Exhibit 10.7
SEVERANCE AGREEMENT
     THIS SEVERANCE AND RELEASE AGREEMENT (“Agreement”) is made and entered into
by and between GROUP 1 AUTOMOTIVE, INC. (“Employer”) and ROBERT RAY
(“Employee”).
     WHEREAS, Employee is separating from his position with Employer;
     WHEREAS, Employer wishes to provide Employee with certain benefits in
consideration of Employee’s separation and the promises and covenants of
Employee as contained herein, including the Employee’s agreement to release all
claims against Employer;
     NOW THEREFORE, in consideration of and exchange for the promises,
covenants, and releases contained herein, the parties mutually agree as follows:
     1. Separation Date. Employee’s separation from all positions he holds with
Employer shall be effective on the 31st day of December, 2005 (unless an earlier
date is mutually agreed upon by both parties), at which time all entitlement to
compensation and benefits from Employer shall cease except to the extent
provided by this Agreement (“Separation Date”) or under any employee welfare or
benefit plan under which Employee has vested rights to benefits, subject to the
plan documents for such plans.
     2. Effective Date. This Agreement shall be effective on the date it is
executed by Employee (“Effective Date”).
     3. Severance Benefits. In further consideration for this Agreement,
Employee shall be entitled to the following benefits, which exceed the benefits
to which Employee would be entitled absent his agreement to the covenants,
conditions and terms set forth in this Agreement.
          A. Base Salary. If Employee remains employed through the Separation
Date, Employer shall pay Employee severance pay in the form of six (6) months of
base salary in the amount of $182,500 in the form of a lump sum payment on the
Separation Date, less all customary and required withholdings.
          B. Bonus Payment. If Employee remains employed through the Separation
Date, Employer shall pay Employee a bonus for 2005 in the amount of $313,900 on
the Separation Date, less all customary and required withholdings.
          C. Accrued Vacation. Employer shall pay to Employee all accrued but
unused vacation as of the Separation Date.
          D. Outplacement Assistance. Employer shall provide Employee with
outplacement assistance at the Employer’s expense, through an agency of
Employer’s choosing but acceptable to Employee, for a duration that is mutually
agreed by Employer and Employee.
          E. Equipment. Employee shall be entitled to keep his cell phone,
blackberry, laptop computer, home printer and all home networking equipment
following his separation, however, Employee shall be responsible for all user
charges incurred after the Separation Date.

         
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          F. Vehicle. Employee shall be entitled to use the demonstrator vehicle
currently provided to him by Employer through February 28, 2006. During such
period, insurance coverage currently provided by the Employer in connection with
use of demonstrator vehicles by executives of the Employer shall continue to
apply to the demonstrator vehicle used by Employee. Employee is solely
responsible for fuel, repairs and maintenance of the demonstrator vehicle. On or
before February 28, 2006, Employee shall return such demonstrator vehicle to
Employer in a condition acceptable to Employer. Employee agrees to indemnify and
hold Employer harmless from any and all loss or liability arising, directly or
indirectly, from Employee’s use of the demonstrator vehicle that is not covered
by the insurance coverage referenced above.
          G. Condition Precedent to Severance Benefits. As a condition of
receiving the severance benefits described above, Employee shall continue to
conduct all “normal” CFO duties during his employment with Employer, including
with respect to the following:

  i.   3Q financial closing and related releases / filings (e.g., News Release,
Form 10-Q, etc.);     ii.   3Q Road Show and related investor meetings;     iii.
  Bank syndication, documentation, closing;     iv.   Board Meeting preparation
/ presentation; and     v.   2006 Budget.

