the occurrence or existence
of any Event of Default, Agent and the Lenders shall have the right to exercise
any right, power or remedy available under this Agreement, any of the other Loan
Documents, or otherwise available at law or in equity.

13.2.4 The Agent shall promptly inform the Lenders of the occurrence of any
Default or Event of Default of which it is deemed to have knowledge or notice
pursuant to Section 15.7 and will promptly provide the Lenders with copies of
any and all notices that Agent has received with respect thereto. After such
notification, the Lenders shall meet to determine the desired course of action
and the Agent shall take such course of action, and pursue such rights and
remedies under the Loan Documents, as the Required Lenders shall determine. If
the Required Lenders have not agreed upon a course of action within 90 days
after the date that the Lenders have received a notice from the Agent of the
occurrence of a Default or Event of Default, the Agent shall (and shall be
obligated to) terminate the Commitments, accelerate all of the Obligations, and
apply all amounts collected from the Borrower, the Subsidiaries of Borrower, any
Guarantors and the Collateral as set forth in Section 5.8 and pursue such other
rights and remedies as are prudent under the circumstances. During the time
frame between the Agent’s giving notice of the occurrence of a Default or Event
of Default to the Lenders and the earlier of (a) the Required Lender’s agreement
on a course of action or (b) the expiration of the 90 day decision period, the
Agent shall take such actions on behalf of the Lenders as the Agent deems
prudent. This Section shall not apply to any Event of Default referred to in
Section 13.1.8. Any Event of Default referred to in Section 13.1.8 shall be
governed by Section 13.2.2. However, decisions as to how to handle, vote, or
compromise the Agent’s claims on behalf of the

 

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Lenders in any bankruptcy or insolvency proceeding shall be governed by this
Section. This Section confers no rights upon any Loan Party.

ARTICLE 14.

HAZARDOUS SUBSTANCES

14.1 Representations and Warranties. Borrower represents and warrants that to
Borrower’s knowledge, the Properties identified in the Disclosure Schedule are
the only Properties requiring remedial action under applicable Environmental
Laws, resulting from the use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any Hazardous Substances on, under,
about or from any of the Properties. The performance of such remedial actions
will not have a Material Adverse Effect on Borrower or its businesses.

14.2 Activities. Borrower agrees that it will require any other Loan Party to
use, generate, manufacture, store, treat, release or dispose of Hazardous
Substances on, under, about or from the Properties only as is reasonable and
necessary in the operation of Borrower’s businesses, and in substantial
compliance with all applicable Environmental Laws.

14.3 Inspections. Borrower will permit and will cause each Loan Party to permit
representatives of Agent and the Lenders to enter upon the Properties to make
such inspections and tests as they may deem appropriate to determine compliance
of the Properties with this Article. Any such inspections or tests shall be at
the expense of Borrower and for Agents’ and the Lenders’ purposes only, and
shall not be construed to create any responsibility or liability on the part of
Agent or any Lender to Borrower, any Loan Party or any other Person.

14.4 Release and Indemnity. Borrower hereby (a) releases and waives any future
claims against Agent and each Lender for indemnity or contribution in the event
any Loan Party becomes liable for cleanup or other costs under any Environmental
Laws, and (b) agrees to indemnify and hold harmless Agent and each Lender and
their respective officers, directors, employees, agent, attorneys and advisors
(the “Indemnified Persons”) against any and all claims, losses, liabilities,
damages, penalties, and expenses which such Person may directly or indirectly
sustain or suffer resulting from a breach of this Article by any Loan Party or
as a consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a Hazardous Substance on the Properties, except to the
extent arising from the gross negligence or willful misconduct of the
Indemnified Persons.

14.5 Survival. The provisions of this Article, including the obligation to
indemnify, shall survive the repayment of the Notes and Letters of Credit and
other liabilities and Obligations of Borrower under this Agreement, and the
termination or expiration of this Agreement, and, if applicable, shall not be
affected by Lender’s acquisition of any interest in any of the Properties,
whether by foreclosure or otherwise.

ARTICLE 15.

AGENCY PROVISIONS

15.1 Authorization. Each Lender hereby appoints and authorizes Agent to take
such action as Agent on its behalf and to exercise such powers as are delegated
to Agent by the terms

 

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of this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Agent shall have no duties or responsibilities
except those expressly set forth hereunder and in the other Loan Documents. The
duties of Agent shall be mechanical and administrative in nature; Agent shall
not have by reason of any Loan Document a fiduciary relationship with any
Lender; and nothing in any Loan Document, shall be construed to impose upon
Agent any obligations with respect to the Loan Documents except as expressly set
forth herein. The term “Agent” is not intended to connote any fiduciary
relationship or other obligations arising under any agency doctrine, but is used
merely as a matter of market custom and is intended to reflect only an
administrative relationship between independent contracting parties. As to any
matters not expressly provided for by this Agreement, including enforcement or
collection of the Loans or other Obligations, 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)
upon the instructions of Required Lenders, and such instructions shall be
binding upon all Lenders, provided that Agent shall not be required to take any
action which exposes Agent to personal liability or which is contrary to the
Loan Documents or Applicable Law. In the absence of instructions from Required
Lenders, Agent shall have authority, in its sole discretion, to take or not to
take any actions or make any decisions regarding (a) decisions pursuant to
Section 4.1.2 and (b) any other matters that are not specifically reserved to
(i) the Required Lenders or (ii) the Agent and the Required Lenders or (iii) the
Agent and the Lenders, all without the consent of any Lender, and any such
action or failure to act shall be binding on Lenders and on all holders of the
Notes. Each Lender and each holder of any Notes shall execute and deliver such
additional instruments, including powers of attorney in favor of the Agent, as
may be necessary or desirable to enable Agent to exercise its powers hereunder
and under the other Loan Documents. Agent shall take no action with respect to
any decisions, consents, determinations, and other matters that are reserved to
(A) the Required Lenders or (B) the Agent and the Required Lenders or (C) the
Agent and the Lenders under this Agreement or any other Loan Document without
the consent of, or specific direction from, the Required Lenders, except as set
forth in Section 13.2.4. In addition, Agent shall take no action with respect to
any decisions, consents, determinations, and other matters that are reserved to
all of the Lender’s under Section 16.9 without the consent of or specific
direction by all of the Lenders.

15.2 Duties and Obligations. Neither Agent nor any of its directors, officers,
agents, or employees shall be liable for any action taken or omitted to be taken
by any of them in good faith under or in connection with this Agreement or any
other Loan Document except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, Agent (a) may
treat each Lender which is a party hereto as the party entitled to receive
payments hereunder until Agent receives written notice of the assignment of such
Lender’s interest in accordance with Section 16.4; (b) may consult with legal
counsel, 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 experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties, or representations made in or in connection with this
Agreement, any other Loan Document, or in any instrument or document furnished
pursuant hereto or thereto; (d) shall not have any duty to ascertain or to
inquire as to the performance of any of the terms, covenants, or conditions of
the Loan Documents on the part of any Loan Party, as to the use of the proceeds
of any Loan, or as to the existence or possible existence of any Default or
Event of Default; (e) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, effectiveness, or
value of this Agreement, of any

 

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other Loan Document, or of any instrument or document furnished pursuant hereto
or thereto; and (f) shall incur no liability under or with respect to this
Agreement or any other Loan Document by acting upon any oral or written notice,
consent, certificate, or other instrument or writing (which may be by telegram,
facsimile transmission, cable, or telex) believed by it to be genuine and
signed, sent or made by the proper party or parties or by acting upon any
representation or warranty of any Loan Party made or deemed to be made herein or
in any other Loan Document.

15.3 Agent in Individual Capacity. With respect to its Commitments, Loans and
participation in Swingline Loans and Letters of Credit, Agent, in its individual
capacity as a Lender and not as Agent, shall have the same rights hereunder and
otherwise as any other Lender and may exercise the same as though it were not
Agent and the term “Lender” or “Lenders” shall include the Agent in its
individual capacity and as Swingline Lender and Issuing Lender. The Agent and
its affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, Borrower, any
Loan Party or any of their Subsidiaries and Affiliates, all as if the Agent were
not the Agent and without notice to or consent of the Lenders.

15.4 Independent Credit Decisions. Each Lender acknowledges that it has,
independently and without reliance upon Agent or any other Lender and based upon
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan Documents
and to extend credit to Borrower hereunder. Each Lender also acknowledges that
it will, independently and without reliance upon Agent or any other Lender and
based upon 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 and the other Loan Documents. Except for notices, reports
and other documents and information expressly required to be furnished to the
Lenders by the Agent, the Agent shall have no duty or responsibility to provide
any Lender with any credit or other information concerning the affairs,
financial condition or business of any Loan Party which may come into the
possession of the Agent or any of its affiliates.

15.5 Indemnification. The Lenders agree to indemnify Agent and its officers,
directors, employees, agents, attorneys and advisors (collectively,
“Agent-Related Persons”) (to the extent not reimbursed by Borrower) ratably
according to their respective Pro Rata Shares from and against any and all
claims, 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-Related Persons in any way relating to or arising out of this Agreement or
any other Loan Document or any action taken or omitted by Agent under this
Agreement or any other Loan Document, except any such as result from Agent’s
gross negligence or willful misconduct. Without limiting the foregoing, each
Lender agrees to reimburse Agent promptly on demand in proportion to its Pro
Rata Share for any out-of-pocket expenses, including Attorney Costs, incurred by
Agent in connection with the syndication, negotiation, preparation, execution,
delivery, modification, administration, enforcement, preservation of the Loans
and Loan Documents (to the extent that Agent is not reimbursed for such expenses
by Borrower). The agreements in this Section 15.5, shall survive repayment of
the Obligations and termination of this Agreement.

 

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15.6 Successor Agent. Agent may resign as Agent upon 30 days prior written
notice to the Lenders and to Borrower. Required Lenders shall thereupon have the
right to appoint a successor Agent. Unless a Default exists, such successor
Agent shall be reasonably satisfactory to Borrower. If no successor agent is
appointed prior to the effective date of the resignation, then Agent may appoint
a new agent from among the Lenders. Upon the acceptance of any appointment as
Agent hereunder 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, other than from liabilities to
Lenders for Agent’s gross negligence or willful misconduct arising prior to the
date of such discharge. Until the acceptance by such a successor Agent, the
retiring Agent shall continue as Agent hereunder. After any retiring Agent’s
resignation as Agent shall become effective, the provisions of this Agreement
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.

15.7 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default, except with respect to defaults in the
payment of principal, interest and fees required to be paid to the Agent, unless
the Agent shall have received written notice from a Lender or Borrower referring
to this Agreement, describing such Default and stating that such notice is a
“notice of default.” The Agent will take actions with respect to a Default as
set forth in Section 13.2.4.

15.8 Defaulting Lenders. Notwithstanding anything to the contrary contained in
this Loan Agreement or any of the other Loan Documents, any Lender that fails to
pay any amount required hereunder, including failure (a) to make available to
the Agent its Pro Rata Share of any Loan, or LC Outstandings, or to fund any
participation in any Swingline Loan or LC Outstandings, or (b) to comply with
the provisions of Section 16.7, in each case as, when and to the full extent
required by the provisions of this Agreement, shall be deemed a “Defaulting
Lender” until such time as such delinquency is satisfied. A Defaulting Lender
shall be deemed to have assigned to the remaining nondefaulting Lenders (a) any
and all payments due to it from Borrower, whether on account of outstanding
Loans, interest, fees or otherwise, for application to, and reduction of, their
respective Pro Rata Shares of the outstanding Loans, and each Lender hereby
authorizes the Agent to distribute such payments to the nondefaulting Lenders in
proportion to their respective Pro Rata Shares of the applicable outstanding
Obligations and LC Outstandings; and (b) its right to vote on any matters
requiring the consent of the Lenders, in proportion to their respective Pro Rata
Shares of the aggregate Revolving Loan Exposure of all Lenders. A Defaulting
Lender shall be deemed to have satisfied in full a delinquency when and if, as a
result of application of the assigned payments to all outstanding Obligations
and LC Outstandings of the nondefaulting Lenders, the Lenders’ respective Pro
Rata Shares of all outstanding Obligations and LC Outstandings have returned to
those in effect immediately prior to such delinquency and without giving effect
to the nonpayment causing such delinquency.

15.9 U.S. Bank Deposit Accounts.

15.9.1 Agent will provide to each Lender, copies of all Amendments to the
Blocked Account Control Agreement or Schedule 1 thereto between Agent, U.S. Bank
as a party to the Interest Rate Protection Agreements, and U.S. Bank as
depositary bank (“U.S. Bank Control Agreement”).

 

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15.9.2 Agent shall give written notice under Section 4 of the U.S. Bank Control
Agreement to U.S. Bank, as depositary bank, when Agent is required to do so
pursuant to Section 13.2.4 or any other provision of this Agreement.

ARTICLE 16.

MISCELLANEOUS

16.1 Payment of Expenses and Taxes. Borrower hereby agrees:

(a) to pay or reimburse Agent on demand for all reasonable costs and expenses
(including reasonable Attorney Costs of Agent’s counsel) incurred in connection
with the syndication, negotiation, preparation, execution, delivery,
administration, enforcement of the Loan Documents and the transactions
contemplated thereby, and any amendment, supplement or modification to, the Loan
Documents and any other documents prepared in connection therewith, whether or
not the transactions contemplated hereby are consummated, including all
recording costs, filing fees, costs of appraisals, environmental audits and
reviews, collateral audits (subject to Section 11.4), title insurance, lien
searches, and costs of perfecting, continuing, monitoring, preserving and
protecting security interests in the Collateral;

(b) to pay or reimburse Agent and each Lender for all their reasonable costs and
expenses incurred in connection with, and to pay, indemnify, and hold the
Indemnified Persons harmless from and against any and all claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, disbursements, and Attorney Costs of every kind and nature arising out
of or in connection with, the enforcement or protection of any rights and
remedies under the Loan Documents and any other documents prepared in connection
therewith (including without limitation in connection with negotiations or
workout or restructuring affecting the Loan Documents or Obligations and any
bankruptcy, or similar proceeding or other legal proceeding involving any Loan
Party);

(c) to pay, indemnify, and to hold the Indemnified Persons harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any failure or delay in paying, stamp, excise and other taxes
(other than income and gross revenue taxes), if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
any Loan Document and any such other documents including reasonable Attorney
Costs of counsel to Agent and each Lender in connection with the foregoing and
in connection with advising Agent with respect to its rights and responsibility
under any Loan Document; and

(d) to pay, indemnify, and hold the Indemnified Persons harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature (including reasonable Attorney Costs) which may be incurred by or
asserted against any Indemnified Person arising out of or in connection with the
Loan Documents, the transactions contemplated by the Loan Documents, or the use
of the proceeds of the Loans (including, without limitation, in connection with
any investigation, litigation, or proceeding or

 

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preparation of defense in connection therewith), whether or not any of the
indemnified Persons is a party thereto, or by reason of or in connection with
the execution and delivery or transfer of, or payment or failure to make
payments under, Letters of Credit (it being agreed that nothing in this
Section 16.1 is intended to limit Borrower’s obligations pursuant to
Section 4.9).

