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As filed with the Securities and Exchange Commission on September 7, 2005
Registration No. 333-            

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
FORM S-1
 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LKQ CORPORATION
 (Exact name of registrant as specified in its charter)

Delaware
 (State or Other Jurisdiction of Incorporation or Organization)	 	5015
 (Primary Standard Industrial Classification Code Number)	 	36-4215970
 (I.R.S. Employer Identification Number)	
120 North LaSalle Street, Suite 3300
Chicago, Illinois 60602
(312) 621-1950
 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)	
Victor M. Casini
Vice President, General Counsel and Secretary
LKQ Corporation
120 North LaSalle Street, Suite 3300
Chicago, Illinois 60602
(312) 280-3700
 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)	

Copies to:	
 J. Craig Walker
Bell, Boyd & Lloyd LLC
70 West Madison Street, Suite 3300
Chicago, Illinois 60602
(312) 372-1121
fax: (312) 372-2098	 	Thomas J. Murphy
McDermott Will & Emery LLP
227 West Monroe Street, Suite 4400
Chicago, Illinois 60606
(312) 372-2000
fax: (312) 984-7700	
         Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
        If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  o
        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
        If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  o
 
CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities
to be Registered	 	Amount to be Registered (1)	 	Proposed Maximum Offering Price Per Unit (2)	 	Proposed Maximum Aggregate Offering Price (2)	 	Amount of Registration Fee (2)	
	
Common Stock, par value $.01 per share	 	3,162,500 Shares	 	$28.51	 	$90,162,875	 	$10,612.17	
	
(1)
Includes 412,500 shares of common stock subject to an over-allotment option granted by the registrant to the underwriters.
(2)
Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) on the basis of the average of the high and low sale prices of the common stock on September 2, 2005, as reported on the Nasdaq National Market.
         The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Subject to Completion
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and neither we nor the selling stockholders are soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

 LKQ Corporation
                                                                                        
2,750,000 Shares of Common Stock

       We are selling 2,000,000 primary shares of our common stock. The selling stockholders named in this prospectus are selling 750,000 shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.
       Our common stock is listed on the Nasdaq National Market under the symbol "LKQX." The last reported sale price of our common stock on                             , 2005 was $            per share.
        Investing in our common stock involves risks. See "Risk Factors" beginning on page 9.

 	 	Per Share
	 	Total
	
Offering price	 	$	 	$	
	
Discount and commissions to underwriters	 	$	 	$	
	
Proceeds to us, before expenses	 	$	 	$	
	
Proceeds to selling stockholders, before expenses	 	$	 	$	
       The underwriters may also purchase up to 412,500 shares of common stock from us at the public offering price, less underwriting discounts and commissions, to cover over-allotments, if any, within 30 days from the date of this prospectus.
       The underwriters are offering the common stock as set forth under "Underwriting." Delivery of the shares of common stock will be made on or about                      , 2005.
        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 	Robert W. Baird & Co.	 	
 	Raymond James	 	
 	Morgan Keegan & Company, Inc.	 	
 	Barrington Research	 	
                       , 2005

 
 TABLE OF CONTENTS

 	 	PAGE
	
Special Note Regarding Forward-Looking Statements	 	ii	
Summary	 	1	
Risk Factors	 	9	
Use of Proceeds	 	16	
Price Range of Common Stock	 	17	
Dividend Policy	 	17	
Capitalization	 	18	
Selected Consolidated Financial and Other Data	 	19	
Management's Discussion and Analysis of Financial Condition and Results of Operations	 	21	
Industry	 	40	
Business	 	43	
Management	 	56	
Principal and Selling Stockholders	 	66	
Certain Relationships and Related Party Transactions	 	68	
Description of Capital Stock	 	70	
Underwriting	 	73	
Legal Matters	 	75	
Experts	 	75	
Additional Information	 	76	
Index to Consolidated Financial Statements	 	F-1	

        You should rely only on the information contained in this prospectus. Neither we, the underwriters nor the selling stockholders have authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell, and seeking offers to buy, the shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the shares.
i

 
 SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
       This prospectus contains forward-looking statements. These statements may be found throughout this prospectus, particularly under the headings "Summary," "Risk Factors," "Dividend Policy," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business," among others. Forward-looking statements typically are identified by the use of terms such as "may," "will," "plan," "should," "expect," "anticipate," "believe," "if," "estimate," "intend," and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these and similar words carefully because they describe our expectations, plans, strategies, goals, and beliefs concerning future business conditions, our results of operations, our financial position, and our business outlook, or state other "forward-looking" information based on currently available information. The factors listed under the heading "Risk Factors" and in the other sections of this prospectus provide examples of risks, uncertainties, and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements.
       The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation, beyond that required by law, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
ii

 
 SUMMARY
        This summary highlights information contained elsewhere in this prospectus but might not contain all of the information that is important to you. Before investing in our common stock, you should read the entire prospectus carefully, including the "Risk Factors" section and the consolidated financial statements and the notes thereto included elsewhere in this prospectus. As used in this prospectus, the terms "company," "we," "our," and "us" refer to LKQ Corporation and its subsidiaries, except where the context otherwise requires. Unless otherwise indicated, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option to purchase 412,500 additional shares.
Our Business
       We provide replacement systems, components, and parts needed to repair light vehicles (cars and light trucks). Buyers of light vehicle replacement products have the option to purchase from primarily three sources: new products produced by original equipment manufacturers ("OEMs"), which are commonly known as OEM products; new products produced by companies other than the OEMs, which are sometimes referred to generically as "aftermarket" products; and recycled products originally produced by OEMs, which we refer to as recycled OEM products. We participate in the market for recycled OEM products as well as the market for collision repair aftermarket products. We obtain aftermarket products and salvage vehicles from a variety of sources, and we dismantle the salvage vehicles to obtain a comprehensive range of vehicle products that we distribute into the light vehicle repair market. We are not involved in the manufacture of automotive products and do not maintain any manufacturing or remanufacturing operations.
       We believe we are the largest nationwide provider of recycled OEM products and related services, with sales, processing, and distribution facilities that reach most major markets in the U.S. While we currently service the majority of the major metropolitan areas in the U.S. with both recycled OEM and aftermarket products, we estimate our current share of the light vehicle recycling market to be less than 10%, and our current share of the aftermarket products market to be less than 7%. We believe there are opportunities for growth in both product lines through acquisitions and internal development.
       We procure salvage vehicles, primarily at auctions, using our locally based professionals, proprietary processes, and a disciplined procurement system. In addition, as an alternative source of salvage vehicles, we obtain some inventory directly from insurance companies, vehicle manufacturers, and other suppliers. Once we have received proper title, which assures us that the vehicles have not been stolen, we dismantle such vehicles for recycled OEM products. We purchase aftermarket products from manufacturers, primarily in Taiwan, using a proprietary order management system.
       Our customers include collision and mechanical repair shops and, indirectly, insurance companies, including extended warranty companies. The majority of our products and services are sold to collision repair shops, also known as body shops, and mechanical repair shops. We indirectly rely on insurance companies, which ultimately pay the collision repair shops for the repair of insured vehicles, as a source of business. These insurance companies exert significant influence in the vehicle repair decision, and increasingly look to a nationwide source for consistency, quality, and availability of replacement products. Because of their importance to the process, we have formed business relationships with certain insurance companies, and with certain extended warranty providers, in order to be their preferred light vehicle parts supplier. For example, with some insurance companies we have vehicle repair order estimate review programs in place and provide their claims adjusters a part quote and locator service. In addition, we provide them an outlet to dispose of certain total loss vehicles directly to us. We provide extended warranty companies a single national call desk to service their nationwide needs for mechanical products.
       We believe we provide customers a value proposition that includes high quality products, extensive product availability due to our regional inventory trading zones, product costs lower than new OEM products, and quick
1

delivery. We provide benefits to repair shops and insurance companies because the lower costs for our products enable many vehicles to be repaired rather than declared a total loss. By expanding our product offerings to include both recycled OEM products and aftermarket products we now offer customers a more extensive range of light vehicle replacement products. We believe this unique combination of recycled and aftermarket product offerings allows us to serve as a "one-stop" solution for our customers looking for the most cost advantageous way to repair vehicles.
Our History
       We believe we were the first recycler of light vehicle products to achieve a national network and presence. Since our formation in 1998, we have grown through both internal development and acquisitions. Our acquisition strategy has been to target companies with strategic locations and significant market presence, strong management teams, a record of environmental compliance, solid growth prospects, and a reputation for quality and customer service. Since our initial public offering in 2003, we have completed eleven acquisitions that met our criteria and enhanced our business. Today we have over 95 facilities focused on serving our customers with a broad range of products. In February 2004 we expanded our product offerings by also becoming a supplier of aftermarket products and a provider of self-service retail recycled vehicle products. We currently have approximately 36 locations supplying aftermarket products, serving 21 states primarily east of the Mississippi River, and nine locations providing self-service retail recycled vehicle products in Florida, Oregon, and Tennessee.
       Our revenue has increased from $226.3 million in 2000 to $424.8 million in 2004, a 17.0% compound annual growth rate. During the same period, our operating income increased from $4.6 million to $34.9 million, a 65.8% compound annual growth rate. For the year ended December 31, 2004, revenue derived from recycled OEM products and related services represented approximately 81% of our revenue, sales of aftermarket products and services represented approximately 10% of our revenue, and sales of other products, such as scrap and other bulk products, represented approximately 9% of our revenue. Our revenue for the six months ended June 30, 2005 was $269.8 million, an increase of 31.7% over the same period in 2004, and our operating income was $28.2 million, a 48.4% increase over the same period in 2004.
Recent Developments
       In August 2005, we completed two acquisitions for an aggregate consideration of approximately $13.7 million. These two companies, one headquartered in Arkansas and one headquartered in Pennsylvania, are in the aftermarket products business. These acquisitions enable us to serve new markets and provide a broader product offering to our customers. These businesses had approximately $16.6 million of revenue in 2004.
Our Strengths
We Provide a National Solution to Insurance Companies and Extended Warranty Providers.
       We believe that our nationwide presence gives us a unique ability to service the major automobile insurance companies and extended warranty providers. Insurance companies and extended warranty providers operate generally at a national or regional level and play a critical role in the repair process. We believe we provide a direct benefit to these companies by lowering the cost of repairs, decreasing the time required to return the repaired vehicle to the customer, and providing a replacement part that is of comparable quality to the part replaced. Specifically, we assist insurance companies by purchasing insured total loss vehicles and by providing cost effective products through sales to collision repair shops, especially to repair shops that are part of an insurance company network. We also provide a review of vehicle repair order estimates to insurance companies so they may assess the opportunity to increase usage of recycled OEM and aftermarket products.
2

For extended warranty providers, we provide a single national call desk to service their nationwide need for mechanical products.
We Believe We Have the Only National Network for Recycled OEM Products and it Would be Difficult to Replicate.
       We have invested significant capital developing a national network of recycled OEM product facilities that serves most major metropolitan areas in the U.S. We have differentiated ourselves from our local competitors and have made replication of our network difficult by developing our network with anchor companies that were among the largest in the industry. The difficulty and time required to obtain proper zoning, as well as dismantling and other environmental permits necessary to operate newly-sited facilities, would make establishing new facilities challenging. In addition, there are difficulties associated with recruiting and hiring an experienced management team that has strong industry knowledge and local relationships with customers. Finally, our national network allows us to enter new adjacent markets quickly by establishing redistribution facilities, which avoids the need for local dismantling capabilities and inventory.
We Benefit From a Local Presence.
       Our network of facilities allows us to develop and maintain our relationships with local repair shops, while providing a level of service to insurance companies and national customers that is made possible by our nationwide presence. Our local presence allows us to provide daily deliveries that our customers require, using drivers who routinely deliver to the same customers. Our sales force and local delivery drivers develop and maintain critical personal relationships with the local repair shops that benefit from access to our wide selection of products which we are able to offer as a result of our regional inventory network.
We Have a Proven and Effective Procurement Process.
       We have designed information systems and methodologies to procure salvage vehicles and aftermarket parts cost-effectively. As our largest single expenditure, efficient procurement of salvage vehicles is critical to the growth, operating results, and cash flow of our business. Our processes and know-how allow us to identify and value the parts that can be recycled on a damaged vehicle at auction and to determine rapidly the maximum price we will pay for the vehicle in order to achieve our target margins on resale of the recycled OEM products. We carefully analyze the market and obtain aftermarket parts and salvage vehicles of the type whose parts are in demand at prices that we believe will allow us to sell products profitably. We have also taken advantage of our relationships with insurance companies and vehicle manufacturers to obtain salvage vehicles outside the auction process.
We Have a Broad and Deep Inventory of Products.
       We believe that our customers place a high value on availability of a broad range of light vehicle replacement products. We also believe that our inventory of both recycled OEM and aftermarket products allows us to fill a higher percentage of our customers' orders than our competitors. In addition, our ability to share inventory on a regional basis increases the availability of replacement products and also helps us to fill a higher percentage of our customers' orders. We have developed regional trading zones within which we make our regional inventory available to our local facilities, mostly via overnight product transfers. We manage our inventory and purchasing on a regional basis to enhance the availability of the products that we believe will be in the highest demand within each region. Our broad and deep inventory furthers our ability to serve as a "one-stop" solution for our customers' recycled OEM and aftermarket product needs.
3

 
We Have Implemented Management Disciplines.
       Our management and operations team is highly experienced, with many managers having spent their entire careers in the light vehicle recycling industry. We have developed and built procurement, operating, and financial systems that have allowed us to develop and grow our national network and implement professional management techniques and disciplines. As our business has grown, we have acquired additional management talent, which has furthered the sharing of best practices throughout the company. In addition, our senior management team has extensive acquisition experience and will continue to use our disciplined approach in targeting growth opportunities.
Our Strategies
Strengthen our National Network Through Internal Growth and Acquisitions.
       We intend to continue to expand our market coverage through a combination of internal development and acquisitions and to look for opportunities to expand into new regions and into adjacent markets. We plan to establish a presence in additional major metropolitan markets and a number of smaller markets in the U.S. We have applied an analytical and disciplined approach to our acquisition process and have targeted companies with strategic locations and significant market presence, strong management teams, a record of environmental compliance, solid growth prospects, and a reputation for quality and customer service.
Further Develop Business Relationships.
       We intend to continue to develop business relationships with automobile insurance companies, extended warranty providers, and other industry participants. We believe that insurance companies and extended warranty providers, as payors for many repairs, will take a more active role in the selection of replacement products in the repair process in order to use lower cost alternatives to new OEM products. On behalf of certain insurance company customers, we provide a review of vehicle repair order estimates so they may assess the opportunity to increase usage of recycled OEM and aftermarket products in the repair process, thereby reducing their costs. Our employees also provide quotes for our products to assist several insurance companies with their estimate and settlement processes. We also work with insurance companies and vehicle manufacturers to procure salvage vehicles directly from them on a selected basis, which provides us an additional source of supply and provides them improved economics on salvage vehicle sales. We believe we are positioned to take advantage of the increasing importance of these industry participants and will continue to look for ways to enhance these relationships.
Continue to Improve our Operating Results.
       We are working to improve our operating results by applying our business disciplines to our most recently acquired facilities, continuing to build our network, further centralizing certain functions, improving our use of technology, and increasing revenue at our lower volume facilities. Our higher volume facilities generally operate at a higher profitability level as a percentage of revenue. We believe we can improve the profitability level at our lower volume facilities by achieving the higher volumes and improved economies of scale that we realize at our higher volume facilities. We intend to continue to refine our procurement system, which uses methodologies that analyze demand levels for our products, existing inventory levels, and projected margins on an individual vehicle basis.
4

Further Develop our Technology and Business Processes.
       We continue to emphasize the use of technology in our processes to improve efficiency and to increase the standardization of our business. Our technology and proprietary processes enhance procurement, pricing, and inventory management. We continue to develop our technology to allow us to better manage and analyze our inventory, to assist our sales people with up-to-date pricing and availability of our products, and to further enhance our procurement process. For example, many of our representatives responsible for procuring vehicles, whom we refer to as "scouts," are equipped with handheld computing devices to assist them in appraising the vehicles prior to submitting a bid to purchase the vehicle. Additionally, we have begun developing a bar code system that we believe will facilitate improved inventory tracking and management of our recycled products.
Raise Industry Standards by Being the Industry Leader.
       Since our inception, we have employed a professional approach to the light vehicle recycling business. We continue to seek new ways to improve our methodologies and to communicate our standards to our customers. We further believe that, by elevating industry standards in areas such as customer service, integrity, product quality and availability, delivery time, warranty support, environmental compliance, and appearance of facilities, we can help promote the acceptability of the use of recycled OEM and aftermarket products.
Our Corporate Information
       We were incorporated in Delaware in February 1998. Our principal executive headquarters are located at 120 North LaSalle Street, Suite 3300, Chicago, Illinois 60602. Our telephone number is 312-621-1950. Our website address is www.lkqcorp.com. The information found on our website is not a part of this prospectus.
Risk Factors
       An investment in the common stock offered hereby involves a high degree of risk. See "Risk Factors."
5

 
The Offering

Common stock offered by us	 	2,000,000 shares (excluding up to 412,500 shares that may be issued by us upon exercise of the underwriters' over-allotment option).	

Common stock offered by selling stockholders	
 	
750,000 shares	

Total shares	
 	
2,750,000 shares	

Common stock outstanding after the offering  (1)	
 	
23,300,767 shares. If the underwriters exercise their over allotment option in full, we will issue an additional 412,500 shares, which will result in 23,713,267 shares outstanding.	

Use of Proceeds	
 	
We intend to use the net proceeds from the sale of 2,000,000 shares of common stock by us to repay approximately $         million of borrowings under our credit facility and for other general corporate purposes. See "Use of Proceeds." We will not receive any of the proceeds from the sale of our common stock by the selling stockholders. We intend to use the proceeds from the exercise of             options to purchase our common stock by certain members of management to repay approximately $             million of borrowings under our credit facility.	

Dividend policy	
 	
We have not paid or declared any dividends on our common stock and currently intend to retain earnings to fund our working capital needs and growth opportunities. Our credit facility includes provisions that generally limit our payment of dividends on our common stock.	

NASDAQ symbol	
 	
LKQX	

(1)
The number of shares of our common stock outstanding after the offering set forth above is based on 21,300,767 shares of common stock outstanding as of August 31, 2005 and includes the shares to be sold by us in this offering. The number of shares outstanding after the offering does not include an aggregate of 6,592,525 shares of common stock reserved for issuance under our equity compensation plans, of which options to purchase 4,295,495 shares were outstanding as of June 30, 2005 at a weighted average exercise price of $12.69 per share, and 1,268,111 shares issuable as of June 30, 2005 upon the exercise of outstanding warrants at an exercise price of $2.00 per share.
6

 
 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
       The following table summarizes financial data regarding our business and should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

(In thousands, except per share data)
	 	 	 	 	 	 	 	 	 	 	 	Six Months Ended
June 30,
	 	
 	 	Year Ended December 31,
			 	
 	 	2000
	 	2001
	 	2002
	 	2003
	 	2004
	 	2004
	 	2005
	 	
Statements of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	226,304	 	$	250,462	 	$	287,125	 	$	327,974	 	$	424,756	 	$	204,951	 	$	269,830	 	
Gross Margin	 	 	106,991	 	 	117,942	 	 	132,551	 	 	153,736	 	 	197,616	 	 	96,437	 	 	127,128	 	
Operating income	 	 	4,615	 	 	13,112	 	 	20,844	 	 	26,059	 	 	34,907	 	 	19,012	 	 	28,206	 	
Income (loss) before provision for income taxes and cumulative effect of change in accounting principle	 	 	(241	)	 	8,169	 	 	18,268	 	 	24,153	 	 	33,857	 	 	18,368	 	 	27,197	 	
Income (loss) before cumulative effect of change in accounting principle	 	 	(878	)	 	4,230	 	 	11,005	 	 	14,576	 	 	20,573	 	 	10,978	 	 	16,028	 	
Cumulative effect of change in accounting principle, net of tax (1)	 	 	—	 	 	—	 	 	(49,899	)	 	—	 	 	—	 	 	—	 	 	—	 	
 	 		 		 		 		 		 		 		 	
Net income (loss)	 	$	(878	)	$	4,230	 	$	(38,894	)	$	14,576	 	$	20,573	 	$	10,978	 	$	16,028	 	
 	 		 		 		 		 		 		 		 	
Basic earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before cumulative effect of change in accounting principle	 	$	(0.05	)	$	0.24	 	$	0.62	 	$	0.90	 	$	1.03	 	$	0.55	 	$	0.77	 	
Net income (loss)	 	$	(0.05	)	$	0.24	 	$	(2.20	)	$	0.90	 	$	1.03	 	$	0.55	 	$	0.77	 	
Diluted earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before cumulative effect of change in accounting principle	 	$	(0.05	)	$	0.23	 	$	0.57	 	$	0.80	 	$	0.92	 	$	0.49	 	$	0.69	 	
Net income (loss)	 	$	(0.05	)	$	0.23	 	$	(2.00	)	$	0.80	 	$	0.92	 	$	0.49	 	$	0.69	 	
Shares used in per share calculation basic (2)	 	 	17,601	 	 	17,656	 	 	17,654	 	 	16,268	 	 	20,052	 	 	19,847	 	 	20,744	 	
Shares used in per share calculation diluted (2)	 	 	17,601	 	 	18,742	 	 	19,399	 	 	18,258	 	 	22,414	 	 	22,322	 	 	23,161	 	

Other Financial Data:	

 	

 	

 	

 	

 	

 	

 	
 	
Net cash provided by (used in) operating activities	 	$	(3,384	)	$	12,059	 	$	17,740	 	$	20,949	 	$	25,901	 	$	8,629	 	$	20,450	 	
Net cash used in investing activities	 	 	(8,308	)	 	(3,516	)	 	(6,746	)	 	(12,222	)	 	(87,823	)	 	(60,222	)	 	(29,641	)	
Net cash provided by (used in) financing activities	 	 	14,928	 	 	(11,060	)	 	(11,997	)	 	6,770	 	 	47,452	 	 	37,474	 	 	9,894	 	
Capital expenditures (3)	 	 	9,648	 	 	3,809	 	 	8,402	 	 	13,200	 	 	93,025	 	 	65,357	 	 	30,808	 	
Depreciation and amortization	 	 	7,541	 	 	7,897	 	 	5,014	 	 	5,446	 	 	6,872	 	 	3,222	 	 	4,029	 	
EBITDA (4)	 	 	12,305	 	 	21,148	 	 	26,190	 	 	31,622	 	 	42,234	 	 	22,380	 	 	32,475	 	
 	 	As of December 31,
	 	As of
June 30,
	
 	 	2000
	 	2001
	 	2002
	 	2003
	 	2004
	 	2004
	 	2005

Balance Sheet Data:	