     4. Release by Employee. In exchange for the consideration provided by
Employer, Employee agrees for Employee, Employee’s heirs, agents, executors,
administrators, successors and assigns to forever release and discharge Employer
and its subsidiaries, predecessor companies, successor companies, related
companies, parents, successors and assigns, owners, officers, directors,
insurers, attorneys, agents, employees and former employees from any and all
claims, debts, promises, agreements, demands, causes of action, attorneys’ fees,
losses and expenses of every nature whatsoever, known or unknown, suspected or
unsuspected, filed or unfiled, arising prior to the Effective Date of this
Agreement, or arising out of or in connection with Employee’s employment by or
offer of employment by the Employer or any affiliate of the Employer. This total
release includes, but is not limited to, any and all claims arising directly or
indirectly from Employee’s employment with the Employer and the termination of
that employment; claims or demands related to salary, bonuses, commissions,
vacation pay, fringe benefits and expense reimbursements pursuant to any
federal, state or local law or cause of action, including, but not limited to,
breach of contract, breach of the implied covenant of good faith and fair
dealing, infliction of emotional harm, wrongful discharge, negligence, violation
of public policy, defamation and impairment of economic opportunity; violation
of the Texas Employment Discrimination or Harassment Laws, as amended, the Texas
Constitution; and any claims for violation of Title VII of the Civil Rights Act
of 1964, as amended, the Fair Labor Standards Act, the Family Medical Leave Act,
and the Americans With Disabilities Act of 1990. Notwithstanding the foregoing,
or any other provision of this Agreement, Employee retains, and does not release
or waive, his rights to indemnification, and coverage under one or more
Executive and Officer’s Liability, and other, insurance polices, with respect to
claims that may be brought against him arising out or related to his employment
with Employer, or any affiliate of Employer. Nor does Employee release or waive
any claims arising out of or related to any breach by Employer of the terms of
this Agreement.
     5. Release by Employer. In exchange for the consideration provided by
Employee, Employer agrees for it, and its subsidiaries, predecessor companies,
successor companies,

         
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related companies, parents, successors assigns, and owners to forever release
and discharge Employee from any and all claims, debts, promises, agreements,
demands, causes of action, attorneys’ fees, losses and expenses of every nature
whatsoever, known or unknown, suspected or unsuspected, filed or unfiled,
arising prior to the Effective Date of this Agreement, or arising out of or in
connection with Employee’s employment by or with Employer or any affiliate of
the Employer.
     6. Newly Discovered Facts. Employee and Employer hereby acknowledge that
they may hereafter discover facts different from or in addition to those that
they now know or believe to be true, and they expressly agree to assume the risk
of the possible discovery of additional facts, and agree that this Agreement
will be and remain effective regardless of such additional or different facts.
Employer and Employee expressly agree that this Agreement shall be given full
force and effect according to each and all of its express terms and provisions,
including those relating to unknown or unsuspected claims, demands, causes of
action, governmental, regulatory or enforcement actions, charges, obligations,
damages, liabilities, and attorneys’ fees and costs, if any, as well as those
relating to any other claims, demands, causes of action, obligations, damages,
liabilities, charges, and attorneys’ fees and costs specified herein.
     7. Confidentiality. Employer and Employee agree that they will, to the
extent possible, keep the terms, amount and fact of this Agreement completely
confidential, and that they will not hereafter disclose any information
concerning this Agreement to anyone, including the amount of consideration paid
hereunder, the facts, allegations, and/or circumstances regarding Employee’s
employment and/or Employee’s separation of employment with Employer; provided,
however, that Employer and Employee may make such disclosures as they are
required to make by law or are necessary to enforce any term of this Agreement,
and may make such additional disclosures to immediate family members,
professional representatives (e.g., attorneys, accountants, auditors, tax
preparers), and prospective employers but only with respect to the circumstances
regarding Employee’s separation from employment; provided, however, that such
persons be informed of and agree to be bound by this confidentiality clause.
Employee further acknowledges and agrees that he was exposed to and/or provided
with confidential information relating to Employer and Employer’s finances,
business operations, customers, and employees. Employee hereby warrants and
agrees that he will hold the Employer’s confidential information in the
strictest confidence and will not disclose, reveal, publish, distribute, use,
misuse or communicate in any format any confidential, sensitive, or proprietary
information regarding Employer or Employer’s business that he acquired and/or
learned during his employment with Employer, unless required by law.
     8. Covenant to Cooperate. Employee hereby acknowledges that in partial
consideration for the benefits received pursuant to this Agreement, he may be
requested by the Employer to cooperate with the Employer in the defense or
prosecution of one or more existing or future court actions, governmental
investigations, arbitrations, mediations or other legal or equitable proceedings
which involve the Employer or any of its employees, officers or directors, and
he agrees to do so. This cooperation may include, but shall not be limited to,
the need for or availability for testimony in deposition, affidavit, trial,
mediation or arbitration, as well as preparation for that testimony. Employee
acknowledges that he shall make himself available at the Employer’s reasonable
request for any meetings or conferences the Employer deems necessary in
preparation for the defense or prosecution of any such legal proceedings.
Employer shall pay all reasonable expenses that may be incurred by Employee
(e.g., lodging and air fare) in providing such cooperation.