Notwithstanding the foregoing, Borrower shall have no obligation to indemnify
any Indemnified Person with respect to any costs of the matters described in
subsections (a), (b), (c) and (d) of this Section 16.1 which arise from the
gross negligence or willful misconduct of such Indemnified Person. The
agreements in this Section 16.1 shall survive repayment of the Obligations and
termination of this Agreement.

16.2 Successors and Assigns. This Agreement and the other Loan Documents shall
be binding upon and inure to the benefit of Borrower, Lenders, Agent, all future
holders of the Notes and the Obligations and any of their respective successors
and assigns, except that Borrower may not assign or transfer any of its rights
or obligations under any Loan Document without the prior written consent of each
Lender.

16.3 Participations.

16.3.1 Any Lender may, in accordance with Applicable Law, at any time sell to
one or more banks or other entities (each, a “Participant”) participating
interests (or with respect to Swingline Loans and Letters of Credit,
sub-participating interests) in its Loans, Notes, Letters of Credit, and other
interests hereunder.

16.3.2 In the event of any such sale by a Lender of participating interests to a
Participant, such Lender’s obligations under this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the performance
thereof, such Lender shall remain the holder of its Notes and participating
interests in Swingline Loans and Letters of Credit for all purposes under this
Agreement, Borrower and Agent shall continue to deal solely and directly with
such Lender in connection with such Lender’s rights and obligations under this
Agreement, and such Participant shall have no voting rights as a Lender
hereunder; provided, however, that any agreement pursuant to which any Lender
sells a participating interest may require the Lender to obtain Participant’s
consent to any amendment of the type described in Sections 16.9(a) through
16.9(h).

16.3.3 Borrower agrees that if amounts outstanding under this Agreement and the
Notes, Letters of Credit, LC Agreement, and other Loan Documents are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall be deemed to have
the right of setoff in respect of its participating or sub-participating
interest in amounts owing under this Agreement or any Note to the same extent it
would have such rights under Section 16.8 if the amount of its participating
interest were owing directly to it under this Agreement, any Note, or any other
Loan Document; provided that such right of setoff shall be subject to the
obligation of such Participant to share with Lenders, and Lenders agree to share
with such Participant, as provided in Section 16.7 hereof. In addition, Borrower
agrees that each Participant shall be entitled to the benefits of Sections 6.2
and 6.4 hereof with respect to its participation or sub-participation in the
Obligations outstanding from time to time; provided that no Participant shall be
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receive any greater amount than the selling Lender would have been entitled to
receive with respect to the amount transferred if no such transfer occurred.

16.4 Assignments.

16.4.1 Any Lender may, in the ordinary course of its commercial lending business
and in accordance with Applicable Law, at any time sell to any Lender and, with
the consent of the Agent (and, if no Event of Default then exists, Borrower),
which consent shall not be unreasonably withheld, may sell to one or more other
banks or financial institutions reasonably acceptable to Agent (each an
“Assignee”) all or a ratable part of its Loans, Notes, and participations in
Swingline Loans and Letters of Credit and other interests under this Agreement
and the Loan Documents; provided, however, that (a) each assignment shall be in
a minimum amount of $25,000,000.00; (b) after giving effect to any Assignment,
the Revolving Loan Exposure of the transferor Lender shall be at least
$35,000,000.00 or shall be $0; and (c) each assignment shall be of a constant
and not a varying, percentage of all of the interests of such Lender in all
Commitments, Loans and Letters of Credit. Notwithstanding the foregoing, no
consent shall be required from Agent or Borrower (and no fee will be payable to
Agent under Section 16.4.2) with respect to any assignment by a Lender of all
(but not less than all) of its rights, Commitments, and other obligations
hereunder and under the other Loan Documents to an Affiliate of such Lender or
to a successor by merger to such Lender.

16.4.2 Any assignment shall be pursuant to an agreement substantially in the
form attached hereto as Exhibit F (an “Assignment Agreement”), executed by the
Assignee, transferor Lender (and, in the case of a Assignee that is not then a
Lender, by Agent), which Assignment Agreement shall be delivered to Agent for
its acceptance and recording in the Register, together with a transfer fee for
the account of Agent in the amount of $3,500.00. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in such
Assignment Agreement, (a) the Assignee shall be a party hereto and, to the
extent provided in such Assignment Agreement, have the rights and obligations of
a Lender hereunder with the interests as set forth therein, and (b) the
transferor thereunder shall, to the extent provided in such Assignment
Agreement, be released from its obligations under this Agreement (and, in the
case of an assignment covering all or the remaining portion of a transferor
Lender’s rights and obligations under this Agreement, such transferor Lender
shall cease to be a party hereto). Such Assignment Agreement shall be deemed to
amend this Agreement to the extent, and only to the extent, necessary to reflect
the addition of the Assignee and the resulting adjustment of Pro Rata Shares,
Commitments, and Revolving Loan Exposure, arising from the purchase by such
Assignee of the rights and obligations of the transferor Lender.

16.4.3 On or prior to the effective date specified in the Assignment Agreement,
Borrower, at its own expense, shall execute and deliver to Agent new Notes to
the order of such Assignee equal to the Loans assumed by it pursuant to such
Assignment Agreement and, unless the transferor Lender has not retained any
obligations hereunder, new Notes to the order of the transferor Lender in an
amount equal to the Commitments and Loans retained by it hereunder. Each new
Note shall be substantially in the form of the Note replaced thereby. The Note
surrendered by the transferor Lender shall be promptly returned by Agent to
Borrower marked “replaced.”

 

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16.4.4 Each Assignee which was not previously a Lender and which is not
incorporated under the laws of the United States of America or a state thereof
shall, before becoming a Lender, and from time to time when requested by Agent,
comply with the requirements of Section 6.1.2.

16.5 Register. The Agent shall maintain a copy of each Assignment Agreement
delivered to it and a Register (the “Register”) for the recordation of the names
and addresses of Lenders and the Commitments, Pro Rata Shares and principal
amount of the Obligations owing to, each Lender from time to time. The entries
in the Register shall be conclusive, in the absence of manifest error, and
Borrower, Agent, and Lenders may treat each Person whose name is recorded in the
Register as the owner of the Loans and recorded therein for all purposes of this
Agreement. The Register shall be available for inspection by Borrower or Lender
at any reasonable time and from time to time upon reasonable prior notice.

16.6 Information. Borrower, for itself and its Subsidiaries, authorizes each
Lender to disclose to any Participant or Assignee and prospective Participant or
Assignee any and all financial or other information in such Lender’s possession
concerning Borrower or any other Loan Party, subject to the confidentiality
requirements of Section 16.21 of this Agreement.

16.7 Sharing of Payments. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of the Obligations in excess of its ratable share of
payments on account of the Obligations obtained by all the Lenders, such Lender
shall purchase from the other Lenders such participations or sub-participations
in the Notes, Letters of Credit, and other Obligations held by them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of the other Lenders, provided, however, that if all or any portion of
such excess payment is thereafter recovered from such purchasing Lender, such
purchase from each other Lender shall be rescinded and each other Lender shall
repay to the purchasing Lender the purchase price to the extent of such
recovery, together with an amount equal to such Lender’s ratable share of any
interest or other amount paid or payable by the purchasing Lender with respect
to the total amount so recovered. Borrower agrees that any Lender purchasing a
participation from another Lender pursuant to Section 16.3 of this Agreement
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of setoff) with respect to such participation as fully as
if such Lender were the direct creditor of Borrower in the amount of such
participation.

16.8 Setoff; Security Interest. In addition to any rights and remedies of the
Lenders provided by law, each Lender shall have the right, without prior notice
to Borrower, any such notice being expressly waived by Borrower, to the extent
permitted by Applicable Law, upon the occurrence and during the continuance of
an Event of Default, to set-off and apply any and all deposits, funds or assets
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or account of Borrower, against any indebtedness or Obligations,
whether matured or unmatured, of Borrower to such Lender. As security for such
indebtedness and the other Obligations, Borrower hereby grants to Agent and each
Lender a continuing security interest in any and all deposits, accounts or
moneys of Borrower maintained at any time with Agent or such Lender. The
aforesaid right of set-off may be exercised by Agent or such Lender against
Borrower or against any trustee in bankruptcy, debtor in possession, assignee
for the benefit of creditors, receiver or execution, judgment or attachment
creditor of Borrower or

 

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against anyone else claiming through or against Borrower or such trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by Agent or such
Lender prior to the occurrence of an Event of Default.

16.9 Amendments and Waivers. Except as otherwise specifically set forth herein,
or as otherwise specifically provided in any Loan Document, no amendment or
waiver of any provision of this Agreement or any other Loan Document, and no
consent with respect to any material departure by Borrower or any other Loan
Party therefrom, shall be effective unless the same shall be in writing and
signed by the Required Lenders (or by the Agent at the written request of the
Required Lenders), and, with respect to amendments, by each Loan Party which is
a party thereto, and acknowledged by the Agent, and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such waiver, amendment, or
consent shall, unless in writing and signed by all the Lenders and, in the case
of amendments, the applicable Loan Parties, and acknowledged by the Agent, do
any of the following:

(a) increase any Commitment (other than increases in the Letter of Credit
Commitment in accordance with Section 4.1.2), Revolving Loan Exposure of any
Lender, or increase the Total Revolving Loan Commitment;

(b) extend the Expiration Date;

(c) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees or other amounts due to
any Lender hereunder or under any other Loan Document;

(d) reduce the principal of, or the rate of interest on any Obligations,
including any Loan or the LC Outstandings, or any fees or other amounts payable
by Borrower hereunder or under any other Loan Document;

(e) change the definition of Required Lenders or the Pro Rata Shares which are
required to take any action hereunder;

(f) amend this Section 16.9 or any provision herein which requires consent or
other action by all Lenders;

(g) release all or a substantial part of the Collateral for the Obligations; or

(h) release any Guarantor;

and, provided further, that (v) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Required Lenders or all the
Lenders, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, (x) notwithstanding clause (d) above,
(i) any fee or other amount payable by Borrower solely to the Agent, the
Swingline Lender or the Issuing Lender, may be changed with the consent of only
Borrower and the Agent and, if applicable, the affected Swingline Lender or
Issuing Lender, and (ii) any fee or other amount payable by any Lender solely to
Agent, may be changed with the consent of only such Lender and Agent, (y) no
amendment, waiver or consent shall, unless in

 

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writing and signed by Swingline Lender, affect the rights or duties of the
Swingline Lender; and (z) no amendment, waiver or consent shall, unless in
writing and signed by Issuing Lender affect the rights or duties of the Issuing
Lender.

16.10 Waiver; Cumulative Remedies. No failure or delay on the part of Agent or
any Lender in exercising any right, power, remedy or privilege hereunder or
under any of the other Loan Documents and no course of dealing between Borrower
or any other Loan Party and Agent or any Lender will operate as a waiver of such
right, power, remedy or privilege, nor will any single or partial exercise of
any right, power or privilege hereunder preclude other or further exercise
thereof or the exercise of any other right, power, remedy or privilege. Waiver
of any Default shall not be a waiver of any other subsequent or prior Default.
No waiver of any Default (whether or not Agent or any Lender knows or should
have known of such Default) shall be deemed to have occurred unless Agent (to
the extent authorized under Section 13.2.4) or the Required Lenders has
expressly agreed in writing specifying such waiver. No amendment, modification
or waiver of, or consent with respect to, any provision of this Agreement shall
in any event be effective unless the same shall be in writing and signed and
delivered by Agent, the Required Lenders, or all of the Lenders, as otherwise
set forth in this Agreement. Any waiver of any provision of this Agreement, and
any consent to any departure by any Loan Party from the terms of any provision
of this Agreement, shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on any Loan Party not
required hereunder shall in any event entitle any Loan Party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of Agent or any Lender to any other or further action in any
circumstances without notice or demand. The rights and remedies herein specified
are cumulative and are not exclusive of any rights or remedies which Agent or
any Lender would otherwise have at law or in equity or otherwise by agreement.

16.11 Notices. Except as otherwise specifically set forth in any Loan Document,
all notices, requests and demands hereunder or under any Loan Document shall be
in writing, and shall be deemed to have been given when hand-delivered,
delivered by a recognized overnight courier service, three (3) days after being
deposited in the mail as first class, registered or certified mail, postage
prepaid, or upon confirmation of receipt of a facsimile transmission (fax),
addressed to the Loan Parties as set forth below and to the Agent and Lenders at
the address set forth on the signature pages hereof or on any Assignment
Agreement executed by any Assignee and delivered to Agent and Borrower;
provided, however, that any request by a Borrower to Agent for a Loan or Letter
of Credit shall not be effective until received by Agent. Any party may at any
time change its address for notices by giving notice of such change to the other
parties:

To any Loan Party:

c/o Lithia Motors, Inc.

360 E. Jackson St.

Medford, OR 97501

Attn: Chief Financial Officer

with a copy to:

Foster Pepper Tooze LLP

 

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601 SW Second Avenue, Suite 1800

Portland, OR 97204

Attn: Kenneth E. Roberts

16.12 Integration; Conflicting Terms. This Agreement (including the exhibits and
schedules) together with the other Loan Documents comprises the entire agreement
of the parties on the subject matter hereof and supersedes and replaces all
prior agreements, oral and written, on such subject matter. If any term of any
of the other Loan Documents expressly conflicts with the provisions of this
Agreement, the provisions of this Agreement shall control; provided, however,
that the inclusion of additional, greater or supplemental rights and remedies of
Agent and Lenders or the inclusion of additional or greater obligations and
responsibilities of the Loan Parties, in any of the other Loan Documents shall
not be deemed a conflict with this Agreement.