 	

 	

 	

 	

 	

 	

 	
Total assets	 	$	233,203	 	$	227,217	 	$	176,747	 	$	203,154	 	$	288,275	 	$	264,061	 	$	321,766	
Working capital	 	 	54,541	 	 	16,861	 	 	50,670	 	 	74,184	 	 	77,878	 	 	75,148	 	 	85,009	
Long-term obligations, including current portion	 	 	54,611	 	 	43,962	 	 	34,205	 	 	3,997	 	 	50,262	 	 	42,363	 	 	56,545	
Stockholders' equity	 	 	155,230	 	 	160,105	 	 	121,129	 	 	174,011	 	 	204,071	 	 	192,088	 	 	226,560	

(1)
We recorded a non-cash Goodwill impairment charge of $49,898,800 in 2002.
(2)
We repurchased 2,000,000 shares of our common stock in February 2003 and repurchased an additional 1,557,498 shares of our common stock in May 2003. In addition, we sold 5,000,000 shares of our common stock on October 2, 2003 in connection with our initial public offering. Accordingly, the shares used in the per share calculation for basic and diluted earnings per share in 2003 do not fully reflect the impact of these transactions.
(3)
Includes acquisitions and non-cash property additions.
(4)
EBITDA consists of income (loss) before provision for income taxes and cumulative effect of change in accounting principle plus depreciation and amortization, interest expense, and stockholder loan guarantee fee, less interest income. We have presented EBITDA information solely as a supplemental disclosure because we believe it provides a helpful analysis of our operating results. EBITDA is the basis for various covenant and availability calculations pertaining to our credit facility. EBITDA should not be construed as an alternative to operating income, net income (loss) or net cash provided by (used in) operating activities, as determined in accordance with accounting principles generally accepted in the U.S. In addition, not all companies that report EBITDA information calculate EBITDA in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
7

       The following table reconciles EBITDA to net income (loss):

(In thousands)
	 	 	 	 	 	 	 	 	 	 	 	Six Months Ended June 30,
	
 	 	Year Ended December 31,
			
 	 	2000
	 	2001
	 	2002
	 	2003
	 	2004
	 	2004
	 	2005
	
Net income (loss)	 	$	(878	)	$	4,230	 	$	(38,894	)	$	14,576	 	$	20,573	 	$	10,978	 	$	16,028	
Cumulative effect of change in accounting principle, net of tax	 	 	—	 	 	—	 	 	49,899	 	 	—	 	 	—	 	 	—	 	 	—	
Depreciation and amortization	 	 	7,541	 	 	7,897	 	 	5,014	 	 	5,446	 	 	6,872	 	 	3,222	 	 	4,029	
Interest, net	 	 	5,005	 	 	5,082	 	 	2,908	 	 	2,023	 	 	1,505	 	 	790	 	 	1,249	
Provision for income taxes	 	 	637	 	 	3,939	 	 	7,263	 	 	9,577	 	 	13,284	 	 	7,390	 	 	11,169	
 	 		 		 		 		 		 		 		
Earnings before interest, taxes, depreciation, and amortization (EBITDA)	 	$	12,305	 	$	21,148	 	$	26,190	 	$	31,622	 	$	42,234	 	$	22,380	 	$	32,475	
 	 		 		 		 		 		 		 		
8

 
 RISK FACTORS
        You should carefully consider each of the risks described below and all of the other information in this prospectus before deciding to invest in our common stock. If any of events described below occur, our business, financial condition, or results of operations could be harmed. In such an event, the trading price of our common stock could decline and you may lose all or part of your investment.
Risks Relating to Our Business
We face intense competition from local, national, and internet-based light vehicle products providers, and this competition could negatively affect our business.
       The light vehicle replacement products industry is highly competitive and is served by numerous suppliers of OEM products, recycled OEM products, and aftermarket products. Within each of these categories of suppliers, there are local owner-operated companies, larger regional suppliers, national providers, and internet-based suppliers. Providers of light vehicle replacement products that have traditionally sold only certain categories of such products may decide to expand their product offerings into other categories of light vehicle replacement products, which may further increase competition. Some of our current and potential competitors may have more operational expertise; greater financial, technical, manufacturing, distribution, and other resources; longer operating histories; lower cost structures; and better relationships in the insurance and vehicle repair industries. In certain regions of the U.S., local light vehicle recycling companies have formed cooperative efforts to compete in the recycled OEM products industry. As a result of these factors, our competitors may be able to provide products that we are unable to supply, provide their products at lower costs, or supply products to customers that we are unable to serve.
An adverse change in our relationships with auction companies or our suppliers could increase our expenses and hurt our relationships with our customers.
       Most of our salvage inventory consists of vehicles offered at salvage auctions by several companies that own auction facilities in numerous locations across the U.S. We do not have contracts with any auction company. According to industry analysts, three companies control over 50% of the salvage auction market in the U.S. In some localities, the automotive auction business may be even more highly concentrated. If an auction company prohibited us from participating in its auctions, or significantly raised its fees, our business could be adversely affected through higher costs or the resulting potential inability to service our customers. Moreover, auction companies have begun to allow bids to be submitted on salvage vehicles through the internet, which increases the number of potential bidders and may increase our cost of goods sold for recycled OEM products.
       We also acquire some of our inventory directly from insurance companies, original equipment manufacturers, aftermarket parts manufacturers, and others. To the extent that these suppliers decide to discontinue these arrangements, our business could be adversely affected through higher costs or the resulting potential inability to service our customers.
       In addition, we purchase aftermarket parts primarily from foreign manufacturers in Taiwan. In the event that our business relationships with these suppliers deteriorated or terminated, or in the event that the importing of products into the U.S. from Taiwan or the exporting of products by Taiwan to the U.S. was disrupted, our business could be adversely affected through higher costs or the resulting inability to service our customers.
9

We may not be able to sell our products due to existing or new laws and regulations prohibiting or restricting the sale of recycled OEM or aftermarket products.
       Some jurisdictions have enacted laws prohibiting or severely restricting the sale of certain recycled OEM products that we provide, such as airbags. These and other jurisdictions could enact similar laws or could prohibit or severely restrict the sale of additional recycled OEM products. Restrictions on the products we are able to sell could decrease our revenue and have an adverse effect on our business and operations.
       We became involved in the aftermarket products business upon the closing of an acquisition in February 2004. Since 1998, legislatures in a majority of states have introduced or considered bills that would prohibit or limit the use of aftermarket products in collision repair work and/or require enhanced disclosure or vehicle owner consent before using aftermarket products in such repair work. Additional bills of this kind may be introduced in the future. If a number of states adopt legislation prohibiting or restricting the use of aftermarket products, it could have an adverse impact on our aftermarket products business.
       In 2000, a U.S. Congressman requested that the General Accounting Office ("GAO") review the role of the National Highway Traffic Safety Administration in regulating the safety and quality of aftermarket products. The GAO released its report in January 2001. This report may lead to Congressional hearings and possible future federal legislation, which could adversely impact our aftermarket products business.
       Certain organizations test the quality and safety of light vehicle replacement products. In the event that such organizations decide that a particular vehicle product does not meet applicable quality or safety standards, we may decide to discontinue sales of such product or insurance companies may decide to discontinue authorization of repairs using such product. Such events could adversely affect our business.
If our business relationships with insurance companies end, we may lose important sales opportunities.
       We rely on business relationships with certain insurance companies. These insurance companies encourage vehicle repair facilities to use products we provide. Our arrangements with these companies may be terminated at any time. We rely on these relationships for sales to some collision repair shops, and a termination of these relationships may result in a loss of sales, which could adversely affect our results of operations.
We are subject to environmental regulations and incur costs relating to environmental matters.
       We are subject to various federal, state, and local environmental protection and health and safety laws and regulations governing, among other things:
•
the emission and discharge of hazardous materials into the ground, air, or water; 

•
the exposure to hazardous materials; and 

•
the generation, handling, storage, use, treatment, identification, transportation, and disposal of industrial by-products, waste water, storm water, and mercury and other hazardous materials.
       We are also required to obtain environmental permits from governmental authorities for certain of our operations. If we violate or fail to obtain or comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. We could also become liable if employees or other third parties are improperly exposed to hazardous materials.
       Under certain environmental laws, we could be held responsible for all of the costs relating to any contamination at, or migration to or from, our or our predecessors' past or present facilities and at third party waste disposal sites. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances.
10

       Environmental laws are complex, change frequently, and have tended to become more stringent over time. Our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances may adversely affect our business, results of operations, or financial condition.
Governmental agencies may refuse to grant or renew our operating licenses and permits.
       Our operating subsidiaries must receive certain licenses and permits from state and local governments to conduct their operations. When we develop or acquire a new facility, we must seek the approval of state and local units of government. Governmental agencies often resist the establishment of a vehicle recycling facility in their communities. There can be no assurance that future approvals or transfers will be granted. In addition, there can be no assurance that we will be able to maintain and renew the licenses and permits our operating subsidiaries currently hold.
Proposed regulations under the National Stolen Passenger Motor Vehicle Information System could harm our business.
       In 1992, Congress enacted the Anti Car Theft Act to deter trafficking in stolen vehicles. This law included the establishment of the National Stolen Passenger Motor Vehicle Information System to track and monitor stolen automotive parts. In April 2002, the Department of Justice published for comment proposed regulations to implement this system. The proposed regulations require, among other things, that insurance companies, salvagers, dismantlers, recyclers, and repairers inspect salvage vehicles for the purpose of collecting the vehicle identification number and the part number for any covered major part that possesses the vehicle identification number. The requirement to collect this information would place burdens and costs on us that otherwise would not normally exist, and could discourage our customers from purchasing our products if the proposed regulations are adopted.
We could be subject to product liability claims.
       If customers of repair shops that purchase our products are injured or suffer property damage, we could be subject to product liability claims. The successful assertion of this type of claim could have an adverse effect on our business or financial condition.
We may lose business if recent litigation involving the use of aftermarket parts results in insurance companies modifying arrangements affecting the use of recycled OEM or aftermarket products in the repair process.
       In an Illinois lawsuit involving State Farm Mutual Automobile Insurance Company ( "Avery v. State Farm" ), a jury decided in October 1999 that State Farm breached certain insurance contracts with its policyholders by using non-OEM parts to repair damaged vehicles when use of such parts did not restore the vehicle to its "pre-loss condition." The jury found that State Farm misled its customers by not disclosing the use of non-OEM parts and the alleged inferiority of those parts. The jury assessed damages against State Farm of $456 million, and the judge assessed an additional $730 million of disgorgement and punitive damages for violations of the Illinois Consumer Fraud Act. In April 2001, the Illinois Appellate Court upheld the verdict but reduced the damage award by $130 million because of duplicative damage awards. On August 18, 2005, the Illinois Supreme Court reversed the awards made by the circuit court and found, among other things, that the plaintiffs had failed to establish any breach of contract on the part of State Farm. Prior to the recent decision by the Illinois Supreme Court, some insurance companies had reduced or eliminated their use of aftermarket products as a result of this case. Although our products are primarily recycled OEM parts, we entered the aftermarket products business through an acquisition in February 2004. Because the decision by the Illinois Supreme Court was rendered so recently, we are uncertain how the decision will affect the practices of insurance companies in the future, but our financial results could be affected, perhaps adversely, if insurance
11

companies modified or terminated the arrangements pursuant to which repair shops buy aftermarket or recycled OEM products from us due to a fear of similar claims with respect to such products.
If the number of vehicles involved in accidents declines, our business could suffer.
       Because our business depends on vehicle accidents for both the supply of recycled OEM products and the demand for repairs using our products, factors which influence the number and/or severity of accidents, including, but not limited to, the number of vehicles on the road, the number of miles driven, the ages of drivers, the use of cellular telephones and other electronic equipment by drivers, the congestion of traffic, the occurrence and severity of certain weather conditions, the use of alcohol and drugs by drivers, and the condition of roadways, impact our business. In this regard, a number of states and municipalities have adopted, or are considering adopting, legislation banning the use of handheld cellular telephones while driving and such restrictions could lead to a decline in accidents. Moreover, rising fuel prices may cause the number of vehicles on the road to decline as motorists seek alternative transportation options and this also could lead to a decline in accidents.
We may not be able to successfully acquire new operations or integrate future acquisitions, which could cause our business to suffer.
       We may not be able to successfully complete potential strategic acquisitions if we cannot reach agreement on acceptable terms or for other reasons. If we buy a company or a division of a company, we may experience difficulty integrating that company's or division's personnel and operations, which could negatively affect our operating results. In addition:
•
the key personnel of the acquired company may decide not to work for us; 

•
we may experience business disruptions as a result of information technology systems conversions; 

•
we may experience additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, and financial reporting; 

•
we may be held liable for environmental risks and liabilities as a result of our acquisitions, some of which we may not have discovered during our due diligence; 

•
our ongoing business may be disrupted or receive insufficient management attention; and 

•
we may not be able to realize the cost savings or other financial benefits we anticipated.
       In connection with future acquisitions, we may assume the liabilities of the companies we acquire. These liabilities, including liabilities for environmental-related costs, could materially and adversely affect our business. We may have to incur debt or issue equity securities to pay for any future acquisition, the issuance of which could involve the imposition of restrictive covenants or be dilutive to our existing stockholders.
Our credit facility imposes certain operating and financial restrictions on us and our subsidiaries and requires us to meet certain financial tests.
       Our credit facility contains certain operating and financial restrictions that limit or prohibit us from engaging in certain transactions, including the following:
•
incurring or guarantying additional debt; 

•
paying dividends or other distributions to our stockholders or redeeming, repurchasing, or retiring our capital stock or subordinated obligations; 

•
making investments and capital expenditures; 

•
creating liens on our assets;
12

•
selling, transferring, leasing, licensing, or otherwise disposing of assets other than in the ordinary course of business; 

•
engaging in transactions with stockholders and affiliates; 

•
engaging in mergers, consolidations, or acquisitions; 

•
engaging in any material line of business substantially different from, and unrelated to, those lines of business currently carried on by us; and 

•
making changes to our equity capital structure or amending our certificate of incorporation, bylaws, or any stockholder rights agreement.
       The credit facility also requires that we satisfy certain financial tests. The failure to comply with any of these covenants would cause a default under the credit facility. A default, if not waived, could result in acceleration of our debt, in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing were available, it may be on terms that are less attractive to us than our existing credit facility or it may not be on terms that are acceptable to us.
Our future capital needs may require that we seek debt financing or additional equity funding that, if not available, could cause our business to suffer.
       We may need to raise additional funds in the future to, among other things, fund our existing operations, improve or expand our operations, respond to competitive pressures, or make acquisitions. From time to time, we may raise additional funds through public or private financing, strategic alliances, or other arrangements. If adequate funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete effectively. If we raise additional funds by issuing equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of the common stock. If we raise additional funds by issuing debt, we may be subject to further limitations on our operations. If we fail to raise capital when needed, our business will be negatively affected.
Our annual and quarterly performance may fluctuate.
       Our revenue, cost of goods sold, and operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Future factors that may affect our operating results include, but are not limited to, the following:
•
fluctuations in the pricing of new OEM replacement products; 

•
the availability and cost of inventory; 

•
variations in vehicle accident rates; 

•
competition in the vehicle replacement parts industry; 

•
changes in state or federal laws or regulations affecting our business; 

•
changes in the types of replacement parts that insurance carriers will accept in the repair process; 

•
our ability to integrate and manage our acquisitions successfully; 

•
fluctuations in fuel prices; 

•
changes in the demand for our products and the supply of our inventory due to severity of weather and seasonality of weather patterns;
13

•
the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our business, operations, and infrastructure; and 

•
declines in the values of our assets.
       Due to the foregoing factors, our operating results in future periods can be expected to fluctuate. Accordingly, our results of operations may not be indicative of future performance. These fluctuations in our operating results may cause our results to fall below the expectations of public market analysts and investors, which could cause our stock price to decline.
If we lose our key management personnel, we may not be able to successfully manage our business or achieve our objectives.
       Our future success depends in large part upon the leadership and performance of our executive management team and key employees at the operating level. If we lose the services of one or more of our executive officers or key employees, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives. If we lose the services of any of our key employees at the operating or regional level, we may not be able to replace them with similarly qualified personnel, which could harm our business.
We rely on information technology in critical areas of our operations and a disruption relating to such technology could harm our business.
       We use information technology systems owned by other companies for management of our facilities and our financial functions. In the event that the providers of these systems terminate their relationships with us, we could suffer disruptions to our operations.
       In addition, we continually monitor these systems to find areas for improvement. In the event that we decided to switch providers or to implement our own systems, we may also suffer disruptions to our business. We may be unsuccessful if we try to develop our own systems, and we may underestimate the costs and expenses of developing and implementing our own systems. Also, our revenue may be hampered during the period of implementing an alternative system, which period could extend longer than we anticipated.
If we experience problems with our fleet of trucks, our business could be harmed.
       We use a fleet of trucks to deliver the majority of the vehicle products we sell. We are subject to the risks associated with providing trucking services, including inclement weather, disruptions in the transportation infrastructure, availability and price of fuel, liabilities arising from accidents to the extent we are not covered by insurance, and insurance premium increases. In addition, our failure to deliver products in a timely and accurate manner could harm our reputation and brand, which could have a material adverse effect on our business.
If we determine that our goodwill has become impaired, we may incur significant charges to our pre-tax income.
       Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. In the future, goodwill and intangible assets may increase as a result of future acquisitions. Goodwill and intangible assets are reviewed at least annually for impairment. Impairment may result from, among other things, deterioration in the performance of acquired businesses, adverse market conditions, and adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business. As of June 30, 2005, our total goodwill, subject to future impairment testing, was approximately $118.2 million.
14

Risks Relating to Our Common Stock
Our executive officers, directors, and their affiliates hold a large percentage of our stock and their interests may differ from other stockholders.
       As of August 31, 2005, our executive officers, directors, and their affiliates, in the aggregate, beneficially owned approximately 27% of our common stock. If they were to act together, these stockholders would have significant influence over most matters requiring approval by stockholders, including the election of directors, any amendments to our certificate of incorporation, and certain significant corporate transactions. These stockholders may take these actions even if they are opposed by our other stockholders. In addition, without the consent of these stockholders, we could be delayed or prevented from entering into transactions that may be viewed as beneficial to us or our other stockholders.
Future sales of our common stock may depress our stock price.
       We and our stockholders may sell shares of common stock in the future. We may also issue shares of common stock in connection with the exercise of outstanding warrants and options or in connection with future acquisitions. Certain of our existing stockholders are parties to a registration rights agreement that provides such holders with the right to require us to effect the registration of their shares of common stock in specific circumstances. In addition, if we propose to register any of our common stock under the Securities Act of 1933, whether for our own account or otherwise, some existing stockholders may be entitled to include their shares of common stock in that registration. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the price of our common stock. Sales of substantial amounts of common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the price of our common stock to fall.
Delaware law and our charter documents may impede or discourage a takeover, which could affect the price of our stock.
       The anti-takeover provisions of our certificate of incorporation and bylaws and Delaware law could, together or separately, impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Our certificate of incorporation and bylaws have provisions that could discourage potential takeover attempts and make attempts by stockholders to change management more difficult. Our incorporation under Delaware law and these provisions could also impede a merger, takeover, or other business combination involving us or discourage a potential acquiror from making a tender offer for our common stock, which, under certain circumstances, could reduce the price of our common stock.
15

 
 USE OF PROCEEDS
       We estimate that we will receive net proceeds of $                         million from our sale of 2,000,000 shares of common stock, after deducting the underwriting discount and estimated expenses of this offering. See "Underwriting—Commissions and Discounts." If the underwriters' over-allotment option to purchase an additional 412,500 shares from us is exercised in full, we estimate that our net proceeds will be $                         million. The estimated net proceeds described above are based on the last reported sale price of our common stock on                      , 2005. We will not receive any of the proceeds from the sale of our common stock by the selling stockholders.
       We intend to use the net proceeds from the sale of the common stock by us to repay approximately $         million of borrowings under our credit facility. We intend to use the proceeds from the exercise of             options to purchase our common stock by certain members of management to repay approximately $             million of borrowings under our credit facility. Our credit facility had $53.0 million outstanding and an average effective interest rate of 4.26% as of June 30, 2005, and matures on June 1, 2010.
       We used approximately $37.6 million of borrowings under our credit facility to fund substantially all of the aggregate consideration we paid for the acquisitions we have completed since December 31, 2004.
       Any net proceeds in excess of the amounts required to repay outstanding indebtedness as described above will be used for general corporate purposes, which may include future acquisitions. Our management will have broad discretion to allocate our net proceeds from this offering. Pending such uses, the net proceeds to be received by us from this offering will be invested in investment-grade, short-term, interest-bearing securities.
16

 
 PRICE RANGE OF COMMON STOCK
       As of August 31, 2005, 21,300,767 shares of our common stock were outstanding, held by approximately 77 shareholders of record. The number of record holders does not necessarily bear any relationship to the number of beneficial owners of our common stock.
       Our common stock trades on the Nasdaq National Market under the symbol "LKQX." The following table sets forth, for each of the periods indicated, the high and low sales prices per share of our common stock on the Nasdaq National Market.

 	 	Price
	
 	 	High
	 	Low
	
2003	 	 	 	 	 	 	
 	
Fourth Quarter	
 	
$	
18.50	
 	
$	
14.00	

2004	

 	

 	
 	
First Quarter	
 	
$	
20.43	
 	
$	
16.20	
 	Second Quarter	 	 	20.20	 	 	16.92	
 	Third Quarter	 	 	19.13	 	 	16.50	
 	Fourth Quarter	 	 	20.92	 	 	13.28	

2005	

 	

 	
 	
First Quarter	
 	
$	
20.18	
 	
$	
16.50	
 	Second Quarter	 	 	28.06	 	 	18.50	
 	Third Quarter (through                      , 2005)	 	 	 	 	 	 	
       The last reported sale price for our common stock on the Nasdaq National Market on                      , 2005 was $            per share.
 
 DIVIDEND POLICY
       We have not paid or declared any dividends on our common stock since our inception and currently intend to retain earnings to fund our working capital needs and growth opportunities. Any future dividends will be at the discretion of our board of directors after taking into account various factors it deems relevant, including our financial condition and performance, cash needs, income tax consequences, and the restrictions our debt arrangements then impose. Our credit facility currently includes provisions that generally limit our payment of dividends on our common stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."
17

 
 CAPITALIZATION
       The following table sets forth our cash and cash equivalents, debt, and total capitalization as of June 30, 2005 on (1) an actual basis, and (2) as adjusted for our sale of 2,000,000 shares of common stock in this offering, assuming that the underwriters' over-allotment option is not exercised (based on the last reported sale of our common stock on                        , 2005), the exercise of             options to purchase our common stock by certain members of management and the application of the estimated net proceeds therefrom as described in "Use of Proceeds." You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 21 of this prospectus and the historical consolidated financial statements and related notes included in this prospectus.