         
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     9. Employer Property. With the exception of the equipment described in
Section 3 (E), and the demonstrator vehicle described above in Section 3(F),
Employee hereby represents and warrants that on or before the Separation Date,
he will return to Employer all of Employer’s property and documents in his
possession including, but not limited to, Employer’s files, notes, records,
computer recorded information, tangible property, credit cards, entry cards,
keys, identification badges, and Employer issued cell phones, pagers and other
electronic devices used in the course and scope of Employee’s employment with
Employer.
     10. Entire Agreement. This Agreement embodies the entire agreement of all
the parties hereto who have executed it and supersedes any and all other
agreements, understandings, negotiations, or discussions, either oral or in
writing, express or implied, between the parties to this Agreement. The parties
to this Agreement each acknowledge that no representations, inducements,
promises, agreements or warranties, oral or otherwise, have been made by them,
or anyone acting on their behalf, which are not embodied in this Agreement; that
they have not executed this Agreement in reliance on any representation,
inducement, promise, agreements, warranty, fact or circumstances, not expressly
set forth in this Agreement; and that no representation, inducement, promise,
agreement or warranty not contained in this Agreement including, but not limited
to, any purported settlements, modifications, waivers or terminations of this
Agreement, shall be valid or binding, unless executed in writing by all of the
parties to this Agreement. This Agreement may be amended, and any provision
herein waived, but only in writing, signed by the party against whom such an
amendment or waiver is sought to be enforced.
     11. Binding Nature. This Agreement, and all the terms and provisions
contained herein, shall bind the heirs, personal representatives, agents acting
on behalf of Employee, successors and assigns of each party, and inure to the
benefit of each party, its agents, directors, officers, employees, servants,
successors, and assigns. The undersigned, on behalf of the Employer, represents
that he has all requisite authority and power to enter into this Agreement.
     12. Construction. This Agreement shall not be construed in favor of one
party or against the other.
     13. Partial Invalidity. Should any portion, word, clause, phrase, sentence
or paragraph of this Agreement be declared void or unenforceable, such portion
shall be considered independent and severable from the remainder, the validity
of which shall remain unaffected.
     14. Compliance with Terms. The failure to insist upon compliance with any
term, covenant or condition contained in this Agreement shall not be deemed a
waiver of that term, covenant or condition, nor shall any waiver or
relinquishment of any right or power contained in this Agreement at any one time
or more times be deemed a waiver or relinquishment of any right or power at any
other time or times.
     15. Enforcement Costs. Employer and Employee agree that in the event that
either breaches any provision of this Agreement, the breaching party shall pay
all reasonable costs and attorney’s fees incurred by the other in connection
with enforcement of this Agreement.
     16. Governing Law and Jurisdiction. This Agreement shall be interpreted
under the law of the State of Texas, both as to interpretation and performance.

         
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     17. Section Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
     18. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, all of which together shall constitute one
and the same instrument.
     19. No Admissions. It is understood and agreed by the parties that this
Agreement represents a compromise and settlement for various matters and that
the promises and consideration in this Agreement shall not be construed to be an
admission of any liability or obligation by either party to the other party or
any other person.
     20. Voluntary and Knowing. This Agreement is executed voluntarily and
without any duress, undue influence or coercion on the part or behalf of the
parties hereto. Employee also acknowledges being informed that he has the option
of consulting with an attorney prior to the execution of this Agreement. By
signing below, Employee also acknowledges that he has read and fully understands
and agrees to the terms of this Agreement.
     IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below.

             
Dated:         12/5/05
  GROUP 1 AUTOMOTIVE, INC.
 
       
 
           
 
  By:   /s/ Earl J. Hesterberg     
 
     
 
Earl J. Hesterberg
President and Chief Executive Officer    
 
           
Dated:         12/5/05
      ROBERT RAY  
 
           
 
      /s/ Robert Ray     
 
           
 
      (Signature)    

         
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