16.13 Governing Law. Except to the extent that Agent or any Lender has greater
rights and remedies under federal law, this Agreement and the other Loan
Documents shall be governed by and construed and enforced in accordance with the
laws of the State of Oregon without regard to conflicts of law principles,
except that matters concerning the validity and perfection of security interests
covered thereby shall be governed by the conflicts of law provisions of the
applicable Uniform Commercial Code.

16.14 Jurisdiction and Venue. To the fullest extent permitted by Applicable Law,
Borrower hereby irrevocably submits to the jurisdiction of any state court or
any United States federal court located in or with jurisdiction over Portland,
Oregon over any suit, action or proceeding arising out of or relating to the
Obligations or the Loan Documents. Borrower hereby irrevocably waives, to the
fullest extent permitted by Applicable Law, any objection that Agent may now or
hereafter have to the laying of venue in any such court including any objection
based on the doctrine of forum non conveniens. Nothing herein shall affect the
right of Agent or the Lenders to bring proceedings against Borrower or any other
Loan Party in any other court or jurisdiction.

16.15 Documents Satisfactory to Agent and Required Lenders. All information,
documents and instruments required to be executed or delivered to Agent shall be
in form and substance reasonably satisfactory to Agent and the Required Lenders.

16.16 Exhibits. All exhibits and schedules referred to herein are attached
hereto and hereby incorporated by reference as if fully set forth herein.

16.17 Counterparts. This Agreement may be executed in any number of
counterparts. Each signed counterpart shall be deemed an original, and all of
said counterparts taken together shall be deemed to constitute but one document.

16.18 Severability. Whenever possible, each provision of this Agreement and each
of the other Loan Documents shall be interpreted in such a manner as to be valid
and effective under Applicable Law. If any provision of this Agreement or any of
the Loan Documents is held invalid under any Applicable Law, such invalidity
shall not affect any other provision of this Agreement that can be given effect
without the invalid provision.

 

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16.19 Construction. This Agreement and the other Loan Documents are the result
of negotiations among, and have been reviewed by, each Loan Party, each Lender,
the Agent and their respective counsel (or, if any party has not had the Loan
Documents reviewed by its counsel, such party has had the opportunity to do so
and has voluntarily chosen not to do so). Accordingly, the Loan Documents shall
be deemed to be the product of all parties hereto, and no ambiguity shall be
construed in favor of or against Borrower, the Agent, or any Lender.

16.20 USA Patriot Act Notice. Each Lender that is subject to the USA Patriot Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”),
and the Agent (for itself and not on behalf of any Lender) hereby notifies
Borrower that pursuant to the requirements of the Act, it is required to obtain,
verify and record information that identifies Borrower, which information
includes the name and address of the Borrower and other information that will
allow such Lender or the Agent, as applicable, to identify the Borrower in
accordance with the Act.

16.21 Confidentiality. Agent and each Lender agree to take reasonable
precautions, in accordance with customary procedures, to maintain the
confidentiality of all non-public information provided to it by any Loan Party
under this Agreement or any other Loan Document, which is identified as
confidential at the time such Person provides the information, and agrees that
it shall not use any such information other than in connection with or in
enforcement of this Agreement and the other Loan Documents or in connection with
other business now or hereafter existing or contemplated with any Loan Party,
except to the extent such information (a) was or becomes generally available to
the public other than as a result of disclosure by the Agent or Lender, or
(b) was or becomes available on a non-confidential basis from a source other
than a Loan Party, provided that such source is not bound by a confidentiality
agreement with a Loan Party known to Agent or such Lender; provided, however,
that Agent or any Lender may disclose such confidential information (q) at the
request or pursuant to any requirement of any Governmental Body to which it is
subject or in connection with an examination of Agent or such Lender by any such
authority; (r) pursuant to subpoena or other court process; (s) when required to
do so in accordance with the provisions of any Applicable Law; (t) to the extent
reasonably required in connection with any litigation or proceeding to which the
Agent, any Lender or their respective affiliates may be party; (u) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document; (v) to Agent’s or such Lender’s and its
affiliates, directors, officers, employees and agents, including accountants,
attorneys and other professional advisors; (w) to any Participant or Assignee,
actual or potential, provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Lenders hereunder;
(x) as to Agent or any Lender or its affiliates, as expressly permitted under
the terms of any other document or agreement regarding confidentiality to which
any Loan Party is party or is deemed party with Agent or such Lender or
affiliate; and (y) to its affiliates; provided, that with respect to disclosures
under clauses (r), (s) and (t), such Lender shall use commercially reasonable
efforts to notify the Borrower (unless such notification is prohibited by any
Applicable Law) of the proposed disclosure before such disclosure is made to
reasonably afford Borrower the opportunity to seek to prevent such disclosure.

16.22 Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY APPLICABLE LAW,
EACH PARTY HERETO WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING RELATING TO ANY OF THE

 

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LOAN DOCUMENTS, THE OBLIGATIONS THEREUNDER, ANY COLLATERAL SECURING THE
OBLIGATIONS, OR ANY TRANSACTION ARISING THEREFROM OR CONNECTED THERETO. EACH
PARTY REPRESENTS TO THE OTHER PARTIES THAT THIS WAIVER IS KNOWINGLY, WILLINGLY
AND VOLUNTARILY GIVEN.

 

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16.23 Disclosure. Under Oregon law, most agreements promises and commitments
made by Bank concerning loans and other credit extensions which are not for
personal, family or household purposes or secured solely by the borrower’s
residence must be in writing, express consideration and be signed by the Bank to
be enforceable.

 

LITHIA MOTORS, INC.     U.S. BANK NATIONAL ASSOCIATION, as Agent, Lender,
Swingline Lender, and Issuing Lender By:   /s/ Jeffrey B. DeBoer     By:   /s/
Andrew Hein Name:   Jeffrey B. DeBoer     Name:   Andrew Hein Title:   SVP & CFO
    Title:   Vice President  

360 E. Jackson Street

Medford, OR 97501

Fax: (541) 858-3279

     

13010 SW 68th Parkway

Portland, OR 97223

Fax: (503) 872-7562

 

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC, as Lender

   

TOYOTA MOTOR CREDIT

CORPORATION, as Lender

By:   /s/ Janet B. Toronski     By:   /s/ David Pelliccioni Name:   Janet B.
Toronski     Name:   David Pelliccioni Title:   V.P. Credit     Title:   Group
Vice President  

27777 Inkster Road

Farmington Hills, MI 48334-5326

Fax: (248) 427-6550

     

19001 S. Western Avenue

Torrance, CA 90501

Fax: (310) 381-7794

 

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SCHEDULE 1

 

Name of Financial Institution

   Pro Rata Share
of Revolving Loans     Revolving Loan
Commitment U.S. Bank National Association    33.3333333333 %   $ 75,000,000.00
DaimlerChrysler Financial Services Americas LLC    33.3333333333 %   $
75,000,000.00 Toyota Motor Credit Corporation    33.3333333333 %   $
75,000,000.00

TOTAL

   100 %   $ 225,000,000.00

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AMENDMENT TO LOAN AGREEMENT

This Agreement dated effective as of June 29, 2007, is entered into among Lithia
Motors, Inc., an Oregon corporation (“Borrower”); the lenders which are from
time to time parties to the Loan Agreement (each a “Lender” and any two or more
“Lenders”); and U.S. Bank National Association, as agent for the Lenders (in
such capacity, “Agent”).

RECITALS:

A. Borrower, the Lenders and Agent have entered into a Loan Agreement dated as
of August 31, 2006 (the “Loan Agreement”).

B. The parties wish to modify the terms and conditions of the Loan Agreement, as
set forth below.

For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. Amendments to Loan Agreement.

1.1. Requests for Revolving Loans. Section 2.4 of the Loan Agreement is deleted
and replaced with the following:

2.4 Requests for Revolving Loans. Whenever Borrower wishes to obtain Revolving
Loans, Borrower shall give Agent irrevocable notice thereof no later than 11:00
a.m. (Pacific Time) at least one Business Day prior to the date of the requested
borrowing. Such notice shall specify the requested borrowing date (which must be
a Business Day), the amount of the Revolving Loan Borrowing, and include any
other information and documentation reasonably requested by Agent.

1.2. Settlement of Swingline Loans. Sections 3.7.1(a), (b), and (c) of the Loan
Agreement are deleted and replaced with the following:

3.7.1 Refunding of Loans.

(a) Upon the request of the Swingline Lender, the Agent from time to time shall,
on behalf of Borrower (and Borrower hereby irrevocably authorizes the Agent to
so act on its behalf) request each Lender (including Swingline Lender in its
capacity as a Lender) to make a Revolving Loan to the Borrower, in accordance
with the provisions of this Section 3.7.1, which shall be applied to repay all
or a portion of the outstanding principal balance of the Swingline Loans (each
such Revolving Loan, a “Refunding Revolving Loan”), in an amount equal to that
Lender’s Revolving Loan Pro Rata Share of all or a portion of the then
outstanding principal balance of the Swingline Loans.

(b) (Intentionally blank.)

(c) Without limiting the foregoing, each Lender agrees that Agent may request
the Lenders to make Refunding Revolving Loans at any time if (i) a Default has
occurred and is continuing, or (ii) in the judgment of Swingline Lender, taking
into account the outstanding principal balance of the Swingline Loans, the
anticipated usage of the Swingline Loans and

 

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the operation of the Credit Sweep pursuant to Section 3.8, such Refunding
Revolving Loans are reasonably necessary to ensure that the outstanding
principal balance of the Swingline Loans will not at any time exceed the
Swingline Commitment or such lesser amount as is permitted to be outstanding on
the Swingline Loans at such time (it being understood that in order to attain
such objective, Swingline Lender may request repayment of the Swingline Loans
even though the principal balance of the Swingline Loans at the time of such
request is less than the Swingline Commitment or the amount permitted to be
outstanding on the Swingline Loans).

1.3. Financial Covenants. Section 10.1.3 and 10.1.4 of the Loan Agreement are
deleted and replaced with the following:

10.1.3 Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio for Borrower
and its Subsidiaries, on a consolidated basis, shall not be less than 1.20 to
1.0 as of the last day of any fiscal quarter, for the period of four consecutive
fiscal quarters ending on such date.

As used herein,

“EBITDAR” means, for any Person, for any time period, (a) such Person’s net
income (or loss) for such time period (excluding extraordinary gains or losses
but including net income or loss from discontinued operations); (b) plus,
without duplication, the amounts which in determining net income or loss have
been deducted for (i) interest expense, (ii) income tax expense,
(iii) depreciation, amortization, goodwill impairment charges and other non-cash
charges (less non-cash gains) and (iv) rental or lease expense.

“Fixed Charge Coverage Ratio” means, as of the last day of any fiscal quarter,
the ratio for the period of four consecutive fiscal quarters ending on such date
of (a) (i) EBITDAR, (ii) minus dividends and other distributions in respect of
Equity Interests, (iii) minus income tax expense to the extent paid in cash,
(iv) minus an allowance for maintenance capital expenditures in an amount equal
to $110,000 for each Dealership location for such four consecutive fiscal
quarters; (v) plus, if a Permitted Acquisition has occurred during such time
period, EBITDA attributable to any new Acquisition Subsidiary or business
acquired on a pro forma basis, calculated as if such Permitted Acquisition had
occurred on the first day of such time period (it being understood and agreed
that pro forma EBITDA may not be included in this calculation to the extent that
it results in an annualized increase of more than 10% in Borrower’s consolidated
EBITDA prior to such adjustment, unless the Borrower provides to the Agent and
the Required Lenders the supporting calculations for such adjustment and such
other information as they may reasonably request to determine the accuracy of
such calculations); to (b) the sum of (i) cash interest, plus (ii) required
principal payments on Debt, plus (iii) rental or lease expense, for such four
consecutive fiscal quarters,

10.1.4 Cash Flow Leverage Ratio. The Cash Flow Leverage Ratio for Borrower and
its Subsidiaries, on a consolidated basis, shall not be more than 3.00 to 1.0 as
of the last day of any fiscal quarter for the period of four consecutive fiscal
quarters ending on such date.

 

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As used herein:

“Adjusted Funded Debt” means (a) all Funded Debt excluding (i) Subordinated
Debt, (ii) Debt consisting of Floor Plan Financing, and (iii) Funded Debt of LRE
which is secured primarily by real estate owned by LRE (“Real Estate Debt”),
plus (b) at any time during which a Current Assets Election is in effect, the
Current Assets Commitment Amount.

“Cash Flow Leverage Ratio” means, for any Person, as of any date of
determination, the ratio of (a) the principal balance of Adjusted Funded Debt as
of such date to (b) EBITDA for the period of four consecutive fiscal quarters
ending on such date, minus interest expense for Floor Plan Financing and Real
Estate Debt for such period, minus required principal payments on Real Estate
Debt for such time period.

“EBITDA” means, for any Person, for any time period, (a) such Person’s net
income (or loss) for such time period (excluding extraordinary gains or losses
but including net income or loss from discontinued operations); (b) plus,
without duplication, the amounts which in determining net income or loss have
been deducted for (i) interest expense, (ii) income tax expense, and
(iii) depreciation, amortization, goodwill impairment charges and other non-cash
charges (less non-cash gains); provided, however, that if a Permitted
Acquisition has occurred during any time period, EBITDA may include EBITDA
attributable to any new Acquisition Subsidiary or business acquired on a pro
forma basis, calculated as if such Permitted Acquisition had occurred on the
first day of such time period (it being understood and agreed that any pro forma
adjustment of EBITDA may not be included in this calculation to the extent that
it results in an annualized increase of more than 10% in Borrower’s consolidated
EBITDA prior to such adjustment, unless the Borrower provides to the Agent and
the Required Lenders the supporting calculations for such adjustment and such
other information as they may reasonably request to determine the accuracy of
such calculations).

1.4. Financial Information. Section 10.2.6 of the Loan Agreement is deleted and
replaced with the following:

10.2.6 Within 30 days after the end of each month (or more frequently if
required by Agent or Required Lenders during the existence of a Default), a
Borrowing Base Certificate, prepared as of the last day of such month, showing
the calculation of the Borrowing Base, substantially in the form attached hereto
as Exhibit E.