(In thousands, except share data)
	 	As of June 30, 2005
	
 	 	Actual
	 	As adjusted
	
Cash and equivalents	 	$	2,315	 	$	 	
 	 		 		
Long-term obligations, including current portion	 	$	56,545	 	$	 	
 	 		 		
Redeemable common stock, $0.01 par value; 50,000 shares issued and outstanding	 	 	617	 	 	 	
 	 		 		
Stockholders' equity:	 	 	 	 	 	 	
 	Common stock, $0.01 par value; 500,000,000 shares authorized; 21,026,802 shares issued and outstanding; 23,026,802 shares issued and outstanding, as adjusted	 	 	210	 	 	 	
 	Additional paid-in capital	 	 	207,863	 	 	 	
 	Warrants	 	 	259	 	 	 	
 	Retained earnings	 	 	17,168	 	 	 	
 	Accumulated other comprehensive income	 	 	1,060	 	 	 	
 	 		 		
 	 	Total stockholders' equity	 	 	226,560	 	 	 	
 	 		 		
 	 	 	Total capitalization	 	$	283,722	 	$	 	
 	 		 		
18

 
 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
       The following table sets forth our selected financial data as of and for each of the fiscal years and interim periods indicated and is derived from our historical audited consolidated financial statements for the fiscal years indicated and from our historical unaudited consolidated financial statements for the interim periods indicated. You should review this information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 21 of this prospectus and our historical financial statements and related notes included in this prospectus.

(In thousands, except per share data)
	 	 	 	 	 	 	 	 	 	 	 	Six Months Ended June 30,
	 	
  	 	Year Ended December 31,
			 	
 	 	2000
	 	2001
	 	2002
	 	2003
	 	2004
	 	2004
	 	2005
	 	
Statements of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	226,304	 	$	250,462	 	$	287,125	 	$	327,974	 	$	424,756	 	$	204,951	 	$	269,830	 	
Cost of goods sold	 	 	119,313	 	 	132,520	 	 	154,574	 	 	174,238	 	 	227,140	 	 	108,514	 	 	142,702	 	
 	 		 		 		 		 		 		 		 	
Gross Margin	 	 	106,991	 	 	117,942	 	 	132,551	 	 	153,736	 	 	197,616	 	 	96,437	 	 	127,128	 	
 	 		 		 		 		 		 		 		 	
Facility and warehouse expenses	 	 	32,295	 	 	32,674	 	 	35,778	 	 	38,679	 	 	47,815	 	 	22,529	 	 	28,956	 	
Distribution expenses	 	 	21,889	 	 	24,621	 	 	28,530	 	 	35,263	 	 	47,927	 	 	22,427	 	 	29,493	 	
Selling, general, and administrative expenses	 	 	40,095	 	 	39,638	 	 	42,385	 	 	48,289	 	 	60,095	 	 	29,247	 	 	36,444	 	
Depreciation and amortization	 	 	7,541	 	 	7,897	 	 	5,014	 	 	5,446	 	 	6,872	 	 	3,222	 	 	4,029	 	
Asset impairment loss	 	 	556	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
 	 		 		 		 		 		 		 		 	
Total operating expenses	 	 	102,376	 	 	104,830	 	 	111,707	 	 	127,677	 	 	162,709	 	 	77,425	 	 	98,922	 	
 	 		 		 		 		 		 		 		 	
Operating income	 	 	4,615	 	 	13,112	 	 	20,844	 	 	26,059	 	 	34,907	 	 	19,012	 	 	28,206	 	
Other (income) expense	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Interest, net	 	 	5,005	 	 	5,082	 	 	2,908	 	 	2,023	 	 	1,505	 	 	790	 	 	1,249	 	
 	Other, net	 	 	(149	)	 	(139	)	 	(332	)	 	(117	)	 	(455	)	 	(146	)	 	(240	)	
 	 		 		 		 		 		 		 		 	
Income (loss) before provision for income taxes and cumulative effect of change in accounting principle	 	 	(241	)	 	8,169	 	 	18,268	 	 	24,153	 	 	33,857	 	 	18,368	 	 	27,197	 	
Provision for income taxes	 	 	637	 	 	3,939	 	 	7,263	 	 	9,577	 	 	13,284	 	 	7,390	 	 	11,169	 	
 	 		 		 		 		 		 		 		 	
Income (loss) before cumulative effect of change in accounting principle	 	 	(878	)	 	4,230	 	 	11,005	 	 	14,576	 	 	20,573	 	 	10,978	 	 	16,028	 	
Cumulative effect of change in accounting principle, net of tax (1)	 	 	—	 	 	—	 	 	(49,899	)	 	—	 	 	—	 	 	—	 	 	—	 	
 	 		 		 		 		 		 		 		 	
Net income (loss)	 	$	(878	)	$	4,230	 	$	(38,894	)	$	14,576	 	$	20,573	 	$	10,978	 	$	16,028	 	
 	 		 		 		 		 		 		 		 	
Basic earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income (loss) before cumulative effect of change in accounting principle	 	$	(0.05	)	$	0.24	 	$	0.62	 	$	0.90	 	$	1.03	 	$	0.55	 	$	0.77	 	
 	Net income (loss)	 	$	(0.05	)	$	0.24	 	$	(2.20	)	$	0.90	 	$	1.03	 	$	0.55	 	$	0.77	 	
Diluted earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income (loss) before cumulative effect of change in accounting principle	 	$	(0.05	)	$	0.23	 	$	0.57	 	$	0.80	 	$	0.92	 	$	0.49	 	$	0.69	 	
 	Net income (loss)	 	$	(0.05	)	$	0.23	 	$	(2.00	)	$	0.80	 	$	0.92	 	$	0.49	 	$	0.69	 	
Shares used in per share calculation basic (2)	 	 	17,601	 	 	17,656	 	 	17,654	 	 	16,268	 	 	20,052	 	 	19,847	 	 	20,744	 	
Shares used in per share calculation diluted (2)	 	 	17,601	 	 	18,742	 	 	19,399	 	 	18,258	 	 	22,414	 	 	22,322	 	 	23,161	 	

Other Financial Data:	

 	

 	

 	

 	

 	

 	

 	
 	
Net cash provided by (used in) operating activities	 	$	(3,384	)	$	12,059	 	$	17,740	 	$	20,949	 	$	25,901	 	$	8,629	 	$	20,450	 	
Net cash used in investing activities	 	 	(8,308	)	 	(3,516	)	 	(6,746	)	 	(12,222	)	 	(87,823	)	 	(60,222	)	 	(29,641	)	
Net cash provided by (used in) financing activities	 	 	14,928	 	 	(11,060	)	 	(11,997	)	 	6,770	 	 	47,452	 	 	37,474	 	 	9,894	 	
Capital expenditures (3)	 	 	9,648	 	 	3,809	 	 	8,402	 	 	13,200	 	 	93,025	 	 	65,357	 	 	30,808	 	
Depreciation and amortization	 	 	7,541	 	 	7,897	 	 	5,014	 	 	5,446	 	 	6,872	 	 	3,222	 	 	4,029	 	
EBITDA (4)	 	 	12,305	 	 	21,148	 	 	26,190	 	 	31,622	 	 	42,234	 	 	22,380	 	 	32,475	 	
19

 
(In thousands)
	 	As of December 31,
	 	As of June 30,
	
 	 	2000
	 	2001
	 	2002
	 	2003
	 	2004
	 	2004
	 	2005
	
Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	233,203	 	$	227,217	 	$	176,747	 	$	203,154	 	$	288,275	 	$	264,061	 	$	321,766	
Working capital	 	 	54,541	 	 	16,861	 	 	50,670	 	 	74,184	 	 	77,878	 	 	75,148	 	 	85,009	
Long-term obligations, including current portion	 	 	54,611	 	 	43,962	 	 	34,205	 	 	3,997	 	 	50,262	 	 	42,363	 	 	56,545	
Stockholders' equity	 	 	155,230	 	 	160,105	 	 	121,129	 	 	174,011	 	 	204,071	 	 	192,088	 	 	226,560	

(1)
We recorded a non-cash Goodwill impairment charge of $49,898,800 in 2002.
(2)
We repurchased 2,000,000 shares of our common stock in February 2003 and repurchased an additional 1,557,498 shares of our common stock in May 2003. In addition, we sold 5,000,000 shares of our common stock on October 2, 2003 in connection with our initial public offering. Accordingly, the shares used in the per share calculation for basic and diluted earnings per share in 2003 do not fully reflect the impact of these transactions.
(3)
Includes acquisitions and non-cash property additions.
(4)
EBITDA consists of income (loss) before provision for income taxes and cumulative effect of change in accounting principle plus depreciation and amortization, interest expense, and stockholder loan guarantee fee, less interest income. We have presented EBITDA information solely as a supplemental disclosure because we believe it provides a helpful analysis of our operating results. EBITDA is the basis for various covenant and availability calculations pertaining to our credit facility. EBITDA should not be construed as an alternative to operating income, net income (loss), or net cash provided by (used in) operating activities, as determined in accordance with accounting principles generally accepted in the U.S. In addition, not all companies that report EBITDA information calculate EBITDA in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
       The following table reconciles EBITDA to net income (loss):

(In thousands)
	 	 	 	 	 	 	 	 	 	 	 	Six Months Ended June 30,
	
 	 	Year Ended December 31,
			
 	 	2000
	 	2001
	 	2002
	 	2003
	 	2004
	 	2004
	 	2005
	
Net income (loss)	 	$	(878	)	$	4,230	 	$	(38,894	)	$	14,576	 	$	20,573	 	$	10,978	 	$	16,028	
Cumulative effect of change in accounting principle, net of tax	 	 	—	 	 	—	 	 	49,899	 	 	—	 	 	—	 	 	—	 	 	—	
Depreciation and amortization	 	 	7,541	 	 	7,897	 	 	5,014	 	 	5,446	 	 	6,872	 	 	3,222	 	 	4,029	
Interest, net	 	 	5,005	 	 	5,082	 	 	2,908	 	 	2,023	 	 	1,505	 	 	790	 	 	1,249	
Provision for income taxes	 	 	637	 	 	3,939	 	 	7,263	 	 	9,577	 	 	13,284	 	 	7,390	 	 	11,169	
 	 		 		 		 		 		 		 		
Earnings before interest, taxes, depreciation, and amortization (EBITDA)	 	$	12,305	 	$	21,148	 	$	26,190	 	$	31,622	 	$	42,234	 	$	22,380	 	$	32,475	
 	 		 		 		 		 		 		 		
20

 
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
       The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes which appear elsewhere in this prospectus. It contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the heading "Risk Factors." See also "Special Note Regarding Forward-Looking Statements."
Overview
       We provide replacement systems, components, and parts needed to repair light vehicles (cars and light trucks). Buyers of light vehicle replacement products have the option to purchase from primarily three sources: new products produced by original equipment manufacturers ("OEMs"), which are commonly known as OEM products; new products produced by companies other than the OEMs, which are sometimes referred to generically as "aftermarket" products; and recycled products originally produced by OEMs, which we refer to as recycled OEM products. We participate in the market for recycled OEM products as well as the market for collision repair aftermarket products. We obtain aftermarket products and salvage vehicles from a variety of sources, and we dismantle the salvage vehicles to obtain a comprehensive range of vehicle products that we distribute into the light vehicle repair market. We are not involved in the manufacture of automotive products and do not maintain any manufacturing or remanufacturing operations.
       Our revenue, cost of goods sold, and operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Factors that may affect our operating results include, but are not limited to:
•
fluctuations in the pricing of new OEM replacement products; 

•
the availability and cost of inventory; 

•
variations in vehicle accident rates; 

•
competition in the vehicle replacement parts industry; 

•
changes in state or federal laws or regulations affecting our business; 

•
changes in the types of replacement parts that insurance carriers will accept in the repair process; 

•
our ability to integrate and manage our acquisitions successfully; 

•
fluctuations in fuel prices; 

•
changes in the demand for our products and the supply of our inventory due to severity of weather and seasonality of weather patterns; 

•
the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our business, operations, and infrastructure; and 

•
declines in the value of our assets.

       Due to the foregoing factors, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance.
21

Sources of Revenue
       Since 2002, our revenue from the sale of light vehicle replacement products and related services has ranged between 90% and 93% of our total revenue. We sell the majority of our light vehicle replacement products to collision repair shops and mechanical repair shops. Our light vehicle replacement products include, for example, engines, transmissions, front-ends, doors, trunk lids, bumpers, hoods, fenders, grilles, valances, headlights, and taillights. We sell extended warranty contracts for certain mechanical products. These contracts cover the cost of parts and labor and are sold for periods of six months, one year, or two years. We defer the revenue from such contracts and recognize it ratably over the term of the contracts. The demand for our products and services is influenced by several factors, including the number of vehicles in operation, the number of miles being driven, the frequency and severity of vehicle accidents, availability and pricing of new parts, seasonal weather patterns, and local weather conditions. Additionally, automobile insurers exert significant influence over collision repair shops as to how an insured vehicle is repaired and the cost level of the products used in the repair process. Accordingly, we consider automobile insurers to be key demand drivers of our products. We provide insurance companies services that include the review of vehicle repair order estimates, as well as direct quotation services to their adjusters. There is no standard price for recycled OEM products, but rather a pricing structure that varies from day-to-day based upon such factors as product availability, quality, demand, new OEM replacement product prices, the age of the vehicle being repaired, and competitor pricing. The pricing for aftermarket products is determined based on a number of factors, including availability, quality, demand, new OEM replacement product prices, and competitor pricing.
       Since 2002, approximately 7% to 10% of our revenue has been obtained from other sources. These include bulk sales to mechanical remanufacturers, scrap sales, and sales of damaged vehicles that we sell to vehicle repairers.
       When we obtain mechanical products from dismantled vehicles and determine they are damaged, or when we have a surplus of a certain mechanical product type, we sell them in bulk to mechanical remanufacturers. The majority of these products are sorted by product type and model type. Examples of such products are engine blocks and heads, transmissions, starters, alternators, and air conditioner compressors. After we have recovered all the products we intend to resell, the remaining materials are crushed and sold to scrap processors.
Cost of Goods Sold
       Our cost of goods sold for recycled OEM products includes the price we pay for the salvage vehicle and, where applicable, auction, storage, and towing fees. Our cost of goods sold also includes labor and other costs we incur to acquire and dismantle such vehicles. Since 2002, our labor and labor-related costs related to acquisition and dismantling have accounted for approximately 10% of our cost of goods sold for vehicles we dismantle. The acquisition and dismantling of salvage vehicles is a manual process and, as a result, energy costs are not material.
       Our cost of goods sold for aftermarket products includes the price we pay for the parts, freight, and other inventoried costs such as labor and other costs to acquire, including import fees and duties, where applicable. Our aftermarket products are acquired from a number of vendors located primarily overseas, with the majority of our overseas vendors located in Taiwan.
       In the event we do not have a recycled OEM product or suitable aftermarket product in our inventory, we attempt to purchase the part from a competitor. We refer to these parts as brokered products. Since 2002, the revenue from brokered products that we sell to our customers has ranged from 7% to 10% of our total revenue. The gross margin on brokered product sales as a percentage of revenue is generally less than half of what we achieve from sales of our own inventory because we must pay higher prices for these products.
22

       Some of our mechanical products are sold with a standard six-month warranty against defects. We record the estimated warranty costs at the time of sale using historical warranty claim information to project future warranty claims activity and related expenses. Our warranty expense is approximately 1% of our total cost of goods sold. Our warranty activity during 2003, 2004, and the first six months of 2005 was as follows:

Balance as of January 1, 2003	 	$	156,000	 	
Warranty expense	 	 	1,682,000	 	
Warranty claims	 	 	(1,603,000	)	
 	 		 	
Balance as of December 31, 2003	 	 	235,000	 	
Warrant expense	 	 	2,011,000	 	
Warranty claims	 	 	(1,966,000	)	
 	 		 	
Balance as of December 31, 2004	 	 	280,000	 	
Warranty expense	 	 	1,313,090	 	
Warranty claims	 	 	(1,264,090	)	
 	 		 	
Balance as of June 30, 2005	 	$	329,000	 	
 	 		 	
       We also sell separately priced extended warranty contracts for certain mechanical products. The expense related to extended warranty claims is recognized when the claim is made.
Expenses
       Our facility and warehouse expenses primarily include our costs to operate our processing, redistribution, self-service, and warehouse facilities. These costs include labor for both plant management and facility and warehouse personnel, facility rent, property and liability insurance, utilities, and other occupancy costs.
       Our distribution expenses primarily include our costs to deliver our products to our customers. Included in our distribution expense category are labor costs for drivers, local delivery and transfer truck rentals and subcontractor costs, vehicle repairs and maintenance, insurance, and fuel.
       Our selling and marketing expenses primarily include our advertising, promotion, and marketing costs; salary and commission expenses for sales personnel; sales training; telephone and other communication expenses; and bad debt expense. Since 2002, personnel costs have accounted for approximately 80% of our selling and marketing expenses. Most of our recycled OEM product sales personnel are paid on a commission basis. The number and quality of our sales force is critical to our ability to respond to our customers' needs and increase our sales volume. We are continually evaluating our sales force, developing and implementing training programs, and utilizing appropriate measurements to assess our selling effectiveness.
       Our general and administrative expenses include primarily the costs of our corporate and regional offices that provide corporate and field management, treasury, accounting, legal, payroll, business development, human resources, and information systems functions.
Seasonality
       Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal changes in weather patterns. During the winter months we tend to have higher demand for our products because there are more weather related accidents. In addition, the cost of salvage vehicles tends to be lower as more weather related accidents occur generating a larger supply of total loss vehicles.
23

Critical Accounting Policies and Estimates
       The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, assumptions, and judgments, including those related to revenue recognition, warranty costs, inventory valuation, allowance for doubtful accounts, goodwill impairments, self-insurance programs, contingencies, asset impairments, and taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue. Actual results may differ from these estimates.
Revenue Recognition
       We recognize and report revenue from the sale of light vehicle replacement products when they are shipped and title has transferred, subject to a reserve for returns, discounts, and allowances that management estimates based upon historical information. A replacement product would ordinarily be returned within a few days of shipment. Our customers may earn discounts based upon sales volumes or sales volumes coupled with prompt payment. Allowances are normally given within a few days following product shipment.
       We also sell separately priced extended warranty contracts for certain mechanical products. Revenue from these contracts is deferred and recognized ratably over the term of the contracts.
Warranty Reserves
       We issue a standard six-month warranty against defects on some of our mechanical products. We record an accrual for standard warranty claims at the time of sale using historical warranty claim information to project future warranty claims activity and related expenses. We analyze historical warranty claim activity by referencing the claims made and aging them from the original product sale date. We use this information to project future warranty claims on actual products sold that are still under warranty at the end of an accounting period. A 10% increase in our historical 2004 annual warranty claims would result in an additional annual expense of approximately $0.2 million.
Inventory Accounting
        Salvage Inventory.     Salvage inventory is recorded at the lower of cost or market. Our salvage inventory cost is established based upon the price we pay for a vehicle, and includes buying; dismantling; and, where applicable, auction, storage, and towing fees. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices. The average cost to sales percentage is derived from each facility's historical vehicle profitability for salvage vehicles purchased at auction or from contracted rates for salvage vehicles acquired under direct procurement arrangements.
        Aftermarket Inventory.     Aftermarket inventory is recorded at the lower of cost or market. Our aftermarket inventory cost is based on the average price we pay for parts, and includes expenses incurred for freight and buying, where applicable. For items purchased from foreign sources, import fees and duties and transportation insurance are also included.
       For all inventory, our carrying value is reduced regularly to reflect the age and current anticipated demand for our products. If actual demand differs from our estimates, additional reductions to our inventory carrying value would be necessary in the period such determination is made.
24

Allowance for Doubtful Accounts
       We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts, the aging of the accounts receivable, and our historical experience. Our allowance for doubtful accounts at June 30, 2005 was approximately $1.7 million, which represents 5.1% of gross receivables. If actual defaults are higher than our historical experience, our allowance for doubtful accounts may be insufficient to cover the uncollectible receivables, which would have an adverse impact on our operating results in the period of occurrence. A 10% change in the 2004 annual write-off rate would result in a change in the estimated allowance for doubtful accounts of approximately $0.1 million. Our exposure to uncollectible accounts receivable is limited because we have a large number of small customers that are generally geographically dispersed. We control credit risk through credit approvals, credit limits, and monitoring policies. We also have certain customers that pay for products at the time of delivery.
Goodwill Impairment
       We record goodwill as a result of our acquisitions. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which we refer to as SFAS 142, requires us to analyze our goodwill for impairment at least annually. The determination of the value of goodwill requires us to make estimates and assumptions that affect our consolidated financial statements. In assessing the recoverability of our goodwill, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets. We perform goodwill impairment tests on an annual basis and between annual tests whenever events may indicate that an impairment exists. In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill.
       We utilize outside professionals in the valuation industry to validate our assumptions and overall methodology used to determine the fair value estimates used in our goodwill impairment testing. As of June 30, 2005, we had $118.2 million in goodwill subject to future impairment tests. If we were required to recognize goodwill impairments in future periods, we would report those impairment losses as part of our operating results. We determined that no adjustments were necessary when we performed our annual impairment testing in the fourth quarter of 2004. A 10% decrease in the fair value estimates used in the fourth quarter of 2004 impairment test would not have changed this determination.
Impairment of Long-Lived Assets
       We review long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of such assets may not be recoverable. If our review indicates that the carrying value of long-lived assets is not recoverable, we reduce the carrying amount of the assets to fair value. We have had no adjustments to the carrying value of long-lived assets in 2003, 2004, or the six month period ended June 30, 2005.
Self-Insurance Programs
       We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We also self-insure a portion of automobile, general liability, and workers' compensation claims. We have purchased stop-loss insurance coverage that limits our exposure to both individual claims as well as our overall claims. The cost of the stop-loss insurance is expensed over the contract periods.
       We record an accrual for the claims expense related to our employee medical benefits, automobile, general liability, and workers' compensation claims based upon the expected amount of all such claims. If actual claims
25

are higher than what we anticipated, our accrual might be insufficient to cover our claims costs, which would have an adverse impact on our operating results in that period. If we were to incur claims up to our aggregate stop-loss insurance coverage during the open policy years, we would have an additional expense of approximately $6.8 million.
Contingencies
       We are subject to the possibility of various loss contingencies arising in the ordinary course of business resulting from litigation, claims and other commitments, and from a variety of environmental and pollution control laws and regulations. We consider the likelihood of loss or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. We accrue an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We determine the amount of reserves, if any, with the assistance of our outside legal counsel. We regularly evaluate current information available to us to determine whether the accruals should be adjusted. If the amount of an actual loss were greater than the amount we have accrued, the excess loss would have an adverse impact on our operating results in the period that the loss occurred. If the loss contingency is subsequently determined to no longer be probable, the amount of loss contingency previously accrued would be included in our operating results in the period such determination was made.
Accounting for Income Taxes
       All income tax amounts reflect the use of the liability method. Under this method, deferred tax assets and liabilities are determined based upon the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. We operate in multiple tax jurisdictions with different tax rates and we determine the allocation of income to each of these jurisdictions based upon various estimates and assumptions. In the normal course of business we will undergo tax audits by various tax jurisdictions. Such audits often require an extended period of time to complete and may result in income tax adjustments if changes to the allocation are required between jurisdictions with different tax rates. Although we have recorded all probable income tax contingencies in accordance with SFAS No. 5, "Accounting for Contingencies" and SFAS No. 109, "Accounting for Income Taxes," these accruals represent estimates that are subject to the inherent uncertainties associated with the tax audit process, and therefore include contingencies.
       We record a provision for taxes based upon our expected annual effective income tax rate. We record a valuation allowance to reduce our deferred tax assets to the amount that we expect is more likely than not to be realized. We consider historical taxable income, expectations, and risks associated with our estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance. We had a valuation allowance of $0.2 million, $0.5 million, and $0.7 million at December 31, 2003 and 2004 and as of June 30, 2005, respectively, against our deferred tax assets. Should we determine that it is more likely than not that we would be able to realize all of our deferred tax assets in the future, an adjustment to the net deferred tax asset would increase income in the period such determination was made. Conversely, should we determine that it is more likely than not that we would not be able to realize all of our deferred tax assets in the future, an adjustment to the net deferred tax assets would decrease income in the period such determination was made.
Recently Issued Accounting Pronouncements
       In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) must be recognized as current period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal
26

years beginning after June 15, 2005. We do not expect SFAS 151 to have a material impact on our consolidated financial position, results of operations, or cash flows.
       In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), a revision of SFAS 123. SFAS 123R requires the adoption of a fair-value method of accounting for stock-based employee compensation. SFAS 123R was to be effective as of the beginning of the first interim fiscal period that began after June 15, 2005. In applying the fair value concepts of SFAS 123R, we will be required to choose among alternative valuation models and other assumptions. Although we had not completed our assessment of the impact SFAS 123R, we had initially estimated that it would negatively impact our results for 2005 by approximately $0.5 million or $0.02 per diluted share.
       On April 14, 2005, the Securities and Exchange Commission announced a deferral of the effective date of SFAS 123R for calendar year companies until the beginning of 2006. As a result, our 2005 results of operations will not be impacted by the implementation of SFAS 123R. We are currently assessing the impact that SFAS 123R may have on our future results of operations. We do not expect that the adoption of this standard will have a material impact on our consolidated financial position or cash flows.
       In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154 replaces Accounting Principles Board Opinion No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS 154 requires "retrospective application" of the direct effect of a voluntary change in accounting principle to prior periods' financial statements where it is practicable to do so. SFAS 154 also redefines the term "restatement" to mean the correction of an error by revising previously issued financial statements. SFAS 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005 unless adopted early. We do not expect the adoption of SFAS 154 to have a material impact on our consolidated financial position, results of operations, or cash flows, except to the extent that the statement subsequently requires retrospective application of a future item.
Acquisitions
       In January 2005, we completed an acquisition of an aftermarket products business with two locations, near Philadelphia and Washington, D.C., for approximately $16.0 million in cash. This acquisition enables us to expand our presence in these areas of the country.
       In April 2005, we completed two acquisitions of recycled OEM products businesses for an aggregate of approximately $8.0 million in cash and $0.3 million in notes issued. These acquisitions enable us to serve new markets.
       In August 2005, we completed two acquisitions for an aggregate consideration of approximately $13.7 million. These two companies, one headquartered in Arkansas and one headquartered in Pennsylvania, are in the aftermarket products business. These acquisitions enable us to serve new markets and provide a broader offering of products to our customers.
Segment Reporting
       Over 99% of our operations are conducted in the U.S. During 2004, we acquired a recycled OEM products business with locations in Guatemala and Costa Rica. Revenue generated and properties located outside of the U.S. are not material. We manage our operations geographically. Our light vehicle replacement products operations are organized into seven operating segments, six for recycled OEM products and one for aftermarket products. These segments are aggregated into one reportable segment because they possess similar economic
27

characteristics and have common products and services, customers, and methods of distribution. Our light vehicle replacement products operations account for over 90% of our revenue, earnings, and assets.
Results of Operations
       The following table sets forth statement of operations data as a percentage of total revenue for the periods indicated:

 	 	Year Ended December 31,
	 	Six Months Ended June 30,
	 	
 	 	2002
	 	2003
	 	2004
	 	2004
	 	2005
	 	
Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	100.0	 %	100.0	%	100.0	%	100.0	%	100.0	%	
Cost of goods sold	 	53.8	 %	53.1	%	53.5	%	52.9	%	52.9	%	
 	 		 		 		 		 		 	
Gross margin	 	46.2	 %	46.9	%	46.5	%	47.1	%	47.1	%	
Facility and warehouse expenses	 	12.5	 %	11.8	%	11.3	%	11.0	%	10.7	%	
Distribution expenses	 	9.9	 %	10.8	%	11.3	%	10.9	%	10.9	%	
Selling, general, and administrative expenses	 	14.8	 %	14.7	%	14.1	%	14.3	%	13.5	%	
Depreciation and amortization	 	1.7	 %	1.7	%	1.6	%	1.6	%	1.5	%	
 	 		 		 		 		 		 	
Operating income	 	7.3	 %	7.9	%	8.2	%	9.3	%	10.5	%	
Other expense, net	 	0.9	 %	0.6	%	0.2	%	0.3	%	0.4	%	
 	 		 		 		 		 		 	
Income (loss) before provision for income taxes and cumulative effect of change in accounting principle	 	6.4	 %	7.4	%	8.0	%	9.0	%	10.1	%	
Cumulative effect of change in accounting principle	 	(17.4	)%	—	 	—	 	—	 	—	 	
Net income	 	(13.5	)%	4.4	%	4.8	%	5.4	%	5.9	%	
 	 		 		 		 		 		 	
Six months ended June 30, 2005 compared to six months ended June 30, 2004
        Revenue.     Our revenue increased 31.7% to $269.8 million for the six month period ended June 30, 2005 from $205.0 million for the comparable period of 2004. The increase in revenue is primarily due to the higher volume of products sold and business acquisitions. Organic revenue growth was approximately 13% in the six month period ended June 30, 2005 over the comparable period of 2004. We have continued to expand our services to the insured repair industry and added local delivery routes and transfer routes that helped us to increase our market penetration. Our ability to combine recycled OEM and aftermarket products offerings to our customers is further contributing to increased sales volume. We also completed three business acquisitions in the six month period ended June 30, 2005. Business acquisitions accounted for approximately $38.4 million of incremental revenue in the six month period ended June 30, 2005.
        Cost of Goods Sold.     Our cost of goods sold increased 31.5% to $142.7 million for the six month period ended June 30, 2005, from $108.5 million for the comparable period of 2004. The increase in cost of goods sold was primarily due to increased volume of products sold. As a percentage of revenue, cost of goods sold was 52.9% for 2005 and 2004.
        Gross Margin.     Our gross margin increased 31.8% to $127.1 million for the six month period ended June 30, 2005 from $96.4 million for the comparable period of 2004. Our gross margin increased primarily due to increased volume. As a percentage of revenue, gross margin was 47.1% for 2005 and 2004.
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        Facility and Warehouse Expenses.     Facility and warehouse expenses increased 28.5% to $29.0 million for the six month period ended June 30, 2005 from $22.5 million for the comparable period of 2004. Our acquisitions in the six month period ended June 30, 2005 accounted for $4.6 million of the increase in facility and warehouse expenses. Our remaining facility and warehouse expenses increased primarily due to $1.4 million of higher wages and benefits resulting from increased headcount and incentive compensation for field personnel coupled with $0.4 million of higher repairs and maintenance, supplies expense, and real estate taxes. This was partially offset by $0.2 million lower rent expense due to our exercise of purchase options on certain production facilities in 2004 and a gain of $0.2 million on the sale of property and equipment. As a percentage of revenue, facility and warehouse expenses decreased from 11.0% to 10.7%.
        Distribution Expenses.     Distribution expenses increased 31.5% to $29.5 million for the six month period ended June 30, 2005 from $22.4 million for the comparable period of 2004. As a percentage of revenue, distribution expenses remained constant at 10.9%. Our acquisitions in the six month period ended June 30, 2005 accounted for $3.6 million of the increase in distribution expenses. Our remaining distribution expenses increased as we have increased the number of local delivery trucks by approximately 6.8%. We operated 8.5% more daily transfer routes between our facilities and increased contracted salvage transfer services by 28.0% due to the increase in parts volume. Our fuel costs increased by 35.4% due primarily to price increases. In addition, higher wages from an increase in the number of employees and increased truck rentals and repairs accounted for the remaining growth in distribution expenses, partially offset by an improvement in freight costs.
        Selling, General, and Administrative Expenses.     Selling, general, and administrative expenses increased 24.6% to $36.4 million for the six month period ended June 30, 2005 from $29.2 million for the comparable period of 2004. Our acquisitions in the six month period ended June 30, 2005 accounted for $4.2 million of the increase in selling, general, and administrative expenses. The majority of the remaining expense increase was due to labor and labor-related expenses, including $0.4 million of higher incentive compensation and $0.3 million related to insurance and legal claims experience. Our selling expenses tend to rise as revenue increases due to the sales commissions of our recycled OEM products inside sales force. As a percentage of revenue, our selling, general, and administrative expenses decreased from 14.3% to 13.5%.
        Depreciation and Amortization.     Depreciation and amortization increased 25.0% to $4.0 million for the six month period ended June 30, 2005 from $3.2 million for the comparable period of 2004. Our acquisitions in the six month period ended June 30, 2005 accounted for $0.5 million of the increase in depreciation and amortization expense. Increased levels of property and equipment accounted for the remaining increase in depreciation and amortization expense in 2005 compared to 2004. As a percentage of revenue, depreciation and amortization decreased from 1.6% to 1.5%.
        Operating Income.     Operating income increased 48.4%, to $28.2 million for the six month period ended June 30, 2005 from $19 million for the comparable period of 2004. As a percentage of revenue, operating income increased from 9.3% to 10.5%.
        Other (Income) Expense.     Net other expense increased 56.7% to $1.0 million for the six month period ended June 30, 2005 from $0.6 million for the comparable period of 2004. As a percentage of revenue, net other expense increased from 0.3% to 0.4%. Net interest expense increased 57.9% to $1.2 million for the six month period ended June 30, 2005 from $0.8 million for the comparable period of 2004. Our average bank borrowings increased approximately $35.1 million during the six month period ended June 30, 2005 as compared to the comparable period of 2004, due primarily to acquisitions. In addition, our average effective interest rate on our bank debt also increased in 2005.
        Provision for Income Taxes.     The provision for income taxes increased 51.1% to $11.2 million for the six month period ended June 30, 2005 from $7.4 million in the comparable period of 2004, due primarily to improved operating results. Our effective tax rate was 41.1% in 2005 and 40.2% in 2004. The increase in the effective tax rate was due primarily to two reasons. First, the provision included state tax adjustments recorded in the second quarter of 2005; and second, changes in the distribution of our taxable income among different
29

states from previous estimates for state income tax purposes. Our effective tax rate for the remaining half of 2005 is expected to be 40.6%.
Year ended December 31, 2004 compared to year ended December 31, 2003
        Revenue.     Our revenue increased 29.5%, from $328.0 million in 2003 to $424.8 million in 2004. The increase in revenue was primarily due to the higher volume of products we sold and business acquisitions. Organic revenue growth was approximately 11.0% in 2004. We continued to expand our services to the insured repair industry and added local delivery routes and transfer routes that helped us to increase our market penetration. Business acquisitions completed in 2004 accounted for approximately $60.3 million of incremental revenue for the year.
        Cost of Goods Sold.     Our cost of goods sold increased 30.4%, from $174.2 million in 2003 to $227.1 million in 2004. As a percentage of revenue, cost of goods sold increased from 53.1% to 53.5%. The increase in cost of goods sold was primarily due to increased volume of products sold. The increase in cost of goods sold percentage was due primarily to a change in inventory mix to higher end salvage during the third quarter and lower recovery on our shipping and handling costs.
        Gross Margin.     Our gross margin increased 28.5%, from $153.7 million in 2003 to $197.6 million in 2004. Our gross margin increased primarily due to increased volume. As a percentage of revenue, gross margin decreased from 46.9% to 46.5%. Our gross margin as a percentage of revenue decreased due primarily to the factors noted above in Cost of Goods Sold. We shifted our buying in the fourth quarter to a lower average cost vehicle than we were purchasing earlier in the year and refocused our sales force to recoup more of our shipping and handling costs through higher billings for these items. As a result, we saw our gross margin improve in the fourth quarter compared to our third quarter.
        Facility and Warehouse Expenses.     Facility and warehouse expenses increased 23.6%, from $38.7 million in 2003 to $47.8 million in 2004. Our 2004 acquisitions accounted for $8.4 million of the increase in facility and warehouse expenses. Our remaining facility and warehouse expenses increased primarily from higher wages due to increased headcount and higher repairs and maintenance expenses. This increase was partially offset by lower incentive compensation expense for field personnel and lower rent expense due to our exercise of purchase options on certain production facilities that we previously leased. As a percentage of revenue, facility and warehouse expenses decreased from 11.8% to 11.3%.
        Distribution Expenses.     Distribution expenses increased 35.9%, from $35.3 million in 2003 to $47.9 million in 2004. As a percentage of revenue our distribution expenses increased from 10.8% to 11.3%. Our 2004 acquisitions accounted for $7.5 million of the increase in distribution expenses. Our remaining distribution expenses increased as we increased the number of local delivery trucks by approximately 5.4%. We also operated 11.6% more daily transfer routes between our facilities due to the increase in parts volume. For the year ended December 31, 2004 we increased the amount of product we moved between our facilities by approximately 30%, the majority of which was on our own transfer trucks. In addition, higher wages primarily from an increase in the number of employees, increased fuel costs, truck rentals and repairs, delivery supplies, contracted salvage transfer services, and freight costs accounted for the remaining growth in distribution expenses. We renegotiated our freight rates with substantially all of our common carriers in the fourth quarter of 2004, and we directed our sales force to recoup more of our shipping and handling costs.
        Selling, General, and Administrative Expenses.     Selling, general, and administrative expenses increased 24.4%, from $48.3 million in 2003 to $60.1 million in 2004. Our 2004 acquisitions accounted for $6.4 million of the increase in selling, general, and administrative expenses. The majority of the remaining expense increase was due to labor and labor-related expenses and costs associated with being a public company, partially offset by $0.3 million in lower incentive compensation, lower bad debt expenses of $0.4 million, and by improved insurance and legal claims experience of $0.9 million. Our selling expenses tend to rise as revenue increases due to our recycled OEM product commissioned inside sales force. We incurred approximately $2.8 million in
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costs related to being a public company compared to $0.6 million in 2003. These costs primarily included higher premiums for directors' and officers' liability insurance, higher directors' compensation expense, and higher accounting and legal fees. As a percentage of revenue our selling, general, and administrative expenses decreased from 14.7% to 14.1%.
        Depreciation and Amortization.     Depreciation and amortization increased 26.2%, from $5.4 million in 2003 to $6.9 million in 2004. Our 2004 acquisitions accounted for $1.2 million of the increase in depreciation and amortization. As a percentage of revenue our depreciation and amortization decreased from 1.7% to 1.6%.
        Operating Income.     Operating income increased 34.0%, from $26.1 million in 2003 to $35.0 million in 2004. As a percentage of revenue, operating income increased from 7.9% to 8.2%.
        Other (Income) Expense.     Net other expense decreased 44.9%, from $1.9 million in 2003 to $1.1 million in 2004. As a percentage of revenue, net other expense decreased from 0.6% to 0.2%. Included in other income are approximately $0.4 million of proceeds from a corporate owned life insurance policy. We use corporate owned life insurance policies to fund our obligations under our nonqualified deferred compensation plan. Net interest expense decreased 25.6% to $1.5 million in 2004 from $2.0 million in 2003. In 2004, interest expense was related primarily to debt incurred to fund acquisitions. Included in interest expense in 2004 was $0.3 million in debt issuance costs that were written off. These costs were attributable to our previous secured bank credit facility that was terminated in February 2004. See "Liquidity and Capital Resources" below for further discussion of changes in our bank credit facilities. The decrease in net interest expense was due to both lower average debt levels and interest rates in 2004.
        Provision for Income Taxes.     The provision for income taxes increased 38.7%, from $9.6 million in 2003 to $13.3 million in 2004 due primarily to improved operating results. Our effective tax rate was 39.2% in 2004 and 39.7% in 2003. The decrease in our effective income tax rate in 2004 was due primarily to the receipt of nontaxable life insurance proceeds of $0.4 million in the fourth quarter.
Year ended December 31, 2003 compared to year ended December 31, 2002
        Revenue.     Our revenue increased 14.2%, from $287.1 million in 2002 to $328.0 million in 2003. The increase in revenue was primarily due to the higher volume of products sold. We continued to expand our services to the insured repair industry and added local delivery routes and transfer routes that helped us to increase our market penetration. We increased the number of customers we served by approximately 5.8%. We also completed three business acquisitions during the first quarter of 2003. Business acquisitions completed in 2003 accounted for approximately $5.3 million of incremental revenue for the year.
        Cost of Goods Sold.     Our cost of goods sold increased 12.7%, from $154.6 million in 2002 to $174.2 million in 2003. The increase in cost of goods sold was primarily due to increased volume of products sold. As a percentage of revenue, cost of goods sold decreased from 53.8% to 53.1%.
        Gross Margin.     Our gross margin increased 16.0%, from $132.6 million in 2002 to $153.7 million in 2003. As a percentage of revenue, gross margin increased from 46.2% to 46.9%. Our gross margin increased primarily due to increased volume. The increase in gross margin percentage was due primarily to higher revenue growth in certain markets that historically had higher gross margins as a percentage of revenue and our improving costs of salvage in certain regional operations.
        Facility and Warehouse Expenses.     Facility and warehouse expenses increased 8.1%, from $35.8 million in 2002 to $38.7 million in 2003. The increase in facility and warehouse expenses was due primarily to higher wages from an increase in the number of employees, and higher costs of employee insurance, repairs and maintenance, and property insurance. We had several large employee medical claims in 2003 that increased our self-insured costs. Repairs and maintenance increased as our volumes increased. Property insurance rates were considerably higher in 2003. As a percentage of revenue, facility and warehouse expenses decreased from 12.5% to 11.8%.
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        Distribution Expenses.     Distribution expenses increased 23.6%, from $28.5 million in 2002 to $35.3 million in 2003. As a percentage of revenue, distribution expenses increased from 9.9% to 10.8%. We increased the number of transfer routes by approximately 18% and local delivery trucks by approximately 14.0% in 2003. In addition, higher wages from an increase in the number of employees, increased fuel, freight and vehicle insurance costs, and higher employee medical claims accounted for a portion of the growth in distribution expenses.
        Selling, General, and Administrative Expenses.     Selling, general, and administrative expenses increased 13.9%, from $42.4 million in 2002 to $48.3 million in 2003. The majority of the increase was due to labor and labor-related expenses. Our selling expenses tend to rise as revenue increases due to our recycled OEM product commissioned inside sales force. In addition, costs in 2003 that were higher than in 2002 were due primarily to higher levels of salaried outside sales staff, increased advertising and promotion activities, and additional other incentive compensation expense. Finally, we incurred approximately $0.6 million in higher premiums for directors' and officers' liability insurance and higher accounting fees and other costs in connection with becoming a public company in the fourth quarter of 2003. As a percentage of revenue, selling, general, and administrative expenses decreased from 14.8% to 14.7%.
        Depreciation and Amortization.     Depreciation and amortization increased 8.6%, from $5.0 million in 2002 to $5.4 million in 2003. As a percentage of revenue, depreciation and amortization remained constant at 1.7%. Increased levels of property and equipment accounted for the higher depreciation and amortization expense in 2003 compared to 2002.
        Operating Income.     Operating income increased 25.0%, from $20.8 million in 2002 to $26.0 million in 2003. As a percentage of revenue, operating income increased from 7.3% to 7.9%.
        Other (Income) Expense.     Net other expense decreased 26.0%, from $2.6 million in 2002 to $1.9 million in 2003. As a percentage of revenue, net other expense decreased from 0.9% to 0.6%. Net interest expense decreased 30.4%, from $2.9 million in 2002 to $2.0 million in 2003. The decrease was the result of both lower debts levels and interest rates in 2003, as well as higher debt issuance costs in 2002 from our previous credit facility that expired in June 2002. We paid down our bank debt with the proceeds from our initial public offering in the fourth quarter of 2003. Other income decreased $0.2 million due primarily to the favorable settlement of a claim in 2002 relating to an acquisition that was completed in 1998.
        Provision for Income Taxes.     The provision for income taxes increased 31.9%, from $7.3 million in 2002 to $9.6 million in 2003 due to improved operating results. Our effective income tax rate was 39.7% for 2003 and 39.8% for 2002.
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Quarterly Results of Operations
       The following table sets forth unaudited statement of operations data for our most recent 14 quarters. You should read the following table in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. We have prepared this unaudited information on a basis consistent with the audited consolidated financial statements contained in this prospectus. The results of operations of any quarter are not necessarily indicative of the results that may be expected for any future period.