1.5. Debt. Section 12.10 of the Loan Agreement is deleted and replaced with the
following:

12.10 Debt. Borrower will not, and will not permit any Loan Party to, incur or
permit to exist any Debt to any Person except:

(a) Debt (including Contingent Obligations) incurred pursuant to this Agreement
and the Loan Documents.

(b) Short-term unsecured trade obligations incurred in the ordinary course of
business which are not past due.

 

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(c) Debt in respect of Interest Rate Protection Agreements.

(d) Funded Debt of LRE which is secured primarily by real estate owned by LRE.

(e) Subject to satisfaction of the requirements of Section 12.3(h) by each Floor
Plan Lender, Funded Debt of the Dealerships with respect to Floor Plan Financing
provided by DCFS, General Motors Acceptance Corporation, Ford Motor Credit
Corporation, Toyota Motor Credit Corporation, VW Credit, Inc., BMW Financial
Services NA, LLC, DCFS USA LLC, or other Floor Plan Lenders approved by Agent
and the Lenders.

(f) Subordinated Debt.

(g) Unsecured guarantees by Borrower of (i) Floor Plan Financing obligations of
Dealerships to Floor Plan Lenders, (ii) debt of LRE which is permitted under
Subsection 12.10(d), (iii) operating leases of its Subsidiaries and Minority
Dealer Affiliates, and (iv) extensions of credit to a Minority Dealer Affiliate,
all proceeds of which are used to purchase New Vehicles, Service Loaner
Vehicles, or Program Vehicles to be held by the Minority Dealer Affiliate for
sale and/or lease in the ordinary course of business, which notwithstanding any
contrary provisions hereof shall be the only guarantees by Borrower.

(h) Unsecured Debt of Borrower to any Collateral Subsidiary.

(i) Unsecured Debt of any Subsidiary to Borrower or to any Collateral
Subsidiary.

(j) Debt existing on the Closing Date and set forth on the Disclosure Schedule,
provided that such Debt shall not be increased and that no additional collateral
shall be provided for such Debt.

(k) Funded Debt in an aggregate principal amount not to exceed for Borrower and
all Subsidiaries $5,000,000.00 at any time outstanding, provided that such
indebtedness is either unsecured or is purchase money indebtedness incurred to
acquire equipment which is secured only by the equipment acquired and such
equipment secures only the obligation to pay the purchase price.

(l) Unsecured guaranties by a Subsidiary of the obligations of LRE on (i) real
estate leases between LRE and an owner of real estate which has been subleased
by LRE to such Subsidiary, and (ii) debt incurred by LRE which is permitted
under Subsection 12.10(d) and which is obtained to finance real estate leased by
LRE to such Subsidiary.

(m) Additional Funded Debt, which together with all other Funded Debt permitted
by this Section 12.10, excluding Debt described in Sections 12.10(a), 12.10(e),
and 12.10(f) (“Excluded Funded Debt”), does not at any time for Borrower and all
Subsidiaries exceed an aggregate outstanding principal amount of
$300,000,000.00; provided that any such Debt incurred after the Closing Date,
shall be unsecured, unless permitted to be secured by the terms of this
Agreement. Notwithstanding any contrary

 

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provision hereof, the Funded Debt of Borrower and its Subsidiaries (excluding
Excluded Funded Debt, but including all other Funded Debt described in this
Section 12.10) shall not at any time exceed an aggregate principal amount of
$300,000,000.00.

2. Conditions Precedent. The effectiveness of this Agreement is subject to
satisfaction of each of the following conditions:

2.1. Agent has received executed originals of this Agreement and such other Loan
Documents as Agent requires and Borrower and each Guarantor has provided such
information and satisfied such requirements as Agent reasonably requires.

2.2. No Default has occurred and is continuing.

2.3. All representations and warranties in the Loan Agreement are true and
correct as of the date of this Agreement.

3. Defined Terms. Capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Loan Agreement.

4. Reaffirmation. By signing this Agreement or the attached Acknowledgment,
Borrower and each Guarantor reaffirm the representations and warranties in each
of the existing Loan Documents and agree that (a) except as amended previously
or in connection herewith, each Loan Document is and shall remain valid and
enforceable in accordance with its terms and (b) such Borrower or Guarantor has
no claims, defenses, setoffs, counterclaims or claims for recoupment against
Agent, the Lenders, or the indebtedness and obligations represented by the
Notes, Guaranties, Security Documents and other Loan Documents.

5. References. On and after the effective date of this Agreement, all references
in the Loan Agreement and the other Loan Documents to the Loan Agreement shall
be deemed to refer to the Loan Agreement as amended hereby.

6. Authorization. Each Loan Party represents and warrants to Agent and the
Lenders that its execution, delivery and performance of this Agreement and the
other Loan Documents and all documents to be executed, delivered or performed by
it have been duly authorized by all necessary entity action, do not require the
approval of any governmental agency or other Person, do not contravene any law,
regulation, rule, order, or restriction binding on it or its articles of
incorporation or other organizational documents, and do not contravene the
provisions of or constitute a default under any agreement or instrument to which
it is a party or by which it may be bound or affected.

7. Expenses. Borrower shall pay all costs, fees and expenses incurred by Agent
in connection with the preparation, negotiation, execution, and delivery of this
Agreement and any other document required to be furnished herewith, including
without limitation the charges of Agent’s legal counsel.

8. Recitals. The Recitals are hereby incorporated herein.

9. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of said counterparts
taken together shall be deemed to constitute but one document.

[Signature pages follow]

 

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LITHIA MOTORS, INC.     U.S. BANK NATIONAL ASSOCIATION, as Agent, Lender,
Swingline Lender, and Issuing Lender By:   /s/ Bryan B. DeBoer     By:     Name:
      Bryan B. DeBoer     Name:   Title:       President and COO     Title:  

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC, as Lender

   

TOYOTA MOTOR CREDIT

CORPORATION, as Lender

By:         By:     Name:       Name:   Title:       Title:  

 

LITHIA MOTORS, INC.     U.S. BANK NATIONAL ASSOCIATION, as Agent, Lender,
Swingline Lender, and Issuing Lender By:         By:     Name:       Name:  
Title:       Title:  

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC, as Lender

   

TOYOTA MOTOR CREDIT

CORPORATION, as Lender

By:   /s/ Michele Nowak     By:     Name:       Michele Nowak     Name:   Title:
      Credit Director, National Accounts     Title:  

 

LITHIA MOTORS, INC.     U.S. BANK NATIONAL ASSOCIATION, as Agent, Lender,
Swingline Lender, and Issuing Lender By:         By:   /s/ Andrew Hein Name:    
  Name:       Andrew Hein Title:       Title:       Senior Vice President

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC, as Lender

   

TOYOTA MOTOR CREDIT

CORPORATION, as Lender

By:         By:     Name:       Name:   Title:       Title:  

 

LITHIA MOTORS, INC.     U.S. BANK NATIONAL ASSOCIATION, as Agent, Lender,
Swingline Lender, and Issuing Lender By:         By:     Name:       Name:  
Title:       Title:  

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC, as Lender

   

TOYOTA MOTOR CREDIT

CORPORATION, as Lender

By:         By:   /s/ Mark Doi Name:       Name:       Mark Doi Title:      
Title:       National Dealer Credit Manager

 

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ACKNOWLEDGMENT AND CONSENT OF GUARANTORS

Each Guarantor hereby acknowledges, consents, and agrees to all terms and
conditions of the foregoing amendment.

Hutchins Eugene Nissan, Inc.

Hutchins Imported Motors, Inc.

LAD Advertising, Inc.

LGPAC, Inc.

Lithia Auto Services, Inc.

Lithia BNM, Inc.

Lithia DE, Inc.

Lithia DM, Inc.

Lithia Financial Corporation

Lithia Aircraft, Inc.

Lithia HPI, Inc.

Lithia Klamath, Inc.

L2 Auto, Inc., fka Lithia LAC, Inc.

Lithia Medford Hon, Inc.

Lithia Medford LM, Inc.

Lithia Motors Support Services, Inc.

Lithia MTLM, Inc.

Lithia of Roseburg, Inc.

Lithia Real Estate, Inc.

Lithia Rentals, Inc.

Lithia Rose-FT, Inc.

Lithia SOC, Inc.

Lithia TKF, Inc.

Saturn of Southwest Oregon, Inc.

Lithia Chrysler Jeep of Anchorage, Inc.

Lithia Imports of Anchorage, Inc.

Lithia NA, Inc.

Lithia of Anchorage, Inc.

Lithia of Fairbanks, Inc.

Lithia of South Central AK, Inc.

Lithia CIMR, Inc.

Lithia CJDB, Inc.

Lithia CS, Inc.

Lithia DC, Inc.

Lithia FMF, Inc.

Lithia JEF, Inc.

Lithia MMF, Inc.

Lithia NF, Inc.

Lithia of California, Inc.

Lithia of Clovis, Inc.

Lithia of Eureka, Inc.

Lithia of Fairfield, Inc.

Lithia CA Acquisition Corp 1, Inc.

Lithia Seaside, Inc.

Lithia Sea P, Inc.

Lithia of Santa Rosa, Inc.

Lithia TKV, Inc.

 

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Lithia TR, Inc.

Lithia Centennial Chrysler Plymouth Jeep, Inc.

Lithia Cherry Creek Dodge, Inc.

Lithia Colorado Jeep, Inc.

Lithia Colorado Springs Jeep Chrysler Plymouth, Inc.

Lithia Foothills Chrysler, Inc.

Lithia of Thornton, Inc.

Lithia CB, Inc.

Lithia CCTF, Inc.

Lithia DB, Inc.

Lithia Ford of Boise, Inc.

Lithia IB, Inc.

Lithia LMB, Inc.

Lithia of Caldwell, Inc.

Lithia of Pocatello, Inc.

Lithia Poca-Hon, Inc.

Lithia of TF, Inc.

Lithia MBDM, Inc.

Lithia of Des Moines, Inc.

Lithia LRDM, Inc.

Lithia CDH, Inc.

Lithia HGF, Inc.

Lithia of Billings, Inc.

Lithia of Butte, Inc.

Lithia of Great Falls, Inc.

Lithia of Helena, Inc.

Lithia of Missoula, Inc.

Lithia CJD of Omaha, Inc.

Lithia MBO, Inc.

Lithia of Omaha, Inc.

Lithia CJDSF, Inc.

Lithia of Santa Fe, Inc.

Lithia of Reno, Inc.

Lithia Reno Sub-Hyun, Inc.

Lithia SALMIR, Inc.

Lithia ND Acquisition Corp. #1

Lithia ND Acquisition Corp. #2

Lithia ND Acquisition Corp. #3

Lithia ND Acquisition Corp. #4

Lithia Automotive, Inc.

Lithia of Sioux Falls, Inc.

Camp Automotive, Inc.

Lithia BC, Inc.

Lithia DC of Renton, Inc.

Lithia Dodge of Tri-Cities, Inc.

Lithia FTC, Inc.

Lithia HyR, Inc.

Lithia IC, Inc.

Lithia of Seattle, Inc.

Lithia of Spokane, Inc.

Lithia of Wenatchee, Inc.

TC Hon, Inc.

 

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Lithia of La Crosse, Inc.

L2 Real Estate, Inc.

Lithia of Cedar Rapids #1, Inc.

Lithia of Cedar Rapids #2, Inc.

Lithia of Cedar Rapids #3, Inc.

Lithia AcDM, Inc.

Lithia HDM, Inc.

Lithia IDM, Inc.

Lithia NDM, Inc.

Lithia VAuDM, Inc.

 

      By:   /s/ Bryan B. DeBoer       Name:    Bryan B. DeBoer       Title:  
Authorized Agent

 

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Lithia Bryan Texas, L. P.

Lithia CJDO, L.P.

Lithia CJDSA, L.P.

Lithia CM, L.P.

Lithia CO, L.P.

Lithia CSA, L.P.

Lithia DMID, L.P.

Lithia HMID, L.P.

Lithia NSA, L.P.

Lithia of Abilene, L.P.

Lithia of Corpus Christi, L.P.

Lithia of Grapevine, LP

Lithia of Midland, L.P.

Lithia TA, L.P.

Lithia TO, L.P.

 

    By:   Lithia GP of Texas, LLC, General Partner     By:   /s/ Bryan B. DeBoer
    Name:    Bryan B. DeBoer     Title:   Authorized Agent

 

SOE, LLC

Lynnwood Properties, LLC

Lithia LP of Texas, LLC

Lithia GP of Texas, LLC

 

    By:   /s/ Bryan B. DeBoer     Name:    Bryan B. DeBoer     Title:  
Authorized Agent

 

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SECOND AMENDMENT TO LOAN AGREEMENT

This Second Amendment to Loan Agreement (this “Agreement”) dated as of
February 13, 2008, is entered into among Lithia Motors, Inc., an Oregon
corporation (“Borrower”); the lenders which are from time to time parties to the
Loan Agreement (each a “Lender” and any two or more “Lenders”); and U.S. Bank
National Association, as agent for the Lenders (in such capacity, “Agent”).

R E C I T A L S

A. Borrower, the Lenders and Agent have entered into a Loan Agreement dated as
of August 31, 2006, which has been amended by amendment dated as of June 29,
2007 (collectively, the “Loan Agreement”).

B. The parties have agreed to admit DCFS USA LLC as a Lender and to modify the
terms and conditions of the Loan Agreement, as set forth below.

For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. Amendments to Loan Agreement.

1.1 Changed Definitions. The following defined terms in Section 1.1 of the Loan
Agreement are deleted and replaced with the following:

“Current Assets Commitment Amount” means, with respect to any Current Assets
Election, the lesser of (a) (i) the Maximum Amount minus the sum of the then
outstanding principal balance of the Revolving Loans, Swingline. Loans, and LC
Outstandings or (ii) if less, the maximum aggregate principal balance of the
Revolving Loans, Swingline Loans, and LC Outstandings permitted to be
outstanding at any time in accordance with Section 5.18, minus the sum of the
then outstanding principal balance of the Revolving Loans, Swingline Loans, and
LC Outstandings; or (b) the Specified Current Assets Commitment Amount.

“Expiration Date” means August 31, 2010, or such earlier date as may be
applicable due to acceleration of Obligations in accordance with the terms of
this Agreement.