(In thousands)
	 	Three Months Ended
	
 	 	March 31
	 	June 30
	 	September 30
	 	December 31
	
Revenue	 	 	 	 	 	 	 	 	 	 	 	 	
 	2002	 	$	71,314	 	$	72,787	 	$	71,860	 	$	71,164	
 	2003	 	 	79,256	 	 	81,017	 	 	83,472	 	 	84,228	
 	2004	 	 	100,073	 	 	104,878	 	 	106,045	 	 	113,760	
 	2005	 	 	133,807	 	 	136,023	 	 	—	 	 	—	

Gross Margin	

 	

 	

 	

 	
 	2002	 	 	32,958	 	 	33,700	 	 	33,145	 	 	32,748	
 	2003	 	 	37,453	 	 	38,345	 	 	39,041	 	 	38,897	
 	2004	 	 	46,996	 	 	49,441	 	 	48,683	 	 	52,496	
 	2005	 	 	62,636	 	 	64,492	 	 	—	 	 	—	

Operating Income	

 	

 	

 	

 	
 	2002	 	 	6,230	 	 	5,945	 	 	4,682	 	 	3,987	
 	2003	 	 	7,020	 	 	7,344	 	 	6,562	 	 	5,134	
 	2004	 	 	9,862	 	 	9,150	 	 	7,975	 	 	7,920	
 	2005	 	 	14,396	 	 	13,810	 	 	—	 	 	—	
       Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal changes in weather patterns. During the winter months, we tend to have higher demand for our products because there are more weather related accidents. In addition, the cost of salvage vehicles tends to be lower as more weather related accidents occur generating a larger supply of total loss vehicles.
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 Liquidity and Capital Resources
       Our primary sources of ongoing liquidity are cash flow from our operations and our credit facility. At June 30, 2005, we had cash and equivalents amounting to $2.3 million, and we had $53.0 million outstanding under our $135 million unsecured bank credit facility. Our credit facility was utilized to finance our January 2005 acquisition of an aftermarket products business for approximately $16.0 million. At the time of this acquisition we increased the total capacity of our credit facility to $100 million from $75 million. On June 1, 2005 we further amended our credit facility, increasing the total capacity to $135 million, extending the term to June 1, 2010 and modifying certain other provisions. Based on our current plans, we expect to generate positive cash flow from operating activities for 2005 and believe that cash flow from operating activities, availability under our credit facility, and the proceeds from this offering will be adequate to fund our short term liquidity needs. In August 2005 we used approximately $13.6 million of borrowings under our credit facility to fund the purchase price of two acquisitions.
       Our liquidity needs are primarily to fund working capital requirements and expand our facilities and network. The procurement of inventory is the largest operating use of our funds. We normally pay for salvage vehicles acquired at salvage auctions and under some direct procurement arrangements at the time that we take possession of the vehicles. We acquired approximately 74,000, 75,000, and 85,000 wholesale salvage vehicles in 2002, 2003, and 2004, respectively, and 43,400 and 48,900 in the six month periods ended June 30, 2004 and 2005, respectively. In addition, we acquired approximately 27,700 salvage vehicles for our self-service retail operations during 2004, and 10,400 and 25,100 in the six month periods ended June 30, 2004 and 2005, respectively. Furthermore, our purchases of aftermarket parts totaled approximately $23.4 million in 2004, and $9.1 million and $21.2 million in the six month periods ended June 30, 2004 and 2005, respectively.
       We intend to continue to evaluate markets for potential growth through the internal development of redistribution centers, processing facilities, and aftermarket warehouses, through further integration of aftermarket and recycled OEM product facilities, and through selected business acquisitions. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts, the costs and timing of expansion of our sales and marketing activities, and the costs and timing of future business acquisitions.
       Net cash provided by operating activities totaled $20.4 million for the six month period ended June 30, 2005, compared to $8.6 million for the comparable period of 2004. Cash was provided by net income adjusted for non-cash items. Working capital uses of cash included an increase in receivables, inventory, prepaid expenses, and other assets and a decrease in accounts payable, partially offset by increases in accrued liabilities and income taxes payable, before giving effect to tax benefits from employee stock option exercises. Income taxes payable were reduced by $1.9 million in tax benefits resulting from such employee stock option exercises. Receivables increased due primarily to our increased sales volume and inventory increased primarily to support that volume and to expand our aftermarket product offerings at many of our locations. Prepaid expenses and other assets increased primarily due to an increase in deferred compensation plan assets and debt issuance costs related to our credit facility amendment, partially offset by lower prepaid insurance due to amortization of directors' and officers' liability insurance. Accounts payable decreased due to the timing of vendor payments. Accrued liabilities increased primarily due to the timing of end of period wage payments, higher incentive compensation accruals, and higher self-insurance reserves for workers' compensation and auto liability claims.
       Net cash used in investing activities totaled $29.6 million for the six month period ended June 30, 2005, compared to $60.2 million for the comparable period of 2004. We invested $24.0 million in acquisitions in the six month period ended June 30, 2005 compared to $43.4 million in the comparable period of 2004. Property and equipment purchases decreased $9.7 million in the six month period ended June 30, 2005, due primarily to timing of capital expenditures in 2005 and exercises of purchase options on leased facilities in 2004. We
34

expect to spend approximately $24.0 million on capital expenditures during calendar 2005. We also exercised a warrant to acquire an equity investment for $0.7 million in 2004.
       Net cash provided by financing activities totaled $9.9 million for the six month period ended June 30, 2005, compared to $37.5 million for the comparable period of 2004. Exercises of stock options and warrants provided $4.4 million and $2.9 million, respectively, in the six month periods ended June 30, 2005 and 2004. We borrowed $6.0 million and $39.0 million, respectively, under our credit facility in the six month periods ended June 30, 2005 and 2004. Our borrowings were primarily to fund acquisitions, while we repaid $0.2 million and $4.1 million of long-term debt obligations in those same periods. We also expended $0.3 million and $0.2 million, respectively, in the six month periods ended June 30, 2005 and 2004, for debt issuance costs related to our credit facility.
       Net cash provided by operating activities totaled $25.9 million in 2004, compared to $20.9 million in 2003. Cash was provided by net income adjusted for non-cash items. Working capital uses of cash included increases in receivables and inventory, plus decreases in accounts payable and other noncurrent liabilities, partially offset by decreases in prepaid expenses and other assets, plus increases in accrued expenses, income taxes payable, and deferred revenue. Receivables increased due to our increased sales volume and increases of $0.6 million for employee relocation loans. Inventory increased to support our increased volume. Accounts payable decreased as we accelerated payments to certain foreign vendors in order to realize improved pricing on certain aftermarket product purchases and also due to the timing of payments for certain facility construction projects and information systems licenses. Other noncurrent liabilities decreased primarily due to reductions in legal claim reserves partially offset by an increase in employee deferred compensation liabilities. Prepaid expenses and other assets decreased due primarily to amortization of directors' and officers' liability insurance partially offset by an increase in deferred compensation plan assets and cash paid in connection with the exercise of a warrant, net of decreases in that investment's value subsequent to acquisition. Accrued expenses increased primarily due to increases in our self-insurance reserves, property taxes, and timing of wage payments. Income taxes payable increased due primarily to our higher levels of taxable income. Deferred revenue increased primarily due to higher sales of extended warranty contracts.
       Net cash used in investing activities totaled $87.8 million in 2004, compared to $12.2 million in 2003. We invested $61.6 million of cash in six acquisitions in 2004 compared to $3.3 million in three acquisitions in 2003, while net property and equipment purchases increased $16.6 million, due primarily to exercises of purchase options on previously leased facilities and investments in facility expansions and information systems. We also exercised a warrant and paid an exercise price of $0.7 million in 2004. See Note 1 of the "Notes to Consolidated Financial Statements" for further discussion of this investment.
       Net cash provided by financing activities totaled $47.5 million in 2004, compared to $6.8 million in 2003. Included in these net cash amounts are $4.9 million in 2004 from the exercises of stock options and warrants and $60.0 million in 2003 from the sale of shares in our initial public offering and exercises of stock options and warrants. In addition, we borrowed $47.0 million under our credit facility in 2004 primarily to fund acquisitions, compared to net repayments of $29.8 million in 2003. Repayments of long-term debt obligations increased $3.8 million in 2004. We also incurred $0.2 million in 2004 for debt issuance costs related to our new unsecured credit facility compared to $0.1 million in 2003. In 2003, we repurchased 3,557,498 shares of our common stock for $22.9 million.
       Net cash provided by operating activities totaled $20.9 million in 2003, compared to $17.7 million in 2002. Cash was provided by net income adjusted for non-cash items. Working capital uses of cash included an increase in receivables and prepaid expenses and other assets, partially offset by decreases in inventory and increases in payables, deferred revenue, and other operating liabilities. Prepaid expenses and other assets increased primarily due to increases in annual insurance premiums, increases in annual maintenance contracts for information systems hardware, deferred costs incurred with respect to business acquisitions completed in early 2004 and an increase in prepaid income taxes that was refunded or applied against our 2004 estimated tax payments. The increase in receivables and payables was consistent with our increased business activity. Our
35

inventory decreased primarily due to a greater number of inventory turns. Deferred revenue increased primarily due to higher sales of extended warranty contracts. Other noncurrent liabilities increased primarily due to increases in employee deferred compensation liabilities.
       Net cash used in investing activities totaled $12.2 million in 2003, compared to $6.7 million in 2002. In 2003, we invested $3.3 million of cash in three acquisitions, while net property and equipment purchases increased $2.2 million, primarily due to investments in facility expansions and new information systems.
       Net cash provided by financing activities totaled $6.8 million in 2003, compared to net cash used in financing activities of $12.0 million in 2002. Before our initial public offering, we repurchased 3,557,498 shares of our common stock in 2003 for $22.9 million, primarily funded by borrowings under our credit facility totaling $21.0 million. We completed our initial public offering in the fourth quarter of 2003 resulting in net proceeds of $58.3 million after expenses. We then paid down the entire outstanding amount of $45.0 million under our credit facility. We had net debt repayments of $11.3 million in 2002. We also received proceeds of $1.4 million from the exercise of stock options and $0.3 million from the exercise of warrants in 2003, while our debt issuance costs decreased $0.5 million compared to 2002.
       On February 17, 2004, we entered into a new unsecured revolving credit facility that originally matured in February 2007, replacing a secured credit facility that would have expired on June 30, 2005. The new credit facility initially had a maximum availability of $75.0 million, which was amended to $100 million on January 31, 2005. On June 1, 2005, the agreement was further amended to increase the maximum availability to $135 million, extend the maturity date to June 1, 2010, and modify certain other terms. In order to make any borrowing under the credit facility, after giving effect to any such borrowing, we must be in compliance with all of the covenants under the credit facility, including, without limitation, a senior debt to EBITDA ratio, which cannot exceed 3.00 to 1.00. The credit facility contains customary covenants, including, among other things, limitations on payment of cash dividends, restrictions on our payment of other dividends and on purchases, redemptions, and acquisitions of our stock, limitations on additional indebtedness, certain limitations on acquisitions, mergers, and consolidations, and the maintenance of certain financial ratios. We were in compliance with all covenants throughout the first six months of 2005 and all of 2004 and 2003. The interest rate on advances under the credit facility may be, at our option, either the bank prime lending rate, on the one hand, or the Interbank Offering Rate (IBOR) plus an additional percentage ranging from .875% to 1.625%, on the other hand. The percentage added to IBOR is dependent upon our total funded debt to EBITDA ratio for the trailing four quarters.
       We may in the future borrow additional amounts under our credit facility or enter into new or additional borrowing arrangements. We anticipate that any proceeds from such new or additional borrowing arrangements will be used for general corporate purposes, including to develop and acquire businesses and redistribution facilities; to further the integration of our aftermarket and recycled OEM product facilities; to expand and improve existing facilities; to purchase property, equipment, and inventory, and for working capital.
       During August 2002, as required by our credit facility, we entered into a two-year interest rate swap agreement with a total notional amount of $10.0 million and a fixed rate of 2.65%. The counterparty to the agreement was a member of our bank group. This swap agreement expired on August 22, 2004. Under the terms of the agreement, we were required to make quarterly payments at the specified fixed rate and in return received payments at variable rates. The estimated fair value of the interest rate swap was a loss of $0.1 million at December 31, 2003 and a gain of $0.1 million at June 30, 2004, and is included in Other Noncurrent Liabilities and Accrued expenses. In accordance with the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, the changes in the fair value of the interest rate swap are included in current period earnings, as the agreement had not been designated as a hedging instrument.
       In February 2003, we repurchased 2,000,000 shares of our common stock from existing stockholders, including 1,878,684 shares repurchased from AutoNation, Inc., our largest stockholder at the time, for a total of
36

$12.0 million in cash. We partially funded the stock repurchase by obtaining a $9.0 million term loan, which originally had a maturity date of February 20, 2004. On October 9, 2003, we fully paid the balance on the term loan.
       On February 28, 2003, in connection with a business acquisition, we issued two promissory notes totaling $0.2 million. The annual interest rate on the notes is 3.5% and interest is payable upon maturity. The first $0.1 million note was paid on February 28, 2004 and the second $0.1 million note was paid on March 1, 2005.
       In May 2003, we repurchased 1,557,498 shares of our common stock from existing stockholders, including 1,500,000 shares repurchased from AutoNation, Inc., for a total of $10.9 million in cash. We partially funded the stock repurchase by borrowing an additional $9.0 million against an existing revolving credit facility.
       On January 28, 2004, as part of the consideration for a business acquisition, we issued a promissory note in the amount of $1.0 million. The note is secured by certain real property owned by us. The annual interest rate on the note is 3.5%. Monthly payments of interest and principal totaling $9,889 are required, with the remaining outstanding principal balance due in a lump sum payment on January 28, 2009.
       On February 25, 2004, as part of the consideration for a business acquisition, we issued two promissory notes totaling $1.3 million. The annual interest rate on the notes is 3.5% and interest is payable annually. The notes mature on February 25, 2006. At our option, the maturity of the notes may be extended to February 25, 2008. The annual interest rate on the notes during the extension period would be 5.0%.
       We assumed certain liabilities in connection with a business acquisition during the first quarter of 2004, including two bankers acceptances totaling $1.2 million. The annual interest rate on the bankers acceptances, which were paid during the second quarter of 2004, was 2.94%.
       On June 10, 2004, as part of the consideration for a business acquisition, we issued a note totaling $0.1 million. The annual interest rate on the note is 3.0%, and the note, along with accrued interest, is payable at maturity on June 10, 2006.
       On April 1, 2005, as part of the consideration for a business acquisition, we issued a promissory note in the amount of $0.1 million. The annual interest rate on the note is 3.5%, and the note, along with accrued interest, is payable at maturity on April 1, 2007.
       On April 26, 2005, as part of the consideration for a business acquisition, we issued three promissory notes totaling $0.2 million. The annual interest rate on the notes is 3.0%, and the notes, along with accrued interest, are payable at maturity on April 26, 2007.
       We assumed certain liabilities in connection with a business acquisition during the second quarter of 2005, including a promissory note with a remaining principal balance of approximately $0.2 million. The annual interest rate on the note is 5.0%. Monthly payments of interest and principal totaling $5,094 are required through October 2008.
       As of August 1, 2005, we had approximately 1.3 million warrants outstanding at an exercise price of $2.00 per share that will expire if unexercised on February 14, 2006.
       In August 2005, in connection with a business acquisition, we issued a promissory note in the amount of $0.1 million. The annual interest rate on the note is 3.0%, and the note, along with accrued interest, is payable at maturity on August 30, 2006.
       We estimate that our capital expenditures for 2005 will be approximately $24.0 million, excluding business acquisitions. We expect to use these funds for asset replacements, expansion and improvement of current facilities, real estate acquisitions, systems development projects, and completion of a new facility. We anticipate that net cash provided by operating activities for 2005 will be in excess of $25.0 million.
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       We believe that our current cash and equivalents, cash provided by operating activities, funds available under our existing credit facility, and the proceeds from this offering will be sufficient to meet our current operating and capital requirements. However, we may, from time to time, raise additional funds through public or private financing, strategic relationships, or other arrangements. There can be no assurance that additional funding, or refinancing of our current credit facility, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.
Off-Balance Sheet Arrangements and Future Commitments
       We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt that would be required to be disclosed pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934, as amended. Additionally, we have not entered into any derivative contracts other than our interest rate swap agreement discussed above (that expired in August 2004), nor do we have any synthetic leases.
       The following table represents our future commitments under contractual obligations as of June 30, 2005:

(In millions)
	 	 	 	Less than 1 year
	 	 	 	 	 	More than 5 years
	
 	 	Total
			 	1-3 Years
	 	3-5 Years
			
Contractual obligations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt	 	$	69.3	 	$	0.5	 	$	2.7	 	$	66.1	 	$	0.0	
Operating leases	 	 	40.8	 	 	10.7	 	 	18.0	 	 	8.7	 	 	3.4	
Other long-term obligations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Deferred compensation plans	 	 	2.6	 	 	0.0	 	 	0.0	 	 	0.0	 	 	2.6	
 	 		 		 		 		 		
Totals	 	$	112.7	 	$	11.2	 	$	20.7	 	$	74.8	 	$	6.0	
 	 		 		 		 		 		
       Our long-term debt under contractual obligations above includes interest on the balance outstanding under our variable rate credit facility as of June 30, 2005. The $53.0 million outstanding at June 30, 2005 was assumed to remain unpaid until the facility matures on June 1, 2010, and interest was computed at the average effective rate of 4.26% at June 30, 2005.
       The interest rate on advances under the credit facility (our primary debt outstanding) may be, at our option, either the bank prime lending rate, on the one hand, or the Interbank Offering Rate (IBOR) plus an additional percentage ranging from .875% to 1.625%, on the other hand. The percentage added to IBOR is dependent upon our total funded debt to EBITDA ratio (as defined) for the trailing four quarters.
Quantitative and Qualitative Disclosures About Market Risk
       Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our credit facility, where interest rates are tied to either the prime rate or IBOR. As of June 30, 2005 we had $53.0 million outstanding under our credit facility. Our previous secured credit facility required that we enter into an interest rate swap agreement to mitigate our interest rate risk on a portion of the balance outstanding. We do not however, as a matter of policy, enter into derivative contracts for trading or speculative purposes. The swap agreement, which expired on August 22, 2004, had a notional amount of $10.0 million under which we paid a fixed rate of interest of 2.65% and received payments based upon variable rates. The swap agreement was not designated as a hedging instrument and, as a result, changes in the fair value of the swap agreement were included in current period earnings. We recorded non-cash credits of $69,000 and $90,000 during 2003 and 2004, respectively, and $70,000 during the six month period ended June 30, 2004, related to the change in fair value of the interest rate swap agreement.
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       Based upon our variable rate debt at December 31, 2004, a hypothetical 1% increase in interest rates would result in an annual increase in interest expense of approximately $0.5 million.
       We are also exposed to currency fluctuations with respect to the purchase of aftermarket parts in Taiwan. While all transactions with manufacturers based in Taiwan are conducted in U.S. dollars, changes in the relationship between the U.S. dollar and the New Taiwan dollar might impact the purchase price of aftermarket parts. We might not be able to pass on any price increases to customers. Under our present policies, we do not attempt to hedge this currency exchange rate exposure.
       Our investment in our Central American operations is not material, and we do not attempt to hedge our foreign currency risk related to such operations.
39

 
 INDUSTRY
Overview
Vehicle Recycling Industry
       Vehicle recyclers, also known as salvage yards or vehicle dismantlers, are in the business of procuring severely damaged or total loss vehicles and disassembling them for their salvage parts, other mechanical parts, and scrap value. Vehicle recycling is a process that involves:
•
the purchase and collection of damaged or obsolete motor vehicles, including domestic and foreign automobiles, light and heavy duty trucks, buses, and motorcycles; 

•
the dismantling or disassembly of collected vehicles and removal of reusable parts for resale or remanufacturing; 

•
the removal of non-reusable but recyclable materials and parts, such as fluids, batteries, tires, and catalytic converters; and 

•
the disposal of vehicle hulks for shredding and the distribution of remaining waste to scrap processors and landfills.
       Wrecked vehicles are sold at salvage auctions held each weekday throughout the country. Salvage auctions provide an outlet for salvage vehicles to be sold primarily to vehicle recyclers and rebuilders.
       A salvage vehicle product is a used part suitable for sale as a replacement part. Other used mechanical parts are parts not suitable for sale as replacement parts without further remanufacturing work. In most cases, much of a salvaged vehicle is utilized for salvage parts, including engines, transmissions, body panels and assemblies, electrical equipment, wheels, and, to a lesser extent, glass.
       The vehicle recycling industry is highly fragmented, with very few multi-unit operators. We estimate that there are more than 6,000 vehicle recyclers in the U.S. We believe approximately 93% of vehicle recycling businesses have less than $3.0 million of annual revenue and approximately 50% have less than $0.5 million of annual revenue. Estimates of the aggregate size of the vehicle recycling industry in the U.S. published in 1997 ranged from $5.3 billion to $7.1 billion.
       According to CCC Information Services, Inc., which we refer to as CCC, recycled OEM products account for approximately 12.4% of insured collision replacement parts sales and 4.8% of total insured collision repair costs. We believe that recycled OEM products can account for a larger percentage of the replacement parts market based on the advantages offered by recycled OEM products and industry dynamics, including high frequency of collisions, high cost of vehicle repair, and the desire of insurance companies to reduce their claims expenses.
Vehicle Aftermarket Industry
       The U.S. market for vehicle aftermarket products (including accessories, service, repair, and maintenance items) totaled $190.5 billion in 2004 and is estimated at $199.0 billion in 2005, according to the Automotive Aftermarket Industry Association, which we refer to as the AAIA. The portions of the aftermarket products market that vehicle recyclers and aftermarket product distributors primarily serve are the collision repair market, with approximately $36.1 billion of annual sales in 2004, and the mechanical repair market, with approximately $101.2 billion of annual sales in 2004, according to the AAIA. According to CCC, aftermarket products account for approximately 10.7% of insured collision replacement parts sales and 4.1% of total insured collision repair costs.
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Repair Shops
       The collision repair and mechanical repair markets include sales of replacement products. Buyers of light vehicle replacement products have the option to purchase primarily from three sources: new products produced by OEMs, which are commonly known as OEM products; new products produced by companies other than the OEMs, which are sometimes referred to generically as "aftermarket" products; and recycled products originally produced by OEMs, which we refer to as recycled OEM products.
       Recycled OEM and aftermarket products are purchased by mechanical repair shops that service the mechanical aspects of vehicles, collision repair shops that work on the body parts of vehicles, remanufacturers of parts that require some restoration prior to use, and retail used parts customers. The vehicle recycling industry sells primarily to mechanical and collision repair shops and to retail customers. The use of recycled OEM and aftermarket products in the repair process usually results in a lower cost of replacement products to repair shops and retail customers than the use of new OEM products. The purchasers of recycled OEM and aftermarket products are collectively referred to in this prospectus as repair shops.
       Repair shops are the direct buyers of replacement products. However, the vast majority of the $36.1 billion of collision repair costs are paid by automobile insurance companies. In such cases, insurance companies can exert significant influence over the decision of which replacement product is purchased.
Insurance Companies and Extended Warranty Providers
       The automobile insurance industry as a whole places emphasis on containing the cost and managing the severity of claims. As part of this emphasis, insurance companies and extended warranty providers have entered into arrangements with repair shops to better manage the repair process. Insurance companies with these arrangements direct their repair work to the repair shops in their "network" in exchange for more control over the repair process. We believe that these arrangements can lead to a higher utilization of recycled OEM and aftermarket products.
       Many insurance companies have signed work agreements with repair shops that govern the rules the repair shop must follow when doing work for a particular insurance company, including the percentages of recycled OEM products the shop must use. In return, the insurance company designates the repair shop as one of its direct repair facilities and sends its repair work to that shop. Accordingly, in many instances when a vehicle is in an accident, the insurance company will designate the repair shops to which the vehicle can be taken for repair.
       We believe that recycled OEM and aftermarket products have advantages over new OEM products. Our recycled OEM and aftermarket products are, with rare exceptions, less expensive than, and of comparable quality to, new OEM products. Often recycled OEM products require less assembly or preparation work than new OEM products and aftermarket products. We believe that the automobile insurance industry and extended warranty providers will continue to direct the purchase of more recycled OEM and aftermarket products as a percentage of total replacement product purchases as insurance companies recognize the advantages of these alternatives to new OEM products.
Economics of the Industry
       The current insurance industry practice of reimbursing repair shops for replacement product purchases differs depending on whether new OEM products, aftermarket products or recycled OEM products are purchased. In general, we believe repair shops receive a discount of approximately 30% (depending on such factors as volume, geographic location and other competitive market conditions) from the list price of new OEM products and approximately 25% on aftermarket products. Automobile insurance companies then reimburse repair shops the full list price, resulting in a mark-up of over 40% for new OEM products and 33% for aftermarket products. With respect to recycled OEM products, we believe insurance companies generally
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reimburse repair shops the actual cost of the recycled OEM product plus a mark-up of 25%. While the repair shops have an economic incentive to purchase new OEM products or aftermarket products instead of recycled OEM products, the use of recycled OEM products provides a benefit to repair shops in that such products may allow them to repair the vehicle rather than have it declared a total loss.
       New OEM products and aftermarket products often require various degrees of assembly and preparation. The insurance company has to pay for the labor required for such assembly and preparation, as well as increased expenses incurred due to the additional time required, such as rental vehicle expenses. Recycled OEM products, on the other hand, are delivered to the repair shop in an assembled condition, reducing repair time and, thus, providing cost savings to insurance companies.
Accident and Repair Trends
       Vehicles involved in accidents contribute both to the supply of recycled OEM products available for resale and to the demand for repairs using recycled OEM and aftermarket products. The number of vehicles involved in collisions is influenced by a number of factors including the number of vehicles on the road, the number of miles driven, the ages of drivers, the use of cellular telephones and other electronic equipment by drivers, the congestion of traffic, the occurrence and severity of certain weather conditions, the use of alcohol and drugs by drivers, and the condition of the roadways.
       The dollar volume of professional repairs, which excludes do-it-yourself repairs, is significant. The following table sets forth such dollar volumes in the U.S. for the years indicated, according to the AAIA.