“Maximum Amount” means, as of any date of determination, the least of (a) the
Total Revolving Loan Commitment, (b) the Borrowing Base plus $50,000,000.00, or
(c) the Total Borrowing Base Assets.

“Required Lenders” means Lenders holding 66% or more of the sum of the Revolving
Loan Exposure of all Lenders; provided, however, that so long as U.S. Bank,
Toyota Motor Credit Corporation, DaimlerChrysler Financial Services Americas
LLC, and DCFS USA LLC are the only Lenders, Required Lenders shall mean all
Lenders.

“Total Revolving Loan Commitment” means an amount equal to $300,000,000.00.

 

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1.2 New Definition. The following defined term is hereby added to Section 1.1 of
the Loan Agreement:

“Total Borrowing Base Assets” means, as of any date of determination, the sum,
without duplication, on such date of:

(a) 100% of Vehicle Equity.

(b) 100% of the amount of Eligible Receivables.

(c) 100% of the difference between (i) the net book value of Service Loaner
Vehicles owned by the Collateral Subsidiaries and (ii) the sum of (A) the
aggregate outstanding principal balance of the Floor Plan Financing owed to all
Floor Plan Lenders which is secured by such Service Loaners and (B) the
principal amount of any other indebtedness or obligations to any Person (other
than the Obligations) which is secured by the Service Loaner Vehicles.

(d) 100% of the difference between (i) the net book value of the inventory of
Borrower and its Subsidiaries consisting of new parts and accessories and
materials in which Agent has a perfected first priority security interest, and
(ii) the unpaid acquisition cost owed to sellers or financers of such inventory.

(e) 100% of the net book value of aircraft owned by Lithia Aircraft, Inc., in
which Agent has a perfected first priority security interest.

(f) 100% of the net book value of equipment (excluding fixtures and aircraft) of
Borrower and the Collateral Subsidiaries in which Agent has a perfected first
priority security interest.

Notwithstanding any contrary provision of this definition, the Total Borrowing
Base Assets shall in no event include any property owned by LRE, except cash to
the extent included in clause (a) (iii) of the definition of Vehicle Equity.

1.3 Maximum Revolving Loan Amount. Section 2.1.1 of the Loan Agreement is
deleted and replaced with the following:

2.1.1 Maximum Amount. Subject to the terms and conditions of this Agreement,
each Lender severally and not jointly agrees to make loans (each a “Revolving
Loan” and collectively, the “Revolving Loans”) to Borrower on a revolving credit
basis during the period from the Closing Date to but not including the
Expiration Date; provided that (a) the aggregate outstanding principal balance
of the Revolving Loans made by each Lender, plus the outstanding principal
balance of such Lender’s participating interest in the Swingline Loans and
Letters of Credit shall not at any time exceed an amount equal to such Lender’s
Revolving Loan Commitment; (b) the outstanding principal balance of all
Revolving Loans shall not at any time exceed, in the aggregate, as to all
Lenders, the Maximum Amount, or if applicable, the amount permitted to be
outstanding at such time in accordance with Section 5.18(a) (“Reduced Maximum
Amount”), and (c) the outstanding principal balance of all Revolving Loans, plus
the outstanding principal

 

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balance of all Swingline Loans, plus the LC Outstandings shall not at any time
exceed, in the aggregate, as to all Lenders, the Maximum Amount or, if
applicable, the Reduced Maximum Amount.

1.4 Revolving Loan Fee. Section 2.6 of the Loan Agreement is deleted and
replaced with the following:

2.6 Revolving Loan Fee. Borrower shall pay to Agent, for the account of the
Lenders, a fee (the “Loan Fee”): equal to the sum of the following: (a) for the
Swingline Loans, an amount equal to ___% per annum on the amount, calculated on
a daily basis, by which the Swingline Commitment exceeds the actual aggregate
outstanding principal balance of the Swingline Loans on each day (it being
understood that any portion of the outstanding principal balance of the
Swingline Loans ceases to be outstanding under the Swingline Loans and commences
being a portion of the outstanding principal balance under the Revolving Loans
on the date that the Revolving Loans are funded to repay such portion of the
outstanding principal balance of the Swingline Loans); and (b) for the Revolving
Loans, an amount equal to ___% per annum on the amount, calculated on a daily
basis, by which $265,000,000 exceeds the sum of the actual aggregate outstanding
principal balance of the Revolving Loans plus the LC Outstandings on each day.
The accrued Loan Fee shall be due and payable in arrears on the first Monthly
Payment Date in each fiscal quarter (and on the Expiration Date) for the three
month period or other time period ending on the last day of the preceding fiscal
quarter or on the Expiration Date. One hundred percent (100%) of the fee for the
Swingline Loans (as set forth in Section 2.6(a)) shall be paid by Agent to the
Swingline Lender. The fee for the Revolving Loans (as set forth in
Section 2.6(b)) shall be paid (i) to each Lender other than the Swingline Lender
based upon a percentage determined by dividing such Lender’s Revolving Loan
Commitment by $265,000,000 and (ii) to Swingline Lender based upon a percentage
determined by dividing (A) the product of Swingline Lender’s Revolving Loan
Commitment minus $35,000,000, by (B) $265,000,000.

1.5 Overadvance Fee. The following is hereby added to the Loan Agreement as
Section 2.7 thereof:

2.7 Overadvance Fee.

2.7.1 Borrower shall pay to Agent, for the account of the Lenders in accordance
with their Revolving Loan Pro Rata Shares, a fee (“Overadvance Fee”) in an
amount equal to ___% per annum on the amount, calculated on a daily basis, by
which the sum of the aggregate outstanding principal balance of the Revolving
Loans and the Swingline Loans, plus the LC Outstandings exceeds the Borrowing
Base. Any Overadvance Fee accrued for any calendar month shall be paid on the
next Monthly Payment Date.

2.7.2 The Borrowing Base used in calculating the Overadvance Fee for any month
shall be the Borrowing Base in effect as of the last day of the prior month, as
reflected in the Borrowing Base Certificate submitted for such prior month, or
if applicable, in an updated Borrowing Base Certificate (“Interim Borrowing Base
Certificate”) submitted by Borrower during the current month. Notwithstanding
the foregoing, Interim Borrowing

 

Page 3

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Base Certificates may be submitted by Borrower pursuant to this Section 2.7 no
more than once in any week or twice in any month and must be submitted and
prepared as of a date during the current month. Each Interim Borrowing Base
Certificate shall be effective upon receipt by Agent.

1.6 Maximum Swingline Loan Amount. Section 3.1.1 of the Loan Agreement is
deleted and replaced with the following:

3.1.1 Maximum Amount. Subject to the terms and conditions of this Agreement, the
Swingline Lender agrees to make loans (each, a “Swingline Loan” and
collectively, the Swingline Loans”) to Borrower on a revolving credit basis
during the period from the Closing Date to but not including the Expiration
Date; provided that (a) the aggregate outstanding principal balance of the
Swingline Loans shall not at any time exceed the Swingline Commitment; and
(b) the outstanding principal balance of all Revolving Loans made by all Lenders
plus the outstanding principal balance of all Swingline Loans, plus the LC
Outstandings, shall not at any time exceed the Maximum Amount or, if applicable,
the Reduced Maximum Amount.

1.7 Maximum Amount of LC Outstandings. Section 4.1.1 of the Loan Agreement is
deleted and replaced with the following:

4.1.1 Maximum Amount. Subject to and upon the terms and conditions of this
Agreement, Issuing Lender may from time to time during the period from the
Closing Date to the date which is 30 days prior to the Expiration issue one or
more standby letters of credit for the account of Borrower; provided that
(a) the LC Outstandings shall not exceed at any time the Letter of Credit
Commitment; and (b) the outstanding principal balance of all Revolving Loans
made by all Lenders, plus the outstanding principal balance of all Swingline
Loans, plus the LC Outstandings shall not at any time exceed the Maximum Amount
or, if applicable, the Reduced Maximum Amount.

1.8 Increase in Revolving Loan Commitments. The following is hereby added to the
Loan Agreement as Section 5.17 thereof:

5.17 Increase in Total Revolving Loan Commitment.

5.17.1 Request. Borrower may ask the Lenders to increase the Total Revolving
Loan Commitment by $50,000,000.00. To request an increase, Borrower shall
deliver notice thereof to the Agent in writing, in a form acceptable to Agent (a
“Commitment Increase Request”).

5.17.2 Pro Rata Increase. Agent will inform each of the Lenders of the
Commitment Increase Request and ask each Lender whether it is willing (a) to
agree to the increase in the Total Revolving Loan Commitment and (b) to increase
its Revolving Loan Commitment by an amount equal to its Revolving Loan Pro Rata
Share of the requested increase (for each Lender, its “Proportionate Amount”).
If each Lender agrees, in accordance with the notice from Agent, to such
increases in the Total Revolving Loan Commitment and its Revolving Loan
Commitment, the Total Revolving Loan

 

Page 4

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Commitment shall be increased to $350,000,000.00, and the Revolving Loan
Commitment of each Lender shall be increased accordingly.

5.17.3 Non-Pro Rata Increase. If each Lender agrees to increase the Total
Revolving Loan Commitment, but one or more of the Lenders declines to increase
its Revolving Loan Commitment by its Proportionate Amount, Agent shall, at
Borrower’s option, (a) notify the Lenders that the Total Revolving Loan
Commitment will be increased by an amount equal to the sum of the increases
agreed to by the consenting Lenders, or (b) ask any one or more of the existing
Lenders to increase or further increase its Revolving Loan Commitment by the
amount of all or a portion of the unaccepted portion of the requested increase.

5.17.4 New Lenders. If the total of the increases agreed to by the existing
Lenders pursuant to Section 5.17.2 and 5.17.3 is less than $50,000,000.00,
Borrower may ask another bank or financial institution to become a Lender with a
Revolving Loan Commitment in an amount equal to all or part of the shortfall
(but not less than $25,000,000.00 for any new Lender); provided, however, that
each existing Lender must consent to the addition of such new Lender.

5.17.5 Minimum Increase. Notwithstanding any contrary provision of Section 5.17,
any increase in the Total Revolving Loan Commitment pursuant to Section 5.17.3
or Section 5.17.4 shall be at least $25,000,000.00.

5.17.6 Discretionary Increase, Notwithstanding any contrary provision of this
Section 5.17, no Lender shall have any obligation to agree to an increase in the
Total Revolving Loan Commitment or in its Revolving Loan Commitment unless it,
in its sole discretion, agrees to do so.

5.17.7 Conditions Precedent. The effectiveness of any increase in the Revolving
Loan Commitment of any Lender shall be subject to satisfaction of such
conditions as Agent or any Lender reasonably requires, including without
limitation the following:

a. All Lenders have agreed to the increase in the Total Revolving Loan
Commitment and the addition of any new Lender and any Lender whose Revolving
Loan Commitment is being increased has agreed to the amount of the increase in
its Revolving Loan Commitment.

b. No. Default has occurred and is continuing or will exist after giving effect
to the increase.

c. Borrower has executed such new Notes as are required to reflect the increases
in the Revolving Loan Commitments of the Lenders, and each Loan Party has
executed such new documents and/or amendments to this Agreement and the other
Loan Documents and has provided such information and satisfied such requirements
as Agent or any Lender requires.

 

Page 5

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d. Each New Lender has executed a New Lender Agreement substantially in the form
attached hereto as Exhibit J and has provided such information and satisfied
such requirements as Agent requires.

e. All representations and warranties in this Agreement and the other Loan
Documents shall be true and correct in all material respects as of the effective
date of the increase.

1.9 Additional Limitations. The following is hereby added to the Loan Agreement
as Section 5.18 thereof:

5.18 Additional Limitations on Loans. In addition to the limitations in Sections
2.1.1, 3.1.1 and 4.1.1 of this Agreement, (a) the aggregate outstanding
principal balance of the Revolving Loans and the Swingline Loans, plus the LC
Outstandings shall not exceed the Borrowing Base (determined in accordance with
Section 2.7.1) for more than 180 consecutive days; and (b) if after giving
effect to the making of any Loan, the aggregate outstanding principal balance of
the Revolving Loans and the Swingline Loans, plus the LC Outstandings exceeds or
will exceed the Borrowing Base, Borrower may not use the proceeds of such Loan
to repurchase shares of its capital stock.

1.10 Current Ratio. Section 10.1.2 of the Loan Agreement is deleted and replaced
with the following:

10.1.2 Current Ratio. The Current Ratio for Borrower and its Subsidiaries on a
consolidated basis, shall not be less than 1.20 to 1.0 as of the last day of any
fiscal quarter.

As used herein,

“Current Assets” means the total assets of any Person that may properly be
classified as current assets in accordance with GAAP, but excluding all loans to
and notes and receivables from officers, employees, directors, owners and
affiliates of such Person; provided, however, that at the election of Borrower
given by written notice to Agent, delivered with any quarterly Compliance
Certificate (a “Current Assets Election”), Current Assets shall be deemed to
include the Current Assets Commitment Amount at any time while such Current
Assets Election is in effect.

“Current Liabilities” means the total liabilities of any Person that may
properly be classified as current liabilities in accordance with GAAP; provided
that at any time during which a Current Assets Election is in effect, if the
Expiration Date is within one year, Current Liabilities shall be deemed to
include the Current Assets Commitment Amount at such time; and provided further
that Current Liabilities shall not include any portion of the Senior
Subordinated Notes which is not then due and payable.

“Current Ratio” means, for any Person at any time, the ratio at such time of
such Person’s Current Assets to such Person’s Current Liabilities.

1.11 Amendments and Waivers. The following is hereby added to the end of 16.9 of
the Loan Agreement:

 

Page 6

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Notwithstanding any contrary provisions of this Section 16.9 (but subject to the
requirement that all Lenders must approve any increase in the Total Revolving
Loan Commitment), increases in the Revolving Loan Commitment of any one or more
of the Lenders made pursuant to Section 5.17, shall not require the consent of
Required Lenders or all Lenders, but may be made with the written consent of
only Borrower, Agent and the Lenders whose Revolving Loan Commitments are being
increased.

2. Schedule 1. Schedule 1 to the Loan Agreement is deleted and replaced with the
Schedule 1 attached hereto.

3. New Lender. The parties have agreed to admit DCFS USA LLC (“DCFS USA”) as a
Lender with a Revolving Loan Commitment of $75,000,000.00. Upon (a) execution
and delivery by DCFS USA to Agent of a New Lender Agreement in the form attached
as Exhibit J hereto (appropriately completed and accepted by Agent and
Borrower), and satisfaction by DCFS USA of such other requirements as Agent
requires; and (b) execution and delivery by Borrower of a Revolving Note payable
to its order, DCFS USA shall become a party hereto with the rights and
obligations of a Lender hereunder.

4. Conditions Precedent. The effectiveness of this Agreement is subject to
satisfaction of each of the following conditions:

(a) Agent has received executed originals of this Agreement and such other Loan
Documents as Agent requires and Borrower and each Guarantor has provided such
information and satisfied such requirements as Agent reasonably requires.

(b) All conditions in Section 3 hereof have been satisfied.

(c) No Default has occurred and is continuing.

(d) All representations and warranties in the Loan Agreement are true and
correct as of the date of this Agreement.

5. Defined Terms. Capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Loan Agreement.

6. Reaffirmation. By signing this Agreement or the attached Acknowledgment,
Borrower and each Guarantor reaffirm the representations and warranties in each
of the existing Loan Documents and agree that (a) except as amended previously
or in connection herewith, each Loan Document is and shall remain valid and
enforceable in accordance with its terms and (b) such Borrower or Guarantor has
no claims, defenses, setoffs, counterclaims or claims for recoupment against
Agent, the Lenders, or the indebtedness and obligations represented by the
Notes, Guaranties, Security Documents and other Loan Documents. Without limiting
the foregoing, (a) Borrower and each Collateral Subsidiary agree that the
Secured Obligations (as defined in the Commercial Security Agreement and
Commercial Pledge and Security Agreement, each executed by Borrower and
Collateral Subsidiaries and dated August 31, 2006) which are secured by the
Collateral include the Obligations of Borrower and Guarantors to Bank as
increased by this Agreement; and (b) each Guarantor agrees that the Obligations
(as defined in the Commercial Guaranty executed by Guarantors dated August 31,
2006) which are guaranteed by the Guarantors include the Obligations as
increased by this Agreement.

 

Page 7

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7. References. On and after the effective date of this Agreement, all references
in the Loan Agreement and the other Loan Documents to the Loan Agreement shall
be deemed to refer to the Loan Agreement as amended hereby.

8. Authorization. Each Loan Party represents and warrants to Agent and the
Lenders that its execution, delivery and performance of this Agreement and the
other Loan Documents and all documents to be executed, delivered or performed by
it have been duly authorized by all necessary entity action, do not require the
approval of any governmental agency or other Person, do not contravene any law,
regulation, rule, order, or restriction binding on it or its articles of
incorporation or other organizational documents, and do not contravene the
provisions of or constitute a default under any agreement or instrument to which
it is a party or by which it may be bound or affected.

9. Expenses. Borrower shall pay all costs, fees and expenses incurred by Agent
in connection with the preparation, negotiation, execution, and delivery of this
Agreement and any other document required to be furnished herewith, including
without limitation the charges of Agent’s legal counsel.

10. Recitals. The Recitals are hereby incorporated herein.

11. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of said counterparts
taken together shall be deemed to constitute but one document.

[Signature page follows]

 

Page 8

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LITHIA MOTORS, INC.    

U.S. BANK NATIONAL ASSOCIATION, as

Agent, Lender, Swingline Lender, and Issuing

Lender

By:   /s/ Jeffrey B. DeBoer     By:   /s/ Silvia K. Boulger Name:   Jeffrey B.
DeBoer     Name:   Silvia K. Boulger Title:   SVP & CFO     Title:   Vice
President

 

DAIMLERCHRYSLER FINANCIAL

SERVICES AMERICAS LLC, as Lender

   

TOYOTA MOTOR CREDIT

CORPORATION, as Lender

By:   /s/ Judy C. Johnson     By:   /s/ Mark Doi Name:   Judy C. Johnson    
Name:   Mark Doi Title:   Credit Director, National Accounts     Title:  
National Dealer, Credit Manager

 

DCFS USA LLC, as Lender By:   /s/ Michele Nowak Name:   Michele Nowak Title:  
Credit Director, National Accounts

 

Page 9

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ACKNOWLEDGMENT AND CONSENT OF GUARANTORS

Each Guarantor hereby acknowledges, consents, and agrees to all terms and
conditions of the foregoing amendment.

Hutchins Eugene Nissan, Inc.

Hutchins Imported Motors, Inc.

LAD Advertising, Inc.

LGPAC, Inc.

Lithia Auto Services, Inc.

Lithia BNM, Inc.

Lithia DE, Inc.

Lithia DM, Inc.

Lithia Financial Corporation

Lithia Aircraft, Inc.

Lithia HPI, Inc.

Lithia Klamath, Inc.

L2 Auto, Inc., fka Lithia LAC, Inc.

Lithia Medford Hon, Inc.

Lithia Medford LM, Inc.

Lithia Motors Support Services, Inc.

Lithia MTLM, Inc.

Lithia of Roseburg, Inc.

Lithia Real Estate, Inc.

Lithia Rentals, Inc.

Lithia Rose-FT, Inc.

Lithia SOC, Inc.

Lithia TKF, Inc.

Saturn of Southwest Oregon, Inc.

Lithia Chrysler Jeep of Anchorage, Inc.

Lithia Imports of Anchorage, Inc.

Lithia NA, Inc.

Lithia of Anchorage, Inc.

Lithia of Fairbanks, Inc.

Lithia of South Central AK, Inc.

Lithia CIMR, Inc.

Lithia CJDB, Inc.

Lithia CS, Inc.

Lithia DC, Inc.

Lithia FMF, Inc.

Lithia JEF, Inc.

Lithia MMF, Inc.

Lithia NF, Inc.

Lithia of California, Inc.

Lithia of Clovis, Inc.

Lithia of Eureka, Inc.

 

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Lithia of Fairfield, Inc.

Lithia CA Acquisition Corp 1, Inc.

Lithia Seaside, Inc.

Lithia Sea P, Inc.

Lithia of Santa Rosa, Inc.

Lithia TKV, Inc.

Lithia TR, Inc.

Lithia Centennial Chrysler Plymouth Jeep, Inc.

Lithia Cherry Creek Dodge, Inc.

Lithia Colorado Jeep, Inc.

Lithia Colorado Springs Jeep Chrysler Plymouth, Inc.

Lithia Foothills Chrysler, Inc.

Lithia of Thornton, Inc.

Lithia CB, Inc.

Lithia CCTF, Inc.

Lithia DB, Inc.

Lithia Ford of Boise, Inc.

Lithia IB, Inc.

Lithia LMB, Inc.

Lithia of Caldwell, Inc.

Lithia of Pocatello, Inc.

Lithia Poca-Hon, Inc.

Lithia of TF, Inc.

Lithia MBDM, Inc.

Lithia of Des Moines, Inc.

Lithia LRDM, Inc.

Lithia CDH, Inc.

Lithia HGF, Inc.

Lithia of Billings, Inc.

Lithia of Butte, Inc.

Lithia of Great Falls, Inc.

Lithia of Helena, Inc.

Lithia of Missoula, Inc.

Lithia CJD of Omaha, Inc.

Lithia MBO, Inc.

Lithia of Omaha, Inc.

Lithia CJDSF, Inc.

Lithia of Santa Fe, Inc.

Lithia of Reno, Inc.

Lithia Reno Sub-Hyun, Inc.

Lithia SALMIR, Inc.

Lithia ND Acquisition Corp. #1

Lithia ND Acquisition Corp. #2

Lithia ND Acquisition Corp. #3

Lithia ND Acquisition Corp. #4

Lithia Automotive, Inc.

Lithia of Sioux Falls, Inc.

 

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Camp Automotive, Inc.

Lithia BC, Inc.

Lithia DC of Renton, Inc.

Lithia Dodge of Tri-Cities, Inc.

Lithia FTC, Inc.

Lithia HyR, Inc.

Lithia IC, Inc.

Lithia of Seattle, Inc.

Lithia of Spokane, Inc.

Lithia of Wenatchee, Inc.

TC Hon, Inc.

Lithia of La Crosse, Inc.

L2 Real Estate, Inc.

Lithia of Cedar Rapids #1, Inc.

Lithia of Cedar Rapids #2, Inc.

Lithia of Cedar Rapids #3, Inc.

Lithia AcDM, Inc.

Lithia HDM, Inc.

Lithia IDM, Inc.

Lithia NDM, Inc.

Lithia VAuDM, Inc.

Lithia Bryan Texas, Inc.

Lithia CJDO, Inc.

Lithia CJDSA, Inc.

Lithia CM, Inc.

Lithia CO, Inc.

Lithia CSA, Inc.

Lithia DMID, Inc.

Lithia HMID, Inc.

Lithia NSA, Inc.

Lithia of Abilene, Inc.

Lithia of Corpus Christi, Inc.

Lithia of Midland, Inc.

Lithia TA, Inc.

Lithia TO, Inc.

L2 Auto of Iowa, Inc.

Lithia VaUB, Inc.

Lithia AcNY, Inc.

Lithia BNY, Inc.

Lithia HNY, Inc.

Lithia MBNY, Inc.

 

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Lithia of Rochester, Inc. NorCal Acquisitions, Inc. CMJ Investment Properties,
Inc. By:   /s/ J. DeBoer Name:   J. DeBoer Title:   Authorized Agent

 

SOE, LLC Lynnwood Properties, LLC Lithia LP of Texas, LLC Lithia GP of Texas,
LLC PRE Properties, LLC BBD Investment Properties, LLC By:   /s/ J. DeBoer Name:
  J. DeBoer Title:   Authorized Agent

 

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SCHEDULE 1

 

Name of Financial Institution

   Pro Rata Share of Revolving
Loans     Revolving Loan
Commitment

U.S. Bank National Association

   25.0 %   $ 75,000,000.00

DaimlerChrysler Financial Services Americas LLC

   25.0 %   $ 75,000,000.00

Toyota Motor Credit Corporation

   25.0 %   $ 75,000,000.00

DCFS USA LLC

   25.0 %   $ 75,000,000.00

TOTAL

   100 %   $ 300,000,000.00

 

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EXHIBIT J

NEW LENDER AGREEMENT

Reference is made to the Loan Agreement dated as of August 31, 2006 as amended
from time to time, “Loan Agreement”), among Lithia Motors, Inc., an Oregon
corporation, the Lenders party thereto and U.S. Bank National Association, as
Agent for the Lenders (in such capacity, “Agent”). Unless otherwise defined
herein, terms defined in the Loan Agreement are used herein with the same
meanings.

_______________________ (the “New Lender”) agrees as follows:

1. The New Lender (a) represents and warrants that it is legally authorized to
enter into this Agreement; (b) confirms that it has received a copy of the Loan
Agreement and Loan Documents and all amendments thereto, together with copies of
the most recent financial statements delivered pursuant thereto, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this New Lender Agreement (“Agreement”);
(c) agrees that it will, independently and without reliance upon the Agent or
any other Lender 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 the Loan Agreement; (d) appoints and authorizes the
Agent to take such actions on its behalf and to exercise such powers under the
Loan Documents as are delegated to the Agent by the terms thereof, together with
such powers as are reasonably incidental thereto; (e) agrees that it will become
a party to the Loan Agreement as of the Effective Date and perform in accordance
with their terms all of the obligations which by the terms of the Loan Agreement
are required to be performed by a Lender; and (f) specifies as its address for
notices the address set forth beneath its name on the signature pages hereof.

2. The effective date for this Agreement shall be ____________________ (the
“Effective Date”). As of the Effective Date, the New Lender’s Revolving Loan
Commitment is $___________ and its Pro Rata Share of the Revolving Loans is
_________%. Following the execution of this Agreement, it will be delivered to
the Agent, for acceptance and recording by the Agent.

3. Upon such acceptance and recording as of the Effective Date, the New Lender
shall be a party to the Loan Agreement and shall have the rights and obligations
of a Lender thereunder and under the Loan Documents.

4. This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
agreement.

 

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5. This New Lender Agreement shall be governed by and construed in accordance
with the laws of the State of Oregon.

 

[NEW LENDER] By:     Name:     Title:    

 

ACCEPTED AND AGREED TO:

 

U.S. Bank National Association, as Agent By:     Title:     Date:    

 

LITHIA MOTORS, INC. By:     Title:     Date:    

 

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THIRD AMENDMENT TO LOAN AGREEMENT

This Third Amendment to Loan Agreement (this “Agreement”) dated as of March
_____, 2008, is entered into among Lithia Motors, Inc., an Oregon corporation
(“Borrower”); the lenders which are from time to time parties to the Loan
Agreement (each a “Lender” and any two or more “Lenders”); and U.S. Bank
National Association, as agent for the Lenders (in such capacity, “Agent”).

R E C I T A L S

A. Borrower, the Lenders and Agent have entered into a Loan Agreement dated as
of August 31, 2006, which has been amended by amendments dated as of June 29,
2007 and February 13, 2008 (collectively, the “Loan Agreement”).

B. The parties wish to modify the terms and conditions of the Loan Agreement, as
set forth below.

For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

ARTICLE 17. Amendments to Loan Agreement.

17.1 Changed Definitions. The following defined terms in Section 1.1 of the Loan
Agreement are deleted and replaced with the following:

“Current Assets Commitment Amount” means, with respect to any Current Assets
Election, the lesser of (a) the Maximum Amount, minus the sum of the then
outstanding principal balance of the Revolving Loans, Swingline Loans, and LC
Outstandings; or (b) the Specified Current Assets Commitment Amount.

“Maximum Amount” means, as of any date of determination, the lesser of (a) the
Total Revolving Loan Commitment; and (b) the Borrowing Base at such time.

17.2 Deleted Definition. The defined term “Total Borrowing Base Assets” is
hereby deleted from Section 1.1 of the Loan Agreement.