(In billions)
	 	1997
	 	1998
	 	1999
	 	2000
	 	2001
	 	2002
	 	2003
	 	2004
	
Professional collision repair	 	$	25.6	 	$	25.9	 	$	27.4	 	$	28.8	 	$	30.6	 	$	32.3	 	$	34.1	 	$	36.1	
Professional mechanical and electrical repair	 	 	73.6	 	 	75.6	 	 	79.2	 	 	84.3	 	 	89.6	 	 	93.6	 	 	97.4	 	 	101.2	
       According to CCC the percentage of vehicles categorized as "total loss" vehicles by the automobile insurance industry is rising. The percentage of vehicles involved in collisions annually that are appraised and subsequently categorized as total loss is as follows for the years listed:

Year
	 	%
	
1997	 	7.8	
1998	 	8.0	
1999	 	7.5	
2000	 	7.9	
2001	 	9.9	
2002	 	11.3	
2003	 	12.0	
2004	 	13.3	
       Generally, a vehicle is categorized as a total loss when the cost to repair it exceeds its replacement cost. The number of vehicles being declared a total loss is increasing due to higher collision repair costs resulting from the use of more integrated and complex systems in vehicle body construction and the inclusion of more air bags and electronics in vehicles. The rise in the number of total loss vehicles is important because it increases the quantity of parts available and tends to reduce the procurement cost of salvage vehicles at auction. We expect that insurance companies will attempt to reduce the number of total loss vehicles by reducing the severity of claims generally. We believe that one of the key methods to reduce severity is to utilize less expensive recycled OEM or aftermarket products in the repair process.
42

 
 BUSINESS
Overview
       We provide replacement systems, components, and parts needed to repair light vehicles. Buyers of light vehicle (car and light trucks) replacement products have the option to purchase from primarily three sources: new products produced by original equipment manufacturers ("OEMs"), which are commonly known as OEM products; new products produced by companies other than the OEMs, which are sometimes referred to generically as "aftermarket" products; and recycled products originally produced by OEMs, which we refer to as recycled OEM products. We participate in the market for recycled OEM products as well as the market for collision repair aftermarket products. We obtain aftermarket products and salvage vehicles from a variety of sources, and we dismantle the salvage vehicles to obtain a comprehensive range of vehicle products that we distribute into the light vehicle repair market. We are not involved in the manufacture of automotive products and do not maintain any manufacturing or remanufacturing operations.
       We believe we are the largest nationwide provider of recycled OEM products and related services, with sales, processing, and distribution facilities that reach most major markets in the U.S. While we currently service the majority of the major metropolitan areas in the U.S. with both recycled OEM and aftermarket products, we estimate our current share of the light vehicle recycling market to be less than 10%, and our current share of the aftermarket products market to be less than 7%. We believe there are opportunities for growth in both product lines through acquisitions and internal development.
       We procure salvage vehicles, primarily at auctions, using our locally based professionals, proprietary processes, and a disciplined procurement system. In addition, as an alternative source of salvage vehicles, we obtain some inventory directly from insurance companies, vehicle manufacturers, and other suppliers. Once we have received proper title, which assures us that the vehicles have not been stolen, we dismantle such vehicles for recycled OEM products. We purchase aftermarket products from manufacturers, primarily in Taiwan, using a proprietary order management system.
       Our customers include collision and mechanical repair shops and, indirectly, insurance companies, including extended warranty companies. The majority of our products and services are sold to collision repair shops, also known as body shops, and mechanical repair shops. We indirectly rely on insurance companies, which ultimately pay the collision repair shops for the repair of insured vehicles, as a source of business. These insurance companies exert significant influence in the vehicle repair decision, and increasingly look to a nationwide source for consistency, quality, and availability of replacement products. Because of their importance to the process, we have formed business relationships with certain insurance companies, and with certain extended warranty providers, in order to be their preferred light vehicle parts supplier. For example, with some insurance companies we have vehicle repair order estimate review programs in place and provide their claims adjusters a part quote and locator service. In addition, we provide them an outlet to dispose of certain total loss vehicles directly to us. We provide extended warranty companies a single national call desk to service their nationwide needs for mechanical products.
       We believe we provide customers a value proposition that includes high quality products, extensive product availability due to our regional inventory trading zones, product costs lower than new OEM products, and quick delivery. We provide benefits to repair shops and insurance companies because the lower costs for our products enable many vehicles to be repaired rather than declared a total loss. By expanding our product offerings to include both recycled OEM products and aftermarket products we now offer customers a more extensive range of light vehicle replacement products. We believe this unique combination of recycled and aftermarket product offerings allows us to serve as a "one-stop" solution for our customers looking for the most cost advantageous way to repair vehicles.
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Our History
       We believe we were the first recycler of light vehicle products to achieve a national network and presence. Since our formation in 1998, we have grown through both internal development and acquisitions. Our acquisition strategy has been to target companies with strategic locations and significant market presence, strong management teams, a record of environmental compliance, solid growth prospects, and a reputation for quality and customer service. Since our initial public offering in 2003, we have completed eleven acquisitions that met our criteria and enhanced our business. Today we have over 95 facilities focused on serving our customers with a broad range of products. In February 2004 we expanded our product offerings by also becoming a supplier of aftermarket products and a provider of self-service retail recycled vehicle products. We currently have approximately 36 locations supplying aftermarket products, serving 21 states primarily east of the Mississippi River, and nine locations providing self-service retail recycled vehicle products in Florida, Oregon, and Tennessee.
       Since 2000, our revenue has increased from $226.3 million to $424.8 million in 2004, a 17.0% compound annual growth rate. During the same period, our operating income increased from $4.6 million to $34.9 million, a 65.8% compound annual growth rate. For the year ended December 31, 2004, revenue derived from recycled OEM products and related services represented approximately 81% of our revenue, sales of aftermarket products and services represented approximately 10% of our revenue, and sales of other products, such as scrap and other bulk and core products, represented approximately 9% of our revenue. Our revenue for the six months ended June 30, 2005 was $269.8 million, an increase of 31.7% over the same period in 2004, and our operating income was $28.2 million, a 48.4% increase over the same period in 2004.
Recent Developments
       In August 2005, we completed two acquisitions for an aggregate consideration of approximately $13.7 million. These two companies, one headquartered in Arkansas and one headquartered in Pennsylvania, are in the aftermarket products business. These acquisitions enable us to serve new markets and provide a broader product offering to our customers. These businesses had approximately $16.6 million of revenue in 2004.
Our Strengths
We Provide a National Solution to Insurance Companies and Extended Warranty Providers.
       We believe that our nationwide presence gives us a unique ability to service the major automobile insurance companies and extended warranty providers. Insurance companies and extended warranty providers operate generally at a national or regional level and play a critical role in the repair process. We believe we provide a direct benefit to these companies by lowering the cost of repairs, decreasing the time required to return the repaired vehicle to the customer, and providing a replacement product that is of comparable quality to the part replaced. Specifically, we assist insurance companies by purchasing insured total loss vehicles and by providing cost effective products through sales to collision repair shops, especially to repair shops that are part of an insurance company network. We also provide a review of vehicle repair order estimates to insurance companies so they may assess the opportunity to increase usage of recycled OEM and aftermarket products. For extended warranty providers, we provide a single national call desk to service their nationwide need for mechanical products.
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We Believe We have the Only National Network for Recycled OEM Products and it Would be Difficult to Replicate.
       We have invested significant capital developing a national network of recycled OEM product facilities that serves most major metropolitan areas in the U.S. We have differentiated ourselves from our local competitors and made replication of our network difficult by developing our network through purchasing anchor companies that were among the largest companies in the industry. The difficulty and time required to obtain proper zoning, as well as dismantling and other environmental permits necessary to operate newly-sited facilities, would make establishing new facilities challenging. In addition, there are difficulties associated with recruiting and hiring an experienced management team that has strong industry knowledge and local relationships with customers. Finally, our national network allows us to enter new adjacent markets quickly by establishing redistribution facilities, which avoids the need for local dismantling capabilities and inventory.
We Benefit From a Local Presence.
       Our network of facilities allows us to develop and maintain our relationships with local repair shops, while providing a level of service to insurance companies and national customers that is made possible by our nationwide presence. Our local presence allows us to provide daily deliveries that our customers require, using drivers who routinely deliver to the same customers. Our sales force and local delivery drivers develop and maintain critical personal relationships with the local repair shops that benefit from access to our wide selection of products which we are able to offer as a result of our regional inventory network.
We Have a Proven and Effective Procurement Process.
       We have designed information systems and methodologies to procure salvage vehicles and aftermarket products cost-effectively. As our largest single expenditure, efficient procurement of salvage vehicles is critical to the growth, operating results and cash flow of our business. Our processes and know-how allow us to identify and value the parts that can be recycled on a damaged vehicle at auction and to determine rapidly the maximum price we will pay for the vehicle in order to achieve our target margins on resale of the recycled OEM products. We carefully analyze the market and obtain aftermarket products and salvage vehicles of the type whose parts are in demand at prices that we believe will allow us to sell products profitably. We have also taken advantage of our relationships with insurance companies and vehicle manufacturers to obtain salvage vehicles outside the auction process.
We Have a Broad and Deep Inventory of Products.
       We believe that our customers place a high value on availability of a broad range of light vehicle replacement products. We also believe that our inventory of both recycled OEM and aftermarket products allows us to fill a higher percentage of our customers' orders than our competitors. In addition, our ability to share inventory on a regional basis increases the availability of replacement products and also helps us to fill a higher percentage of our customers' orders. We have developed regional trading zones within which we make our inventory available to our local facilities, mostly via overnight product transfers. We manage our inventory and purchasing on a regional basis to enhance the availability of the products that we believe will be in the highest demand within each region. Our broad and deep inventory furthers our ability to serve as a "one-stop" solution for our customers' recycled OEM and aftermarket product needs.
We Have Implemented Management Disciplines.
       Our management and operations team is highly experienced, with many managers having spent their entire careers in the light vehicle recycling industry. We have developed and built procurement, operating, and financial systems that have allowed us to grow and develop our national network and implement professional management techniques and disciplines. As our business has grown, we have acquired additional management talent which has furthered the sharing of best practices throughout the company. In addition, our senior
45

management team has extensive acquisition experience and will continue to use our disciplined approach in targeting growth opportunities.
Our Strategies
Strengthen our National Network Through Internal Growth and Acquisitions.
       We intend to continue to expand our market coverage through a combination of internal development and acquisitions and to look for opportunities to expand into new regions and into adjacent markets. We plan to establish a presence in additional major metropolitan markets and a number of smaller markets in the U.S. We have applied an analytical and disciplined approach to our acquisition process and have targeted companies with strong management teams, a record of environmental compliance, solid growth prospects, and a reputation for quality and customer service.
Further Develop Business Relationships.
       We intend to continue to develop business relationships with automobile insurance companies, extended warranty providers, and other industry participants. We believe that insurance companies and extended warranty providers, as payors for many repairs, will take a more active role in the selection of replacement products in the repair process in order to use lower cost alternatives to new OEM products. On behalf of certain insurance company customers, we provide a review of vehicle repair order estimates so they may assess the opportunity to increase usage of recycled OEM and aftermarket products in the repair process, thereby reducing their costs. Our employees also provide quotes for our products to assist several insurance companies with their estimate and settlement processes. We also work with insurance companies and vehicle manufacturers to procure salvage vehicles directly from them on a selected basis, which provides us an additional source of supply and provides them improved economics on salvage vehicle sales. We believe we are positioned to take advantage of the increasing importance of these industry participants and will continue to look for ways to enhance our relationships.
Continue to Improve our Operating Results.
       We are working to improve our operating results by applying our business disciplines to our most recently acquired facilities, continuing to build our network, further centralizing certain functions, improving our use of technology, and increasing revenue at our lower volume facilities. Our higher volume facilities generally operate at a higher profitability level as a percentage of revenue. We believe we can improve the profitability level at our lower volume facilities by achieving the higher volumes and improved economies of scale that we realize at our higher volume facilities. We intend to continue to refine our procurement system which uses methodologies that analyze demand levels for our products, existing inventory levels, and projected margins on an individual vehicle basis.
Further Develop our Technology and Business Processes.
       We continue to emphasize the use of technology in our processes to improve efficiency and to increase the standardization of our business. Our technology and proprietary processes enhance procurement, pricing, and inventory management. We continue to develop our technology to allow us to better manage and analyze our inventory, to assist our sales people with up-to-date pricing and availability of our products, and to further enhance our procurement process. For example, many of our representatives responsible for procuring vehicles, whom we refer to as "scouts," are equipped with handheld computing devices to assist them in appraising the vehicles prior to submitting a bid to purchase the vehicle. Additionally, we have begun developing a bar code system that we believe will facilitate improved inventory tracking and management of our recycled products.
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Raise Industry Standards by Being the Industry Leader.
       Since our inception, we have employed a professional approach to the light vehicle recycling business. We continue to seek new ways to improve our methodologies and to communicate our standards to our customers. We further believe that, by elevating industry standards in areas such as customer service, integrity, product quality and availability, delivery time, warranty support, environmental compliance, and appearance of facilities, we can help promote the acceptability of the use of recycled OEM and aftermarket products.
Our Process
       Our operations generally involve the procurement of inventory, vehicle processing (in the case of wholesale recycled OEM products), sales, and distribution.
Procurement of Inventory
       We start the process of procuring recycled OEM products for our wholesale operations by acquiring severely damaged or totaled vehicles. We acquired approximately 84,600 salvage vehicles for our wholesale operations in 2004 and 48,900 salvage vehicles during the first six months of 2005. We purchase the majority of our vehicles from salvage auctions. Wrecked vehicles are sold at salvage auctions held each weekday throughout the country. Salvage auctions provide an outlet for salvage vehicles to be processed and sold primarily to automotive recyclers and rebuilders. We pay third parties fees to tow the vehicles from the auction to our facilities. Salvage auctions charge fees both to the supplier of vehicles (primarily insurance companies) and to the purchaser (including us).
       For the vast majority of our salvage auction purchases, we send a scout in advance of each auction to investigate the vehicles we would be interested in buying. The scout obtains key information such as the model, mileage, and damage assessment and determines which parts on the targeted vehicles are recyclable. This information is electronically forwarded to our bid specialists via handheld computing devices or facsimile transmissions. The bid specialists analyze the data in light of current demand for the parts in question, the levels of our inventory with respect to such parts, and the projected margins expected for each vehicle. The specialists then set a maximum bid price that our bidders use to purchase the vehicle at auction. We believe that this system provides a disciplined approach to procurement.
       We also obtain salvage vehicles and parts from insurance companies, vehicle manufacturers, abandoned vehicle programs, and other salvage sources. Some of these arrangements allow us to acquire salvage vehicles directly from the insurance company or vehicle manufacturer at a cost calculated as a percentage of revenue from such vehicles, which is remitted as products are sold from these vehicles. These arrangements eliminate the fees we and the insurance company would otherwise pay to the salvage auction and provide us inventory with a lower initial expenditure of capital.
       We acquire inventory for our self-service retail recycled OEM products operations from a variety of sources, including but not limited to auctions, towing companies, municipalities, and insurance carriers. In 2004 and the first six months of 2005, we purchased approximately 27,700 and 25,000 salvage vehicles, respectively, for our retail operations.
       We purchase aftermarket products from independent manufacturers. Approximately 90% of the aftermarket products we purchase originate in Taiwan. We obtain the balance of our aftermarket products from sources in the U.S. No single supplier currently provides more than 21% of our aftermarket products. We use a proprietary order management system to procure our aftermarket inventory. The system prompts inventory purchases based on stocking levels and historical sales data. We believe that the system helps us to procure our aftermarket inventory efficiently and to maintain one of the highest fulfillment rates in the aftermarket products industry.
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Vehicle Processing
       Vehicle processing for our wholesale operations involves dismantling a salvage vehicle into recycled OEM products ready for delivery. When a salvage vehicle arrives at one of our facilities an inventory specialist identifies, catalogs, and schedules the vehicle for dismantling. We do not dismantle any vehicle until we have received proper title documentation, thereby assuring that the vehicle was not stolen.
       The dismantler removes components that will become products for sale. Products that are placed directly on inventory shelves generally include such items as the engine, transmission, hood, trunk lid, head and tail lamp assemblies, rear bumper, and doors. We remove all recyclable items including fluids, freon, batteries, tires, and catalytic converters. These items are sold to recyclers and reprocessors. Dismantlers also perform any required cutting of the vehicle frame or body.
       Each inventory item is entered into our inventory tracking system, inspected for quality, tagged for identification, and prepared for storage and delivery to our customers. Mechanical products not in a condition to be sold as recycled products or that are in surplus supply are separated and sold in bulk to parts remanufacturers. The remaining vehicle hulks and components, such as fabrics, rubber, plastics, and glass are delivered to automobile shredders, crushers, and scrap processors.
Sales
       As of June 30, 2005, we employed approximately 390 full-time sales staff in our wholesale recycled OEM products operations. Of these, approximately 360 were located at sales desks at our facilities and generally are responsible for accepting incoming calls from, and selling our inventory to, our customers. We put all of our sales personnel through a thorough training program. Most of our sales personnel are paid primarily on a commission basis. In addition, as of June 30, 2005, we had approximately 30 traveling sales staff who visit our customers and focus on business development in various markets. In our aftermarket products operations, sales orders are accepted by either our local delivery drivers or by our dedicated aftermarket products sales call center located in Columbus, Ohio.
       We are continually reviewing and revising the pricing of our recycled OEM products. Our pricing specialists take into consideration factors such as location, recent demand, inventory quantity, inventory turnover, new OEM product prices, recycled OEM product prices, aftermarket product prices, and remanufactured part prices, with the goal of optimizing revenue. We update the pricing of our aftermarket products at least annually when we update our product catalog, and we may adjust aftermarket prices during the year in response to material price changes of OEM products.
       The inventory base of each of our facilities, supplemented by the inventory sharing system within our regional trading zones, gives us what we believe to be a competitive advantage through our ability to meet our customers' requirements more frequently than smaller competitors.
Distribution
       Each sale results in the generation of a work order. A dispatcher is then responsible for ensuring product accuracy, printing the final invoice, and including the products on the appropriate truck route for delivery to the customer. We operate a delivery fleet of approximately 370 medium-sized trucks, most of which we lease, and approximately 255 smaller trucks and vans, most of which we own. These trucks deliver products to our customers within a specified territory, typically on a daily basis. In markets where we offer both recycled OEM and aftermarket products, we deliver both types of products on the same delivery routes to help minimize distribution costs.
       Additionally, we have developed an internal distribution network to allow our sales representatives to sell both recycled OEM and aftermarket products from the inventory of nearby facilities within our regional trading zones, thus improving our ability to fulfill customer requests and to improve inventory turnover. We operate
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approximately 55 recycled OEM product and 23 aftermarket product transfers between our facilities within our regional trading zones each weekday.
Our Products
       When we procure salvage vehicles, we focus on vehicles for which the insured repair market has the most recycled OEM product demand. These tend to be popular types of vehicles such as sport utility vehicles and pickup trucks, and popular models, like the Accord, Taurus, Camry, Lumina, and Explorer. These vehicles generally are a few model years old, as insurers tend to use new OEM products on repairs of vehicles that are one to two years old. Similarly, insurers are less likely to authorize the repair of vehicles more than ten model years old. The degree of damage is not a significant factor in our process as we only assign value to the undamaged product when we prepare our bids.
       Our most popular recycled OEM products include engines, vehicle front end assemblies, doors, transmissions, trunk lids, bumper assemblies, wheels, head and tail lamp assemblies, mirrors, fenders, and axles.
       When we obtain a mechanical product from a dismantled vehicle and determine that we have an excess supply of such product or it is defective, it is then sold in bulk to mechanical remanufacturers. We refer to these items as core products. The majority of these products are transferred to our core facility in Houston, Texas where we sort them by product and model type. Examples of such products are engine blocks and heads, transmissions, starters, alternators, and air conditioner compressors.
       When we procure aftermarket products, we focus on aftermarket products that are in the most demand by the insured repair market. Our most popular aftermarket products are head lamps, tail lamps, grilles, hoods, and mirrors. We also focus on aftermarket products that would best complement our recycled OEM product inventory.
Our Customers
Insurance Companies
       We consider automobile insurance companies our customers, as they are a key demand driver for our products. Our products are delivered directly to the repair shop or installer, because insurance companies and extended warranty providers generally do not actually receive our products. While insurance companies do not pay for our products directly, the insurance company does ultimately pay for the repair of the insured vehicle. As a result, the insurance company often exerts significant influence in the decision-making process as to how a damaged vehicle is repaired, and the cost level of the product used in the repair process. Insurance companies are also concerned with customer satisfaction with the repair process and the total time to return the repaired vehicle to its owner.
Repair Shops and Others
       We sell the majority of our products wholesale to collision repair shops and mechanical repair shops. The majority of these customers tend to be individually-owned small businesses, although over the last few years there has been a trend toward consolidation resulting in the formation of several national and regional repair companies. We also sell our products to individual retail customers at our self-service retail locations and at certain of our wholesale recycled OEM and aftermarket product locations.
Remanufacturers
       A mechanical part that is not suitable for sale as a replacement part, or that is a product for which we have an excess supply, is sold to mechanical remanufacturers in bulk shipments. Examples of mechanical parts
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we sell in this manner are engine blocks and heads, transmissions, starters, alternators, and air conditioner compressors. Remanufacturers usually are significantly larger companies than repair shops. Our sales to them tend to be large orders and are dependent on their needs for a certain product line.
Our Employees
       As of June 30, 2005, we had approximately 2,850 employees performing operational functions and approximately 110 corporate and regional employees. None of our employees is a member of a union or participates in other collective bargaining arrangements.
Our Facilities
       Our corporate headquarters are located at 120 North LaSalle Street, Suite 3300, Chicago, Illinois 60602. In February 2004, we entered into a new lease, which became effective on August 1, 2004, to remain in our current office space. The new lease can be terminated in July 2009. The primary functions performed at our corporate headquarters are financial, accounting, treasury, marketing, business development, human resources, information systems support, and legal. In addition to our corporate headquarters, we have numerous operating facilities that handle recycled OEM products, aftermarket products, self-service retail products, and redistribution services. The following chart lists the locations of our facilities as of August 31, 2005, whether such facilities are leased or owned, and the operations conducted at each such facility.

 	 	Operations
	 	 	
Location
	 	Recycled
OEM Products
	 	Aftermarket
Products
	 	Self-Service Retail Products
	 	Redistribution
Services
	 	Nature of
Occupancy
	
Birmingham, AL	 	•	 	 	 	 	 	 	 	leased	
	
Bryant, AR	 	 	 	•	 	 	 	 	 	leased	
	
Crawfordsville, AR	 	•	 	 	 	 	 	 	 	owned & leased	
	
Fayetteville, AR	 	•	 	 	 	 	 	 	 	leased	
	
Jonesboro, AR	 	 	 	•	 	 	 	 	 	leased	
	
Tontitown, AR	 	 	 	•	 	 	 	 	 	leased	
	
Phoenix, AZ	 	•	 	 	 	 	 	 	 	owned	
	
Bakersfield, CA	 	•	 	 	 	 	 	 	 	owned & leased	
	
Oakland, CA	 	 	 	•	 	 	 	 	 	leased	
	
Redding, CA	 	•	 	 	 	 	 	 	 	owned	
	
Santa Fe Springs, CA	 	•	 	 	 	 	 	 	 	leased	
	
Stockton, CA	 	•	 	 	 	 	 	 	 	leased	
	
Bonifay, FL	 	 	 	 	 	 	 	•	 	owned	
	
Bradenton, FL	 	 	 	 	 	•	 	 	 	leased	
	
Clearwater, FL	 	 	 	 	 	•	 	 	 	leased	
	
Crystal River, FL	 	•	 	 	 	 	 	 	 	leased	
	
Fort Myers, FL	 	•	 	 	 	 	 	 	 	leased	
	
Gainesville, FL	 	•	 	 	 	 	 	 	 	leased	
	
Melbourne, FL	 	•	 	 	 	 	 	 	 	leased	
	
Orlando, FL	 	 	 	 	 	•	 	 	 	owned	
	
Pompano Beach, FL	 	 	 	 	 	 	 	•	 	leased	
	
St. Petersburg, FL	 	 	 	 	 	•	 	 	 	leased	
	
Tampa, FL	 	 	 	 	 	•	 	 	 	leased	
	
Garden City, GA	 	•	 	•	 	 	 	 	 	owned	
	
Jenkinsburg, GA	 	•	 	•	 	 	 	 	 	leased	

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Dubuque, IA	 	 	 	 	 	 	 	•	 	leased	
	
Caseyville, IL	 	•	 	•	 	 	 	 	 	owned	
	
Dolton, IL	 	 	 	•	 	 	 	 	 	leased	
	
Avon, IN	 	•	 	•	 	 	 	 	 	  leased*	
	
Evansville, IN	 	 	 	•	 	 	 	•	 	leased	
	
Michigan City, IN	 	•	 	 	 	 	 	 	 	owned	
	
Lawrence, KS	 	•	 	 	 	 	 	 	 	leased	
	
Topeka, KS	 	•	 	 	 	 	 	 	 	leased	
	
Lexington, KY	 	 	 	•	 	 	 	 	 	leased	
	
Louisville, KY	 	 	 	•	 	 	 	 	 	leased	
	
West Liberty, KY	 	 	 	•	 	 	 	 	 	leased	
	
Satsuma, LA	 	•	 	 	 	 	 	 	 	owned	
	
Webster, MA	 	•	 	 	 	 	 	 	 	owned	
	
Landover, MD	 	 	 	•	 	 	 	 	 	leased	
	
Gorham, ME	 	•	 	 	 	 	 	 	 	leased	
	
Belleville, MI	 	•	 	•	 	 	 	 	 	owned	
	
Grand Rapids, MI	 	 	 	 	 	 	 	•	 	leased	
	
Albert Lea, MN	 	•	 	 	 	 	 	 	 	owned	
	
Charlotte, NC	 	 	 	•	 	 	 	 	 	leased	
	
Garner, NC	 	•	 	•	 	 	 	 	 	leased	
	
Greensboro, NC	 	 	 	•	 	 	 	 	 	leased	
	
Salisbury, NC	 	•	 	 	 	 	 	 	 	leased	
	
Omaha, NE	 	•	 	 	 	 	 	 	 	owned	
	
Pennsauken, NJ	 	 	 	•	 	 	 	 	 	leased	
	
North Las Vegas, NV	 	•	 	 	 	 	 	 	 	leased	
	
Bronx, NY	 	•	 	 	 	 	 	 	 	leased	
	
Buffalo, NY	 	 	 	•	 	 	 	 	 	leased	
	
Dunkirk, NY	 	 	 	 	 	 	 	•	 	leased	
	
Stuyvesant, NY	 	•	 	 	 	 	 	 	 	owned	
	
Wappingers, NY	 	 	 	•	 	 	 	 	 	leased	
	
Akron, OH	 	•	 	•	 	 	 	 	 	owned	
	
Columbus, OH	 	 	 	•	 	 	 	•	 	owned	
	
Harrisville, OH	 	•	 	 	 	 	 	 	 	owned	
	
Springdale, OH	 	 	 	•	 	 	 	 	 	leased	
	
Toledo, OH	 	 	 	•	 	 	 	 	 	leased	
	
Broken Arrow, OK	 	 	 	•	 	 	 	 	 	leased	
	
Oklahoma City, OK	 	 	 	 	 	 	 	•	 	leased	
	
Boring, OR	 	 	 	 	 	•	 	 	 	leased	
	
Portland, OR	 	•	 	 	 	 	 	 	 	leased	
	
Portland, OR	 	 	 	 	 	•	 	 	 	leased	
	
Salem, OR	 	•	 	 	 	 	 	 	 	leased	
	
Sherwood, OR	 	 	 	 	 	•	 	 	 	leased	
	
Sherwood, OR	 	•	 	 	 	 	 	 	 	leased	
	
Carlisle, PA	 	 	 	•	 	 	 	 	 	leased	

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Perkasie, PA	 	 	 	 	 	 	 	•	 	leased	
	
Pittsburgh, PA	 	 	 	•	 	 	 	 	 	leased	
	
York Haven, PA	 	•	 	•	 	 	 	 	 	owned	
	
Columbia, SC	 	 	 	•	 	 	 	 	 	leased	
	
Duncan, SC	 	•	 	 	 	 	 	 	 	owned & leased	
	
Greenville, SC	 	 	 	•	 	 	 	 	 	leased	
	
Knoxville, TN	 	 	 	•	 	 	 	•	 	leased	
	
Manchester, TN	 	•	 	 	 	 	 	 	 	owned	
	
Memphis, TN	 	 	 	 	 	•	 	 	 	leased	
	
Nashville, TN	 	 	 	•	 	 	 	 	 	leased	
	
Dallas, TX	 	 	 	•	 	 	 	 	 	leased	
	
Houston, TX	 	•	 	 	 	 	 	 	 	owned	
	
Houston, TX	 	•	 	 	 	 	 	 	 	owned	
	
Hutchins, TX	 	•	 	 	 	 	 	 	 	owned	
	
New Braunfels, TX	 	•	 	 	 	 	 	 	 	leased	
	
Springville, UT	 	•	 	 	 	 	 	 	 	owned	
	
Richmond, VA	 	 	 	•	 	 	 	 	 	leased	
	
Redmond, WA	 	•	 	 	 	 	 	 	 	leased	
	
Seattle, WA	 	 	 	 	 	 	 	•	 	leased	
	
Vancouver, WA	 	•	 	 	 	 	 	 	 	leased	
	
Eau Claire, WI	 	 	 	 	 	 	 	•	 	leased	
	
Hustisford, WI	 	•	 	 	 	 	 	 	 	leased	
	
Janesville, WI	 	•	 	 	 	 	 	 	 	owned	
	
Charleston, WV	 	 	 	 	 	 	 	•	 	leased	
	
Parkersburg, WV	 	 	 	•	 	 	 	 	 	leased	
	
San Jose, Costa Rica	 	•	 	 	 	 	 	 	 	leased	
	
Guatemala City, Guatemala	 	•	 	 	 	 	 	 	 	leased	
	
Quetzal Tenango, Guatemala	 	•	 	 	 	 	 	 	 	leased	
	
 	Total	 	50	 	36	 	9	 	13	 	 	
 	 		 		 		 		 	 	
*
Avon, IN—We have exercised our option to purchase this property in February 2006.

Competition
       We operate in a highly competitive industry. We consider all suppliers of light vehicle products to be competitors, including participants in the recycled OEM product market, OEMs, parts remanufacturers, and suppliers of aftermarket products. We believe the principal areas of competition in our industry include pricing, product quality, service, and availability of inventory.
       We compete with more than 6,000 domestic light vehicle product recyclers, most of which are single-unit operators. We believe most of the light vehicle parts recyclers in the U.S. have less than $3.0 million in annual revenue. In some markets, smaller competitors have organized affiliations to share marketing and distribution resources. Greenleaf LLC, a light vehicle recycling business, started by Ford Motor Company, is our largest competitor in the light vehicle OEM product recycling business. Schnitzer Steel Industries, Inc., a company with operations in the steel manufacturing, metals recycling, and vehicle product recycling businesses recently reported on its Current Report on Form 8-K filed on August 11, 2005 with the Securities Exchange Commission
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that two of its wholly-owned subsidiaries have entered into a definitive agreement to acquire all of the equity of Greenleaf. According to such report, the consummation of the acquisition is subject to a number of conditions.
       We also compete with distributors of aftermarket collision light vehicle products. The largest distributor of these products in the U.S. is Keystone Automotive Industries, Inc.
       Manufacturers of new original equipment parts sell the majority of light vehicle replacement products. We believe, however, that as the insurance and repair industries come to appreciate the advantages of recycled OEM and aftermarket products, those products can account for a larger percentage of total vehicle replacement product sales.
Information Technology
       We use a single third party facility management system in most of our wholesale recycled OEM operations. We believe that a single system helps us with the continued implementation of standard operating procedures, training efficiency, employee transferability, access to a national inventory database, management reporting, and data storage. It also eliminates the need to create multiple versions of proprietary applications and systems support processes.
       The major features of our facility management system include inventory control, customer selling and billing, sales analysis, vehicle tracking, and profitability reporting. The system also supports an electronic exchange system for identifying and locating parts at other selected recyclers and facilitates brokered sales to fill customer orders for items not in stock.
       We have separate third party providers for our financial systems such as financial and budget reporting, general ledger accounting, accounts payable, payroll, and fixed assets. We utilize the same common financial systems throughout the majority of our operations.
       We currently protect our local customer, inventory, and corporate consolidated data, such as financial information, e-mail files, and other user files, with daily backups. These backups are stored off site with a third party data protection vendor.
       We have consolidated our facility management systems onto regional system platforms. The hardware for all such platforms is located at a single data center. The center is in a secure environment with around-the-clock monitoring; redundant power backup; and multiple, diverse data and telecommunication routing. Facility management system data is "mirrored" (replicated) off site in real time to a disaster recovery facility located in a different part of the country. This disaster recovery facility is also housed in a secure environment with around-the-clock monitoring; redundant power backup; and multiple, diverse data and telecommunications routing.
       Currently our aftermarket and self-service retail operations each use a separate facility management system.
Regulation
Environmental Compliance
       Our operations and properties, including our maintenance of a fleet of vehicles, are subject to extensive federal, state, and local environmental protection and health and safety laws and regulations. These environmental laws govern, among other things, the emission and discharge of hazardous materials into the ground, air, or water; the exposure to hazardous materials; and the generation, handling, storage, use, treatment, identification, transportation, and disposal of industrial by-products, waste water, storm water, and mercury and other hazardous materials.
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       We have made and will continue to make capital and other expenditures relating to environmental matters. We have an environmental management process designed to facilitate and support our compliance with these requirements. We cannot assure you, however, that we will at all times be in complete compliance with such requirements.
       Although we presently do not expect to incur any capital or other expenditures relating to environmental controls or other environmental matters in amounts that would be material to us, we may be required to make such expenditures in the future. Environmental laws are complex, change frequently and have tended to become more stringent over time. Accordingly, we cannot assure you that environmental laws will not change or become more stringent in the future in a manner that could have a material adverse effect on our business.
       Contamination resulting from vehicle recycling processes can include soil and ground water contamination from the release, storage, transportation, or disposal of gasoline, motor oil, antifreeze, transmission fluid, CFCs from air conditioners, other hazardous materials, or metals such as aluminum, cadmium, chromium, lead, and mercury. Contamination can migrate on-site or off-site which can increase the risk, and the amount, of any potential liability.
       In addition, many of our facilities are located on or near properties with a history of industrial use which may have involved hazardous materials. As a result, some of our properties may be contaminated. Some environmental laws hold current or previous owners or operators of real property liable for the costs of cleaning up contamination, even if these owners or operators did not know of and were not responsible for such contamination. These environmental laws also impose liability on any person who disposes of, treats, or arranges for the disposal or treatment of hazardous substances, regardless of whether the affected site is owned or operated by such person, and at times can impose liability on companies deemed under law to be a successor to such person. Third parties may also make claims against owners or operators of properties, or successors to such owners or operators, for personal injuries and property damage associated with releases of hazardous or toxic substances.
       When we identify a potential material environmental issue during our acquisition due diligence process, we analyze the risks, and, when appropriate, perform further environmental assessment to verify and quantify the extent of the potential contamination. Furthermore, where appropriate, we have established financial reserves for certain environmental matters. In addition, at times we, or one of the sellers from whom we purchased a business, have undertaken remediation projects. We do not anticipate, based on currently available information and current laws, that we will incur liabilities in excess of reserves to address environmental matters. However, in the event we discover new information or if laws change, we may incur significant liabilities, which may exceed our reserves.
Title Laws
       In some states, when a vehicle is deemed a total loss, a salvage title is issued. Whether states issue salvage titles is important to the light vehicle recycling industry because an increase in vehicles that qualify as salvage vehicles provides greater availability and typically lowers the price of such vehicles. Currently, these titling issues are a matter of state law. In 1992, the U.S. Congress commissioned an advisory committee to study problems relating to vehicle titling, registration, and salvage. Since then, legislation has been introduced seeking to establish national uniform requirements in this area, including a uniform definition of a salvage vehicle. The light vehicle recycling industry will generally favor a uniform definition, since it will avoid inconsistencies across state lines, and will generally favor a definition that expands the number of damaged vehicles that qualify as salvage. However, certain interest groups, including repair shops and some insurance associations, may generally oppose this type of legislation. National legislation has not yet been enacted in this area, and there can be no assurance that such legislation will be enacted in the future.
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National Stolen Passenger Motor Vehicle Information System
       In 1992, Congress enacted the Anti Car Theft Act to deter trafficking in stolen vehicles. This law included the establishment of the National Stolen Passenger Motor Vehicle Information System to track and monitor stolen automotive parts. In April 2002, the Department of Justice published for comment proposed regulations to implement the National Stolen Passenger Motor Vehicle Information System. The proposed regulations require, among other things, that insurance companies, salvagers, dismantlers, recyclers, and repairers inspect salvage vehicles for the purpose of collecting the vehicle identification number and the part number for any "covered major part" that possesses the vehicle identification number. The requirement to collect this information would place substantial burdens on light vehicle recyclers, including us, that otherwise would not normally exist. It would place similar burdens on repair shops, which may further discourage the use by such shops of recycled products. The Department of Justice's comment period for the proposed regulations ended in June 2002, but final regulations have not been issued.
Legislation Affecting Aftermarket Products
       The legislatures in a majority of states have considered legislation seeking to prohibit or restrict the use of aftermarket products in collision repair work and/or to require enhanced disclosure or vehicle owner consent before using aftermarket products in such repair work. Additional bills of this kind may be introduced in the future. An increase in the number of states passing such legislation or the passing of legislation with prohibitions or restrictions that are more severe than current laws could have a material adverse impact on our aftermarket products business.
       In addition, in 2000 a U.S. Congressman requested that the General Accounting Office ("GAO") review the role of the National Highway Traffic Safety Administration in regulating the safety and quality of aftermarket products. The GAO released its report in January 2001. This report may lead to Congressional hearings and possible future federal legislation, which could adversely impact our aftermarket business.
55

 
 MANAGEMENT
Executive Officers and Directors
       The following table sets forth information regarding our executive officers and directors as of
August 31, 2005.

Name
	 	Age
	 	Position
	
Joseph M. Holsten	 	53	 	President, Chief Executive Officer and Director	
Mark T. Spears	 	48	 	Senior Vice President and Chief Financial Officer	
Stuart P. Willen	 	68	 	Senior Vice President of Midwest Region	
Leonard A. Damron	 	54	 	Senior Vice President of Southeast Region	
H. Bradley Willen	 	46	 	Vice President of Procurement and Product Pricing	
Frank P. Erlain	 	50	 	Vice President of Finance and Controller	
Victor M. Casini	 	43	 	Vice President, General Counsel and Secretary	
Walter P. Hanley	 	39	 	Vice President of Development, Associate General Counsel and Assistant Secretary	
Steven H. Jones	 	46	 	Vice President of West and Central Regions and Core Operations	
Robert L. Wagman	 	41	 	Vice President of Insurance Services and Aftermarket Operations	
Donald F. Flynn	 	66	 	Director and Chairman	
A. Clinton Allen	 	61	 	Director	
Robert M. Devlin	 	64	 	Director	
Paul M. Meister	 	52	 	Director	
John F. O'Brien	 	62	 	Director	
William M. Webster, IV	 	47	 	Director	
        Joseph M. Holsten joined us in November 1998 as our President and Chief Executive Officer. He was elected to our Board of Directors in February 1999. Prior to joining us, Mr. Holsten held various positions of increasing responsibility with North American and International operations of Waste Management, Inc. for approximately 17 years. From February 1997 until July 1998, Mr. Holsten served as Executive Vice President and Chief Operating Officer of Waste Management, Inc. From July 1995 until February 1997, he served as Chief Executive Officer of Waste Management International, plc where his responsibility was to streamline operating activities. Prior to working for Waste Management, Mr. Holsten was a staff auditor at a public accounting firm.
        Mark T. Spears joined us in July 1999 as our Senior Vice President and Chief Financial Officer. From November 1997 until June 1998, Mr. Spears served as Vice President, Controller and Principal Accounting Officer of Waste Management, Inc. As a member of a newly-installed executive management team, Mr. Spears helped Waste Management work through certain difficulties related to the restatement of its financial statements through the period ended September 30, 1997. Upon the merger of Waste Management and USA Waste Services Inc. in July 1998, Mr. Spears continued to serve as a Vice President until June 1999. From 1988 to November 1997, Mr. Spears held various positions of increasing responsibility in the U.S. and Europe with Waste Management and its subsidiaries. Prior to his employment with Waste Management, Mr. Spears, a certified public accountant, worked in public accounting for approximately nine years.
        Stuart P. Willen has been our Senior Vice President of Midwest Region since June 2003 and our Vice President of Midwest Region since July 1998 when we acquired Triplett Auto Recyclers, Inc., a light vehicle recycling business operating primarily in Ohio and western New York. Prior thereto, Mr. Willen had owned and operated that business since 1957. Mr. Willen is the father of H. Bradley Willen.
        Leonard A. Damron has been our Senior Vice President of Southeast Region since June 2003 and our Vice President of Southeast Region since July 1998 when we acquired Damron Auto Parts, Inc. and its affiliated
56