17.3 Maximum Revolving Loan Amount. Section 2.1.1 of the Loan Agreement is
deleted and replaced with the following:

2.1.1 Maximum Amount. Subject to the terms and conditions of this Agreement,
each Lender severally and not jointly agrees to make loans (each a “Revolving
Loan” and collectively, the “Revolving Loans”) to Borrower on a revolving credit
basis during the period from the Closing Date to but not including the
Expiration Date; provided that (a) the aggregate outstanding principal balance
of the Revolving Loans made by each Lender, plus the outstanding principal
balance of such Lender’s participating interest in the Swingline Loans and
Letters of Credit shall not at any time exceed an amount equal to such Lender’s
Revolving Loan Commitment; (b) the outstanding

 

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principal balance of all Revolving Loans shall not at any time exceed, in the
aggregate, as to all Lenders, the Maximum Amount, and (c) the outstanding
principal balance of all Revolving Loans, plus the outstanding principal balance
of all Swingline Loans, plus the LC Outstandings shall not at any time exceed,
in the aggregate, as to all Lenders, the Maximum Amount.

17.4 Deletion of Overadvance Fee. Section 2.7 of the Loan Agreement is hereby
deleted.

17.5 Maximum Swingline Loan Amount. Section 3.1.1 of the Loan Agreement is
deleted and replaced with the following:

3.1.1 Maximum Amount. Subject to the terms and conditions of this Agreement, the
Swingline Lender agrees to make loans (each, a “Swingline Loan” and
collectively, the Swingline Loans”) to Borrower on a revolving credit basis
during the period from the Closing Date to but not including the Expiration
Date; provided that (a) the aggregate outstanding principal balance of the
Swingline Loans shall not at any time exceed the Swingline Commitment; and
(b) the outstanding principal balance of all Revolving Loans made by all Lenders
plus the outstanding principal balance of all Swingline Loans, plus the LC
Outstandings, shall not at any time exceed the Maximum Amount.

17.6 Maximum Amount of LC Outstandings. Section 4.1.1 of the Loan Agreement is
deleted and replaced with the following:

4.1.1 Maximum Amount. Subject to and upon the terms and conditions of this
Agreement, Issuing Lender may from time to time during the period from the
Closing Date to the date which is 30 days prior to the Expiration Date issue one
or more standby letters of credit for the account of Borrower; provided that
(a) the LC Outstandings shall not exceed at any time the Letter of Credit
Commitment; and (b) the outstanding principal balance of all Revolving Loans
made by all Lenders, plus the outstanding principal balance of all Swingline
Loans, plus the LC Outstandings shall not at any time exceed the Maximum Amount.

17.7 Interest Rate. Section 5.1.1 of the Loan Agreement is deleted and replaced
with the following:

5.1.1 Interest Rate. Unless the Default Rate is applicable, (a) the Revolving
Loans shall bear interest at a variable per annum rate equal to the LIBOR Rate
plus the Revolving Loan Margin (“Revolving Loan Borrowing Rate”); and (b) the
Swingline Loans shall bear interest at a variable per annum rate equal to the
LIBOR Rate plus the Swingline Margin (“Swingline Borrowing Rate”), in each case
adjusted without notice on the date of each change in the LIBOR Rate.

As used herein,

“Revolving Loan Margin” means (a) ___% prior to May 1, 2008 and on and after
May 1, 2009, and (b) at other times, the percentage per annum rate set forth
below for the applicable date under the heading “Revolving Loan Margin”

 

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opposite the applicable Fixed Charge Coverage Ratio (“FCCR”) and Cash Flow
Leverage Ratio (“CFLR”)

“Swingline Margin” means (a) ___ % prior to May 1, 2008 and on and after May 1,
2009, and (b), at other times, the percentage per annum rate set forth below for
the applicable date under the heading “Swingline Margin” opposite the applicable
FCCR and CFLR.

 

FIXED CHARGE COVERAGE RATIO (“FCCR”)

AND CASH FLOW LEVERAGE RATIO (“CFLR”)

   SWINGLINE
MARGIN**     REVOLVING
LOAN
MARGIN**        5/1/08
through
10/31/08     11/1/08
through
4/30/09     5/1/08
through
10/31/08     11/1/08
through
4/30/09  

FCCR is equal to or greater than 1.20 and CFLR is equal to or less than 3.0

   ___ %   ___ %   ___ %   ___ %

FCCR is less than 1.20, but equal to or greater than 1.10 and CFLR is equal to
or less than 3.0

   ___ %   ___ %   ___ %   ___ %

FCCR is equal to or greater than 1.20 and CFLR is greater than 3.0

   ___ %   ___ %*   ___ %   ___ %*

FCCR is less than 1.20, but equal to or greater than 1.10 and CFLR is greater
than 3.0

   ___ %   ___ %*   ___ %   ___ %*

FCCR is less than 1.10 and CFLR is equal to or less than 3.0

   ___ %   ___ %   ___ %   ___ %

FCCR is less than 1.10 and CFLR is greater than 3.0

   ___ %   ___ %*   ___ %   ___ %*

 

* If the CFLR is greater than 3.0, an Event of Default will exist and Required
Lenders may impose the Default Rate.

 

** If an Event of Default exists at any time because Borrower is not in
compliance with the required FCCR and/or CFLR requirement, Required Lenders may
impose the Default Rate.

 

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The Revolving Loan Margin and Swingline Margin (the “Interest Rate Margins”)
shall be automatically adjusted, effective as of the first day of the second
month of each fiscal quarter, beginning May 1, 2008 (each, an “Adjustment Date”)
based upon the FCCR and CFLR as of the last day of the preceding fiscal quarter
(beginning with the fiscal quarter ending March 31, 2008); provided, however,
that if a Compliance Certificate is not timely provided to Agent, the Interest
Rate Margins shall increase, effective as of each Adjustment Date, to the
highest Interest Rate Margins set forth above for such date.

Nothing set forth in this Section 5.1.1 (including the establishment of Interest
Rate Margins for Fixed Charge Coverage Ratios and Cash Flow Leverage Ratios
which are not in compliance with the ratios required by the Loan Agreement)
shall limit the right of Required Lenders to impose the Default Rate upon the
occurrence and during the continuance of an Event of Default.

17.8 Deletion of Additional Limitations. Section 5.18 of the Loan Agreement is
hereby deleted.

17.9 Financial Covenants. Sections 10.1.3 and 10.1.4 of the Loan Agreement are
deleted and replaced with the following:

10.1.3 Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio for Borrower
and its Subsidiaries, on a consolidated basis, as of the last day of any fiscal
quarter, for the period of four consecutive fiscal quarters ending on such date,
shall not be less than (a) 1.20 to 1.0 as of the last day of each fiscal quarter
ending on or before December 31, 2007 or after December 31, 2008, and (b) 1.0 to
1.0 as of the last day of the fiscal quarters ending on
March 31, June 30, September 30 and December 31, 2008.

As used herein,

“EBITDAR” means, for any Person, for any time period, (a) such Person’s net
income (or loss) for such time period (excluding extraordinary gains or losses
and Excluded Items, but including net income or loss from discontinued
operations); (b) plus, without duplication, the amounts which in determining net
income or loss have been deducted for (i) interest expense, (ii) income tax
expense, (iii) depreciation, amortization, goodwill impairment charges and other
non-cash charges (less non-cash gains) and (iv) rental or lease expense.

“Excluded Items” means gain or loss from (a) the sale of real estate, or (b) the
sale of all or substantially all of the Equity Interests or assets of (i) a
Dealership or other Subsidiary, (ii) a Dealership location, or (iii) any
business unit or franchise of a Dealership or other Subsidiary or a Dealership
location

“Fixed Charge Coverage Ratio” means, as of the last day of any fiscal quarter,
the ratio for the period of four consecutive fiscal quarters ending on such date
of (a) (i) EBITDAR, (ii) minus dividends and other distributions in respect of
Equity Interests, (iii) minus income tax expense to the extent paid in cash,
(iv)

 

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minus an allowance for maintenance capital expenditures in an amount equal to
$110,000 for each Dealership location for such four consecutive fiscal quarters;
(v) plus, if a Permitted Acquisition has occurred during such time period,
EBITDA attributable to any new Acquisition Subsidiary or business acquired on a
pro forma basis, calculated as if such Permitted Acquisition had occurred on the
first day of such time period (it being understood and agreed that pro forma
EBITDA may not be included in this calculation to the extent that it results in
an annualized increase of more than 10% in Borrower’s consolidated EBITDA prior
to such adjustment, unless the Borrower provides to the Agent and the Required
Lenders the supporting calculations for such adjustment and such other
information as they may reasonably request to determine the accuracy of such
calculations); to (b) the sum of (i) cash interest, plus (ii) required principal
payments on Debt, plus (iii) rental or lease expense, for such four consecutive
fiscal quarters.

10.1.4 Cash Flow Leverage Ratio. The Cash Flow Leverage Ratio for Borrower and
its Subsidiaries, on a consolidated basis, as of the last day of any fiscal
quarter for the period of four consecutive fiscal quarters ending on such date,
shall not be more than (a) 3.00 to 1.0 as of the last day of each fiscal quarter
ending on or before December 31, 2007 or after June 30, 2008, and (b) 3.25 to
1.0 as of the last day of the fiscal quarters ending on March 31 and June 30,
2008.

As used herein:

“Adjusted Funded Debt” means (a) all Funded Debt excluding (i) Subordinated
Debt, (ii) Debt consisting of Floor Plan Financing, and (iii) Funded Debt of LRE
which is secured primarily by real estate owned by LRE (“Real Estate Debt”),
plus (b) at any time during which a Current Assets Election is in effect, the
Current Assets Commitment Amount.

“Cash Flow Leverage Ratio” means, for any Person, as of any date of
determination, the ratio of (a) the principal balance of Adjusted Funded Debt as
of such date to (b) EBITDA for the period of four consecutive fiscal quarters
ending on such date, minus interest expense for Floor Plan Financing and Real
Estate Debt for such period, minus required principal payments on Real Estate
Debt for such time period.

“EBITDA” means, for any Person, for any time period, (a) such Person’s net
income (or loss) for such time period (excluding extraordinary gains or losses
and Excluded Items (as defined in Section 10.1.3), but including net income or
loss from discontinued operations); (b) plus, without duplication, the amounts
which in determining net income or loss have been deducted for (i) interest
expense, (ii) income tax expense, and (iii) depreciation, amortization, goodwill
impairment charges and other non-cash charges (less non-cash gains); provided,
however, that if a Permitted Acquisition has occurred during any time period,
EBITDA may include EBITDA attributable to any new Acquisition Subsidiary or
business acquired on a pro forma basis, calculated as if such Permitted
Acquisition had occurred on the first day of such time period (it being
understood and agreed that any pro forma adjustment of EBITDA may not be
included in this calculation to the extent that it results in an annualized
increase of more than 10%

 

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in Borrower’s consolidated EBITDA prior to such adjustment, unless the Borrower
provides to the Agent and the Required Lenders the supporting calculations for
such adjustment and such other information as they may reasonably request to
determine the accuracy of such calculations).

17.10 Senior Subordinated Notes. The following is hereby added to the Loan
Agreement as Section 11.16 thereof:

Senior Subordinated Notes. On or before May 15, 2008, Borrower shall submit to
Agent a plan (the “Plan”) for the repayment, refinancing or extension of the
call period of the Senior Subordinated Notes. Such Plan must be reasonably
acceptable to the Lenders and shall include such information and details and be
accompanied by such supporting documentation as any Lender may reasonably
require. The Plan must demonstrate that Borrower (a) will have funds available
from and after January 1, 2009 (the “Implementation Date”) to fully repay,
refinance or extend the call period of the Senior Subordinated Notes on or
before May 6, 2009, and (b) will fully repay, refinance or extend the call
period of the Senior Subordinated Notes on or before May 6, 2009. The Lenders
may, in their sole discretion, agree to extend the Implementation Date. Without
limiting the foregoing, the Plan must include a reasonably detailed description
of the material terms of the proposed repayment, refinancing or extension and a
schedule for its implementation and shall describe all material steps to be
taken to accomplish the repayment, refinancing or extension and the dates upon
which each such step will be completed. The Plan must also include information
establishing that execution of the Plan will not constitute a Default and that
no Default will exist prior to or after giving effect to the implementation of
the Plan. Borrower shall comply with all terms of the Plan and any failure of
Borrower to comply with the terms of the Plan in a timely manner shall
constitute a violation of this Agreement

ARTICLE 18. Exhibit D. The Exhibit D attached to the Loan Agreement is hereby
amended and replaced by the Exhibit D attached hereto.

ARTICLE 19. Conditions Precedent. The effectiveness of this Agreement is subject
to satisfaction of each of the following conditions:

19.1.1 Agent has received executed originals of this Agreement and such other
Loan Documents as Agent requires and Borrower and each Guarantor has provided
such information and satisfied such requirements as Agent reasonably requires.

19.1.2 No Default has occurred and is continuing.

19.1.3 All representations and warranties in the Loan Agreement and in this
Agreement are true and correct as of the date of this Agreement.

19.1.4 Borrower has paid to Agent, for the account of the Lenders in accordance
with their Pro Rata Shares of the Revolving Loan Commitments, an amendment fee
in the amount of $60,000.00.

 

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ARTICLE 20. Defined Terms. Capitalized terms not otherwise defined herein shall
have the meanings given to such terms in the Loan Agreement.

ARTICLE 21. Reaffirmation. By signing this Agreement or the attached
Acknowledgment, Borrower and each Guarantor affirm that the representations and
warranties in each of the existing Loan Documents are and will be true, correct
and complete as of the date hereof, and agree that (a) except as amended
previously or in connection herewith, each Loan Document is and shall remain
valid and enforceable in accordance with its terms and (b) such Borrower or
Guarantor has no claims, defenses, setoffs, counterclaims or claims for
recoupment against Agent, the Lenders, or the indebtedness and obligations
represented by the Notes, Guaranties, Security Documents and other Loan
Documents.

ARTICLE 22. References. On and after the effective date of this Agreement, all
references in the Loan Agreement and the other Loan Documents to the Loan
Agreement shall be deemed to refer to the Loan Agreement as amended hereby.

ARTICLE 23. Representations and Warranties. Each Loan Party represents and
warrants to Agent and the Lenders as follows:

23.1 Authorization. (a) It has all requisite power and authority to enter into
this Agreement and to carry out the transactions contemplated by, and perform
its obligations under, the Loan Agreement as amended by this Agreement (the
“Amended Agreement”), (b) its execution, delivery and performance of this
Agreement and the other Loan Documents and all documents to be executed,
delivered or performed by it have been duly authorized by all necessary entity
action, do not require the approval of any governmental agency or other Person,
do not contravene any law, regulation, rule, order, or restriction binding on it
or its articles of incorporation or other organizational documents, and do not
contravene the provisions of or constitute a default under any agreement or
instrument to which it is a party or by which it may be bound or affected, and
(c) this Agreement has been duly executed and delivered by each Loan Party and
this Agreement and the Amended Agreement are the legally valid and binding
obligations of each Loan party, enforceable against such Loan Party in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors’ rights generally or by equitable principles relating to
enforceability.

23.2 Absence of Default. No event has occurred and is continuing or will result
from the consummation of the transactions contemplated by this Agreement that
would constitute a Default or Event of Default.

23.3 Financial Statements. Subject only to execution of this Agreement by the
parties hereto, its auditors will issue an unqualified audit report with respect
to the Form 10(k) for Borrower and its Subsidiaries for the fiscal year ending
December 31, 2007.

ARTICLE 24. Expenses. Borrower shall pay all outside and/or third party costs,
fees and expenses (including without limitation, attorney fees) incurred by
Agent and each

 

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Lender in connection with the preparation, negotiation, execution, and delivery
of this Agreement and any other document required to be furnished herewith.

ARTICLE 25. Recitals. The Recitals are hereby incorporated herein.

ARTICLE 26. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of said
counterparts taken together shall be deemed to constitute but one document.

[Signature page follows]

 

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LITHIA MOTORS, INC.    

U.S. BANK NATIONAL ASSOCIATION, as

Agent, Lender, Swingline Lender, and Issuing

Lender

By:   /s/ Jeff DeBoer     By:   /s/ Silvia K. Boulger Name:    Jeff DeBoer    
Name:    Silvia K. Boulger Title:   SVP and CFO     Title:   Vice President

DAIMLERCHRYSLER FINANCIAL SERVICES
AMERICAS LLC, as Lender

   

TOYOTA MOTOR CREDIT

CORPORATION, as Lender

By:   /s/ Anne M. Kline     By:   /s/ Mark Doi Name:    Anne M. Kline     Name: 
  Mark Doi Title:   Senior Manager, National Accounts     Title:   National
Dealer Credit Manager

 

DCFS USA LLC, as Lender

By:   /s/ Michele Nowak Name:    Michele Nowak Title:   Credit Director,
National Accounts

 

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ACKNOWLEDGMENT AND CONSENT OF GUARANTORS

Each Guarantor hereby acknowledges, consents, and agrees to all terms and
conditions of the foregoing amendment.

Hutchins Eugene Nissan, Inc.

Hutchins Imported Motors, Inc.

LAD Advertising, Inc.

LGPAC, Inc.

Lithia Auto Services, Inc.

Lithia BNM, Inc.

Lithia DE, Inc.

Lithia DM, Inc.

Lithia Financial Corporation

Lithia Aircraft, Inc.

Lithia HPI, Inc.

Lithia Klamath, Inc.

L2 Auto, Inc.

Lithia Medford Hon, Inc.

Lithia Medford LM, Inc.

Lithia Motors Support Services, Inc.

Lithia MTLM, Inc.

Lithia of Roseburg, Inc.

Lithia Real Estate, Inc.

Lithia Rentals, Inc.

Lithia Rose-FT, Inc.

Lithia SOC, Inc.

Lithia TKF, Inc.

Saturn of Southwest Oregon, Inc.

Lithia Chrysler Jeep of Anchorage, Inc.

Lithia Imports of Anchorage, Inc.

Lithia NA, Inc.

Lithia of Anchorage, Inc.

Lithia of Fairbanks, Inc.

Lithia of South Central AK, Inc.

Lithia CIMR, Inc.

Lithia CJDB, Inc.

Lithia DC, Inc.

Lithia FMF, Inc.

Lithia JEF, Inc.

Lithia MMF, Inc.

Lithia NF, Inc.

Lithia of California, Inc.

Lithia of Clovis, Inc.

Lithia of Eureka, Inc.

Lithia of Fairfield, Inc.

 

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Lithia CA Acquisition Corp 1, Inc.

Lithia Seaside, Inc.

Lithia Sea P, Inc.

Lithia of Santa Rosa, Inc.

Lithia TKV, Inc.

Lithia TR, Inc.

Lithia Centennial Chrysler Plymouth Jeep, Inc.

Lithia Cherry Creek Dodge, Inc.

Lithia Colorado Jeep, Inc.

Lithia Colorado Springs Jeep Chrysler Plymouth, Inc.

Lithia Foothills Chrysler, Inc.

Lithia of Thornton, Inc.

Lithia CB, Inc.

Lithia CCTF, Inc.

Lithia DB, Inc.

Lithia Ford of Boise, Inc.

Lithia of Caldwell, Inc.

Lithia of Pocatello, Inc.

Lithia Poca-Hon, Inc.

Lithia of TF, Inc.

Lithia MBDM, Inc.

Lithia of Des Moines, Inc.

Lithia CDH, Inc.

Lithia HGF, Inc.

Lithia of Billings, Inc.

Lithia of Butte, Inc.

Lithia of Great Falls, Inc.

Lithia of Helena, Inc.

Lithia of Missoula, Inc.

Lithia CJD of Omaha, Inc.

Lithia MBO, Inc.

Lithia of Omaha, Inc.

Lithia CJDSF, Inc.

Lithia of Santa Fe, Inc.

Lithia Reno Sub-Hyun, Inc.

Lithia SALMIR, Inc.

Lithia ND Acquisition Corp. #1

Lithia ND Acquisition Corp. #2

Lithia ND Acquisition Corp. #3

Lithia ND Acquisition Corp. #4

Lithia Automotive, Inc.

Lithia of Sioux Falls, Inc.

Camp Automotive, Inc.

Lithia BC, Inc.

Lithia DC of Renton, Inc.

Lithia Dodge of Tri-Cities, Inc.

 

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Lithia FTC, Inc.

Lithia HyR, Inc.

Lithia IC, Inc.

Lithia of Seattle, Inc.

Lithia of Spokane, Inc.

Lithia of Wenatchee, Inc.

TC Hon, Inc.

Lithia of La Crosse, Inc.

L2 Real Estate, Inc.

Lithia of Cedar Rapids #1, Inc.

Lithia of Cedar Rapids #2, Inc.

Lithia of Cedar Rapids #3, Inc.

Lithia AcDM, Inc.

Lithia HDM, Inc.

Lithia IDM, Inc.

Lithia NDM, Inc.

Lithia VAuDM, Inc.

Lithia Bryan Texas, Inc.

Lithia CJDO, Inc.

Lithia CJDSA, Inc.

Lithia CM, Inc.

Lithia CO, Inc.

Lithia CSA, Inc.

Lithia DMID, Inc.

Lithia HMID, Inc.

Lithia NSA, Inc.

Lithia of Abilene, Inc.

Lithia of Corpus Christi, Inc.

Lithia of Midland, Inc.

Lithia TA, Inc.

Lithia TO, Inc.

L2 Auto of Iowa, Inc.

Lithia VaUB, Inc.

 

Page 12

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Lithia AcNY, Inc.

Lithia BNY, Inc.

Lithia HNY, Inc.

Lithia MBNY, Inc.

Lithia of Rochester, Inc.

NorCal Acquisitions, Inc.

CMJ Investment Properties, Inc.

Lithia of Minnesota, Inc.

L2 Auto of California, Inc.

L2 Auto of Colorado, Inc.

L2 Auto of Texas, Inc.

WY-RE Acquisitions, LLC

 

By:   /s/ Jeff DeBoer Name:   Jeff DeBoer Title:   Authorized Agent

 

SOE, LLC

Lynnwood Properties, LLC

Lithia GP of Texas, LLC

PRE Properties, LLC

BBD Investment Properties, LLC

By:   /s/ Jeff DeBoer Name:   Jeff DeBoer Title:   Authorized Agent

 

Page 13

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EXHIBIT D

COMPLIANCE CERTIFICATE

This Compliance Certificate is executed and delivered by Lithia Motors, Inc.
(“Borrower”) to U.S. Bank National Association, as Agent (in such capacity,
“Agent”) pursuant to the requirements of the Loan Agreement dated as of
_______________________ between Borrower, the Lenders which are from time to
time parties thereto, and Agent (“Loan Agreement”). Any capitalized terms used
herein and not defined herein shall have the meanings given to such terms in the
Loan Agreement. This Compliance Certificate covers the four (4) consecutive
fiscal quarters ended __________________ with respect to Section 10.1.3 and
10.1.4 of the Loan Agreement and is prepared as of _______________ with respect
to Sections 10.1.1 and 10.1.2 of the Loan Agreement.

1. A review of the activities of the Borrower during the fiscal period covered
by this Compliance Certificate has been made under the supervision of the
undersigned with a view to determining whether during such fiscal period the
Borrower performed and observed all of their obligations under the Loan
Agreement. To the best knowledge of the undersigned, during such fiscal period
all covenants and conditions of the Borrower have been performed and observed
and no Default has occurred and is continuing under the Loan Agreement [with the
exceptions set forth below in response to which Borrower has taken or propose to
take the following actions:
______________________________________________________________________________
______________________________________________________________________________
___________________________________________.]

2. To the best knowledge of the undersigned, no event or circumstance which has
had or may have a Material Adverse Effect has occurred since the last Compliance
Certificate was delivered [with the exceptions set forth
below:_________________________
______________________________________________________________________________
___________________________________________.]

3. Attached are the calculations showing whether Borrower was in compliance with
Sections 10.1.1, 10.1.2, 10.1.3, and 10.1.4 of the Loan Agreement as of the end
of the fiscal period covered by this Compliance Certificate. Each such
calculation is derived from the books and records of Borrower and correctly
reflects whether Borrower is in compliance with the applicable Sections of the
Loan Agreement.

 

¨ 4. Borrower hereby gives notice of a Current Assets Election in the Specified
Current Assets Commitment Amount of $            .

This Compliance Certificate is executed on
_________________________________________.

 

LITHIA MOTORS, INC. By:     Title:    

 

Page 14

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Calculation of Financial Covenants

 

    

Amounts in Thousands

10.1.1    Total Net Worth   

A. Net Book Value of Assets

   $                         

B. MINUS Total Liabilities

   $                         

C. Total Net Worth

   $                         

D. Minimum Requirement: $300,000,000

   $                          10.1.2    Current Ratio   

A. Borrowing Base Minus the Total Outstandings

   $                         

B. Specified Current Assets Commitment Amount

   $                         

C. Total Revolving Loan Commitment minus Total Outstandings

   $                         

D. Current Assets Commitment Amount (least of A, B and C)

   $                         

E. Consolidated Current Assets (including any Current Assets

   $                         

Commitment Amount specified above)

   $                         

F. MINUS Receivables from Related Parties

   $                         

G. Total Current Assets

   $                         

H. Total Current Liabilities (if the Expiration Date is within one year,
including any Current Assets Commitment Amount specified above)

   $                         

I. Permitted Ratio of G to H: Not less than 1.2:1.0.

  

RATIO:

                to 1.0

 

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10.1.3    Fixed Charge Coverage Ratio   

A. EBITDAR

  

1. Consolidated Net Income

   $                         

2. PLUS interest expense

   $                         

3. PLUS income tax expense

   $                         

4. PLUS depreciation expense

   $                         

5. PLUS amortization expense

   $                         

6. PLUS goodwill & non-cash asset impairment charges

   $                         

7. PLUS non-cash expense

   $                         

8. PLUS rental expense

   $                         

9. PLUS extraordinary losses (except discontinued operations)

   $                         

10. MINUS all extraordinary gains (except discontinued operations)

   $                         

11. PLUS or MINUS Excluded Items

   $                         

Total EBITDAR

   $                         

B.    PLUS pro forma Permitted Acquisitions EBITDA

   $                         

C.       1. MINUS Dividends paid in cash

   $                         

2. MINUS Income taxes paid in cash

   $                         

3. MINUS Maintenance capital expenditures

   $                         

TOTAL EBITDAR plus EBITDA from acquisitions minus Dividends paid in cash, Income
Taxes paid in cash and Maintenance Capital Expenditures (“Total Adjusted
EBITDAR”)

   $                         

 

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D. Fixed Charges

  

1. Interest paid in cash

   $                         

2. PLUS Required principal payments on debt

   $                         

3. PLUS Rental expense

   $                         

TOTAL Fixed Charges

   $                         

E. Permitted Ratio of Total Adjusted EBITDAR to Total Fixed Charges: Not less
than ____ to 1.0.

  

RATIO:

                to 1.0

10.1.4 Cash Flow Leverage

  

A. Adjusted Funded Debt

  

1. Current Maturities of Long Term Debt

   $                         

2. PLUS Long Term Debt, less current maturities

   $                         

3. PLUS Flooring Notes Payable

   $                         

4. Total Funded Debt

   $                         

5. MINUS Subordinated Debt

   $                         

6. MINUS Flooring Notes Payable (New and Program Inventory)

   $                         

7. MINUS Service Loaner Vehicle Notes

   $                         

8. MINUS Real Estate Debt

   $                         

9. PLUS Current Asset Commitment Amount

   $                         

Total Adjusted Funded Debt

   $                         

 

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B. EBITDA

  

1. Consolidated Net Income

   $                     

2. MINUS all extraordinary gains (or PLUS extraordinary losses)

   $                     

3. PLUS or MINUS Excluded Items

   $                     

4. PLUS interest expense

   $                     

5. PLUS income tax expense

   $                     

6. PLUS depreciation expense

   $                     

7. PLUS amortization expense

   $                     

8. PLUS goodwill & non-cash asset impairment charges

   $                     

9. PLUS other non-cash expense

   $                     

10. PLUS pro forma Permitted Acquisitions EBITDA

   $                     

Total EBITDA

   $                     

11. MINUS Floorplan Interest

   $                     

12. MINUS Real Estate Debt Interest

   $                     

13. MINUS Required Principal Payments on Real Estate Debt

   $                     

Total EBITDA MINUS Floorplan Interest, Real Estate Debt Interest, and Required
Principal Payments on Real Estate Debt (“Total Adjusted EBITDA”)

   $

                    

D. Permitted Ratio of Total Adjusted Funded Debt to Total Adjusted EBITDA: Not
greater than _______ to 1.0.

  

RATIO:

              to 1.0

 

Page 18