entities, a light vehicle recycling business operating primarily in Florida and Georgia. Mr. Damron had owned and operated that business since 1976.
        H. Bradley Willen has been our Vice President of Procurement and Product Pricing since June 2003. He has managed procurement and pricing for us since January 2001. He was in charge of procurement, pricing, and inventory management for Triplett from August 1988 until December 2000. Prior thereto, from September 1986 until July 1988, Mr. Willen was an Assistant Vice President of Operations for Thomson McKinnon, a brokerage firm. Mr. Willen is the son of Stuart P. Willen.
        Frank P. Erlain has been our Vice President of Finance and Controller since our inception in February 1998. Mr. Erlain served as a Vice President of Flynn Enterprises, Inc., a venture capital, hedging, and consulting firm based in Chicago, Illinois, from 1995 to 1999. Prior to joining Flynn Enterprises, Mr. Erlain served as Vice President and Controller of Discovery Zone, Inc., an operator and franchisor of family entertainment centers, from September 1992 until May 1995 when Viacom Inc. acquired ownership and management control of Discovery Zone. Mr. Erlain remained as part of a transition team at Discovery Zone until August 1995. Mr. Erlain served as Controller of Peterson Consulting from 1990 until 1992, and as Controller/Treasurer (from 1985 to 1988) and Director, Information Services (from 1988 to 1990) for Hammacher Schlemmer & Co., a national cataloger and retailer. Mr. Erlain joined Cadlinc, Inc., a start-up firm serving the computer-aided manufacturing market, as Controller in 1984. Prior to 1984, Mr. Erlain, a certified public accountant, worked in public accounting for more than nine years.
        Victor M. Casini has been our Vice President, General Counsel and Secretary since our inception in February 1998. Mr. Casini also has been Executive Vice President and General Counsel of Flynn Enterprises since July 1992. Mr. Casini currently divides his time between his position with us and with Flynn Enterprises, working approximately 50% for us and 50% for Flynn Enterprises. Mr. Casini served as Senior Vice President, General Counsel and Secretary of Discovery Zone from July 1992 until May 1995. Prior to July 1992, Mr. Casini practiced corporate and securities law with the law firm of Bell, Boyd & Lloyd in Chicago, Illinois for more than five years.
        Walter P. Hanley has been our Vice President of Development, Associate General Counsel and Assistant Secretary since December 2002. Mr. Hanley served as Senior Vice President, General Counsel and Secretary of Emerald Casino, Inc., an owner of a license to operate a riverboat casino in the State of Illinois, from June 1999 until August 2002. From July 1996 until November 1999, he served as Senior Vice President, General Counsel and Secretary of Blue Chip Casino, Inc., an owner and operator of a riverboat gaming vessel in Michigan City, Indiana. Mr. Hanley served as Vice President and Associate General Counsel of Flynn Enterprises from May 1995 until February 1998 and as Associate General Counsel of Discovery Zone, Inc., an operator and franchisor of family entertainment centers, from March 1993 until May 1995. Prior to March 1993, Mr. Hanley practiced corporate and securities law with the law firm of Bell, Boyd & Lloyd.
        Steven H. Jones has been our Vice President of West and Central Regions and Core Operations since August 2005. From 1979 to March 1999, Mr. Jones co-owned and operated Mid-America Auto Parts, Inc., a light vehicle recycling business that we acquired in March 1999. From March 1999 to August 2005, he served in various positions with us, including as Region Development Consultant, Regional Manager, and Interim Plant Manager.
        Robert L. Wagman has been our Vice President of Insurance Services and Aftermarket Operations since August 2005. He has handled our relationships with insurance companies since October 1998 and our aftermarket operations since February 2004. From April 1995 to October 1998, Mr. Wagman served as the Outside Sales Manager of Triplett. Mr. Wagman started in our industry as an Account Executive for Copart Auto Auctions, a processor and seller of salvage vehicles through auctions, from 1987 to April 1995.
        Donald F. Flynn has been a director since our inception in 1998 and Chairman since February 1999. Mr. Flynn is and has been the sole stockholder of Flynn Enterprises since its inception in March 1992. Mr. Flynn
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also was the Vice Chairman of Blue Chip Casino, Inc., an owner and operator of a riverboat gaming vessel in Michigan City, Indiana, from February 1997 until November 1999, when Blue Chip was sold to Boyd Gaming Corporation. Mr. Flynn was Chairman of the board of Discovery Zone from July 1992 until May 1995, and remained a member of the board until February 1996. He was also Chief Executive Officer of Discovery Zone from July 1992 to April 1995. From 1972 through 1990, Mr. Flynn held various positions at Waste Management, including Senior Vice President and Chief Financial Officer. Mr. Flynn was one of three investors who acquired control of Blockbuster Entertainment Corporation, the world's largest video rental company, in 1987 and was a director thereof from February 1987 until September 1994 when Blockbuster was sold to Viacom Inc. Mr. Flynn also serves as a member of the Board of Trustees of Marquette University. Mr. Flynn is a director and major shareholder of Emerald Casino, Inc., an owner of a license to operate a riverboat casino in the State of Illinois. Kevin F. Flynn, Mr. Flynn's son and a former director of ours, was the Chief Executive Officer of Emerald from June 1999 to August 2002. In January 2001, the Illinois Gaming Board issued an initial decision, based on preliminary findings, to revoke Emerald's license based, among other things, on allegations that Donald Flynn and Kevin Flynn made certain misrepresentations to the Illinois Gaming Board in connection with investigations conducted by the Board and that two proposed minority investors in Emerald had ties to organized crime. Emerald and the Flynns denied the allegations, and Emerald appealed the decision to revoke the license. Subsequently, certain creditors filed an involuntary Chapter 7 bankruptcy petition against Emerald, which was converted by Emerald to a voluntary Chapter 11 case. The bankruptcy court confirmed a plan of reorganization in July 2004, which includes the dismissal of the revocation proceedings. In May 2005, the Illinois Gaming Board reversed its decision to support the plan of reorganization and has commenced a hearing in an attempt to revoke Emerald's license.
        A. Clinton Allen has been a director since May 2003. Mr. Allen is Chairman and Chief Executive Officer of A.C. Allen & Company, an investment banking consulting firm. Mr. Allen was Vice Chairman of Psychemedics Corporation, a provider of drug testing services, from October 1989 until March 2002 and Chairman of Psychemedics Corporation from March 2002 until November 2003. Mr. Allen was Vice Chairman and a director of The DeWolfe Companies, Inc., a real estate company, from 1991 until it was acquired by Cendant Corporation in September 2002. Additionally, he was a director and member of the executive committee of Swiss Army Brands Inc., a worldwide company selling knives, watches, and related accessories, from 1995 until it was acquired by Victorinox Corporation in August 2002. Mr. Allen is the Lead Director of Steinway Musical Instruments, Inc., a manufacturer of musical instruments; a director and non-executive Chairman of Collector's Universe, Inc., a provider of services and products to dealers and collectors of high-end collectibles; a director of Brooks Automation, a provider of automation technology to the semiconductor industry; and a director of Source Interlink Companies, Inc, an entertainment products marketing, merchandising, and fulfillment company.
        Robert M. Devlin has been a director since August 2003. Mr. Delvin has been the Chairman of Curragh Capital Partners, a private equity firm, since October 2001. Prior to October 2001, he was employed by American General Corporation and its affiliates since 1977, serving most recently as Chairman (since 1997), and President and Chief Executive Officer (since 1996). He was Vice Chairman of American General from September 1993 to October 1995 and served as director from October 1993 to September 2001. From September 1986 to September 1993, Mr. Devlin was President and Chief Executive Officer of American General Life. Mr. Devlin is a member of the board of directors of Cooper Industries, a manufacturer of electrical products, tools, and hardware. Mr. Devlin also serves as a member of the board of directors and on the executive committee of the International Insurance Society, Inc.
        Paul M. Meister has been a director since February 1999. Mr. Meister is Vice Chairman of the Board of Fisher Scientific International, Inc., which provides products and services to research, healthcare, industrial, educational, and government markets. He has been Vice Chairman of the Board of Fisher Scientific since March 2001 and was Vice Chairman, Executive Vice President and Chief Financial Officer of Fisher Scientific from March 1998 to February 2001. Prior to 1998, Mr. Meister served as Fisher Scientific's Senior Vice
58

President and Chief Financial Officer. In addition, Mr. Meister is a director of M&F Worldwide Corp. and National Waterworks, Inc.
        John F. O'Brien has been a director since July 2003. Mr. O'Brien currently is retired, but in addition to serving on our Board of Directors he is a director of Cabot Corporation, a global specialty chemicals corporation, a group of mutual funds managed by Merrill Lynch Investment Manager, an investment management advisory firm, The TJX Companies, Inc., a discount retailer of apparel and home fashions, and Abiomed, Inc., a developer and manufacturer of cardiovascular products. From August 1989 to November 2002, Mr. O'Brien was President and Chief Executive Officer of Allmerica Financial Corporation, a public insurance company. From 1968 to 1989, Mr. O'Brien held several positions at Fidelity Investments, including Group Managing Director of FMR Corporation (from 1986 to 1989), Chairman of Institutional Services Company (from 1986 to 1989) and Chairman of Brokerage Services, Inc. (from 1984 to 1989).
        William M. Webster, IV has been a director since June 2003. Mr. Webster co-founded Advance America, Cash Advance Centers, Inc., a nationwide deferred deposit, payday advance lender, in July 1997. Mr. Webster was the Chief Executive Officer of Advance America from its inception until August 26, 2005, and has served as its Vice Chairman since that date. Prior to founding Advance America, from May 1996 until May 1997, Mr. Webster served as Executive Vice President of Education Management Corporation, a provider of private post-secondary education in North America. Mr. Webster served as a member of the senior staff of the White House from October 1994 until October 1995.
Terms of Office
       All directors hold office until their successor is duly elected and qualified or until that director's earlier resignation or removal. Executive officers are elected by the board of directors on an annual basis and serve until their successors have been duly elected and qualified.
Committees of the Board of Directors
       Our Board of Directors has four standing committees. They are the Executive Committee, the Audit Committee, the Compensation Committee, and the Governance/Nominating Committee. The functions and membership of each Committee are described below.
       The Executive Committee, which is composed of Messrs. Flynn and Holsten, has the same powers and authority as the Board of Directors in connection with acquisitions by LKQ involving no more than $5,000,000 of consideration per acquisition and in connection with other matters as delegated by the Board of Directors.
       The Audit Committee's functions include selecting our independent registered public accounting firm; reviewing the arrangements for, and scope of, the independent registered public accounting firm's examination of our financial statements; meeting with the independent registered public accounting firm and certain of our officers to review the adequacy and appropriateness of our system of internal control and reporting, our critical accounting policies, and our public financial disclosures; ensuring compliance with our codes of ethics; and performing any other duties or functions deemed appropriate by the Board of Directors. Messrs. Meister, Allen, and O'Brien are currently the members of the Audit Committee. All of the Audit Committee members satisfy the independence, financial literacy, and expertise requirements of the rules of the Nasdaq National Market. Our Board of Directors has determined that Mr. Meister satisfies the requirements for an "audit committee financial expert" under the rules and regulations of the Securities and Exchange Commission.
       The Compensation Committee is responsible for establishing and making recommendations to the Board of Directors regarding compensation to be paid to our executive officers and is responsible for the administration and interpretation of, and the granting of awards under, our equity benefit plans. Messrs. Allen, Devlin, and
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O'Brien, who are all independent as defined in the Nasdaq National Market's listing standards, are currently the members of the Compensation Committee.
       The Governance/Nominating Committee is responsible for developing policies and processes designed to provide for effective and efficient governance by the Board of Directors and for identifying qualified individuals and nominating such individuals for membership on the Board of Directors and its committees. Messrs. Devlin, Meister, and Webster, each of whom are independent as defined in the Nasdaq National Market's listing standards, are currently the members of the Governance/Nominating Committee.
Compensation Committee Interlocks and Insider Participation
       The members of our Compensation Committee are Messrs. Allen, Devlin, and O'Brien. None of the members of our Compensation Committee has at any time been one of our officers or employees. None of our executive officers serves as a director or Compensation Committee member of any entity that has one or more of its executive officers serving as one of our directors or on our Compensation Committee.
Limitations on Liability and Indemnification of Directors and Officers
       Our certificate of incorporation limits the liability of directors to the fullest extent permitted by the Delaware General Corporation Law. In addition, we have entered into indemnification agreements with our directors and officers containing provisions that are in some respects broader than the indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements require us to indemnify those individuals against liabilities that may arise by reason of their status or service as officers or directors (so long as they acted in good faith, in a manner not opposed to our best interest and with no reasonable cause to believe their conduct was unlawful), to advance their expenses incurred as a result of any proceedings against them as to which they could be indemnified, and to cover the indemnitee under directors' and officers' insurance. We also maintain directors' and officers' liability insurance. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and executive officers.
Compensation of Directors
       Each of our non-employee directors receives compensation of $12,500 each calendar quarter for serving on the board, and an additional $1,250 each calendar quarter for each committee (not including the Executive Committee) of which such director is a member. A director's compensation may be taken, at the option of the director, in cash or shares of our common stock. Directors are also reimbursed for their out-of-pocket expenses incurred in connection with such services.
       On January 29, 2004, we granted to Donald F. Flynn an option to purchase a total of 200,000 shares of common stock at an exercise price of $18.87 per share (the average of the high and low sale prices of our common stock on the Nasdaq National Market on January 29, 2004). The grant was in recognition of the significant contributions of Mr. Flynn's time and expertise toward the development and growth of LKQ Corporation. The option initially had a vesting schedule of 10% of the number of shares subject to the option on each six-month anniversary of the date of grant. In December 2004, the Compensation Committee accelerated the vesting schedule of the option to make it fully exercisable.
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Stock Option and Compensation Plan for Non-Employee Directors
       Our board of directors adopted our Stock Option and Compensation Plan for Non-Employee Directors in June 2003, and the plan was approved by our stockholders in September 2003. We have reserved a total of 500,000 shares of common stock for issuance under the Stock Option and Compensation Plan for Non-Employee Directors.
       The option grants under the Stock Option and Compensation Plan for Non-Employee Directors are automatic, and the exercise price of the options is 100% of the fair market value of our common stock on the grant date.
       Only non-employee directors are eligible for grants under our Stock Option and Compensation Plan for Non-Employee Directors. The plan provided for an initial grant to each then current non-employee director of an option to purchase 30,000 shares of common stock upon the consummation of our initial public offering, with an exercise price equal to the initial public offering price. The plan also provides for an initial grant to a new non-employee director of an option to purchase 30,000 shares of common stock upon his or her initial election to the board of directors. Subsequent to the initial grants, each non-employee director is automatically granted an option to purchase 10,000 shares of common stock on each anniversary of the granting of the initial stock option to that non-employee director.
       The initial term of the options granted under the Stock Option and Compensation Plan for Non-Employee Directors is ten years. If the optionee ceases to be a director of the Company for any reason, the options will expire upon the earlier of five years after termination of the optionee's status as a director or the expiration of the initial term. Each option will become exercisable with respect to all of the shares subject to the option six months after the date of its grant. If we engage in a merger, consolidation or reorganization with another company, each option to purchase a share of common stock will become exercisable for the number and kind of securities to which holders of our common stock will be entitled under the transaction.
       The Stock Option and Compensation Plan for Non-Employee Directors will terminate in June 2013, unless our board of directors terminates it sooner.
Compensation of Executive Officers
       The following table sets forth, on an annualized basis with respect to salary information, information regarding the compensation we paid to our Chief Executive Officer and our four other highest compensated executive officers (hereinafter, the "Named Executive Officers") for all services they rendered to us during 2004, 2003, and 2002. We can make awards of restricted stock under our equity incentive plan, although we have not awarded any restricted stock to date. We do not have a long-term incentive plan.
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Summary Compensation Table

 	 	 	 	Annual Compensation
	 	 	 	 	
Name and Principal Position
	 	Fiscal
Year
			 	Long Term Compensation Awards—Securities Underlying Options
	 	All Other Compensation (1)
	
			 	Salary
	 	Bonus
					
Joseph M. Holsten
Chief Executive Officer	 	2004
2003
2002	 	$
	425,000
393,750
393,750	 	$
	318,750
460,688
230,344	 	50,000
150,000
76,250	 	$
	13,249
12,704
9,547	
Mark T. Spears
Chief Financial Officer	 	2004
2003
2002	 	$
	304,000
288,750
288,750	 	$
	152,000
225,225
112,613	 	25,000
100,000
86,000	 	$
	9,120
8,683
8,676	
Stuart P. Willen
Senior Vice President of Midwest Region	 	2004
2003
2002	 	$
	275,000
275,000
250,000	 	$
	13,750
116,638
95,917	 	—
—
—	 	$
	7,632
7,662
7,521	
Leonard A. Damron
Senior Vice President of Southeast Region	 	2004
2003
2002	 	$
	250,000
250,000
250,000	 	$
	94,000
19,500
9,850	 	—
—
16,000	 	 	—
—
—	
H. Bradley Willen
Vice President of Procurement
and Product Pricing	 	2004
2003
2002	 	$
	220,000
215,000
205,000	 	$
	22,000
90,945
64,302	 	11,500
18,000
18,100	 	$
	6,612
6,134
4,095	

(1)
Amounts paid represent matching contributions under our 401(k) plan or the retirement plan that supplements our 401(k) plan for highly compensated employees.
       The following table sets forth individual grants of stock options made to the Named Executive Officers during 2004.
Option Grants in Last Fiscal Year

 	 	 	 	 	 	 	 	 	 	Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (3)
	
 	 	 	 	Percent of Total Options/SARs Granted to Employees in Fiscal Year
	 	 	 	 			
Name
	 	Number of Securities Underlying Options Granted (1)
			 	Exercise Price Per Share (2)
	 	Expiration
Date
			
									 	5%
	 	10%
	
Joseph M. Holsten	 	50,000	 	11.0	%	$	17.96	 	1/9/14	 	$	564,747	 	$	1,431,181	
Mark T. Spears	 	25,000	 	5.5	%	 	17.96	 	1/9/14	 	 	282,374	 	 	715,590	
Stuart P. Willen	 	—	 	—	 	 	—	 	—	 	 	—	 	 	—	
Leonard A. Damron	 	—	 	—	 	 	—	 	—	 	 	—	 	 	—	
H. Bradley Willen	 	11,500	 	2.5	%	$	17.96	 	1/9/14	 	$	129,892	 	$	329,172	

(1)
At the time they were granted, each of the options was scheduled to become exercisable with respect to 10% of the number of shares subject to such option on each six month anniversary of the date of grant over a total of five years. On January 10, 2005, each option was amended to make it fully exercisable immediately.
(2)
Under our employee stock option plan pursuant to which these options were granted, the exercise price must be no less than the fair market value of our common stock on the date of grant.
(3)
These amounts represent certain assumed annual rates of appreciation calculated from $17.96, pursuant to the rules of the Securities and Exchange Commission as interpreted by the Commission's staff. Actual gains, if any, on stock option exercises and common stock holdings depend on the future performance of our common stock. These amounts do not represent our estimate of future stock price performance.
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       The following table provides information about the value realized upon the exercise of options to purchase our common stock in 2004 and the value of unexercised options to purchase our common stock at December 31, 2004, for the Named Executive Officers.
Aggregate 2004 Option Exercises and Year End Values

 	 	 	 	 	 	Number of Securities Underlying Unexercised Options at 12/31/04
	 	Value of Unexercised In-the-Money Options at 12/31/04 (1)
	
Name
	 	Shares Acquired On Exercise
	 	Value Realized
					
					 	Exercisable
	 	Unexercisable
	 	Exercisable
	 	Unexercisable
	
Joseph M. Holsten	 	—	 	—	 	448,125	 	248,125	 	$	4,357,194	 	$	2,379,794	
Mark T. Spears	 	—	 	—	 	245,500	 	175,500	 	 	1,892,035	 	 	1,782,935	
Stuart P. Willen	 	—	 	—	 	14,000	 	6,000	 	 	238,980	 	 	102,420	
Leonard A. Damron	 	—	 	—	 	12,000	 	14,000	 	 	164,840	 	 	198,980	
H. Bradley Willen	 	—	 	—	 	32,100	 	36,500	 	 	382,443	 	 	350,519	

(1)
This column indicates the aggregate amount, if any, by which the market value of our common stock on December 31, 2004 exceeded each option's exercise price, based on the closing per share sale price of our common stock on the Nasdaq National Market on December 31, 2004 of $20.07.
       The following table provides information about our common stock that may be issued upon the exercise of options under all of our equity compensation plans as of December 31, 2004.
Equity Compensation Plan Information

Plan Category
	 	Number of securities to be issued upon exercise of outstanding options, warrants, and rights
	 	Weighted-average exercise price of outstanding options, warrants, and rights
	 	Number of securities remaining available for future issuance under equity compensation plans
	 	
Equity compensation plans approved by stockholders	 	3,806,985	 	$	11.79	 	1,007,330	(1)	
Equity compensation plans not approved by stockholders	 	175,000	 	 	10.00	 	—	 	

(1)
In May 2005, stockholders approved an amendment to the 1998 Equity Incentive Plan to increase the number of shares available for issuance under the plan by 2,000,000.
Employee Benefit Plans
1998 Equity Incentive Plan
       On February 13, 1998, our board of directors adopted and our stockholders approved the LKQ Corporation 1998 Equity Incentive Plan which was subsequently amended in March 2002 and May and August 2005. The purpose of the equity incentive plan is to benefit us and our subsidiaries by enabling us to offer persons associated with us stock-based incentives.
       Under the equity incentive plan, we may grant stock options, awards of restricted stock, stock appreciation rights, performance shares, and performance units. The compensation committee has the authority to administer the equity incentive plan and may make awards encompassing a total of not more than 7,000,000 shares of common stock. Shares subject to awards granted under the equity incentive plan that are returned to us as payment for the exercise price or tax withholding amount relating to the award or with respect to which awards expire or are forfeited or are paid in cash, would again be available for grant under the equity incentive plan.
       The compensation committee has the power to set the terms and conditions to which each award is subject, including the times at which it is exercisable, except that: (i) the exercise price may not be less than the fair market value of the common stock on the date the award is granted, (ii) the period of restriction for restricted stock must be a minimum of one year for performance-based awards and a minimum of three years
63

for non-performance-based awards, and (iii) the performance period for performance shares and performance units must be a minimum of one year.
       Upon a change in control, awards under the equity incentive plan become immediately exercisable, restrictions thereon lapse, and maximum payout opportunities are deemed earned, as the case may be, as of the effective date of the change in control. The board of directors may amend or terminate the equity incentive plan in whole or in part at any time, subject to applicable law, rule, or regulation; provided, however, that the Board may not, without stockholder approval, (i) materially increase the benefits accruing to participants, (ii) materially increase the number of securities which may be issued under the equity incentive plan, or (iii) materially modify the requirements for participation in the equity incentive plan. No amendment, modification, or termination of the equity incentive plan can adversely affect in any material way any award previously granted, without the written consent of the participant holding such award.
CEO Plan
       On November 2, 1998, we adopted a separate equity incentive plan known as the CEO plan. The terms of the CEO plan are substantially the same as the terms of the 1998 Equity Incentive Plan except the board of directors administers the plan and the exercise price of options granted under the CEO plan may be less than the fair market value of the common stock on the date the option is granted. We granted 175,000 options under the CEO plan with an exercise price of $10.00 per share at a time when options under the equity incentive plan were granted with an exercise price of $12.50 per share. The difference between the fair market value and the option exercise price was recorded as deferred compensation and was charged against operating income over the five year vesting period of the option. There are no additional shares available for award under the CEO Plan. The CEO Plan was not approved by our stockholders.
Retirement Plans
       We have a 401(k) plan covering substantially all of our employees, including our executive officers, who have been employed for at least six months. The 401(k) plan allows participants to defer their salary in amounts up to the statutory limit each year. We currently make matching contributions equal to 50% of the portion of the participant's contributions that does not exceed 6% of the participant's salary. We may, at our sole discretion, make annual profit-sharing contributions to participants. Each participant is fully vested in such participant's contributions and any earnings they generate. Each 401(k) participant becomes vested in our matching contributions, and any earnings they generate, in the amounts of 50%, 75%, and 100% after two, three, and four years of service, respectively. Each participant becomes vested in our profit sharing contributions, if any, and any earnings they generate, in the amounts of 25%, 50%, 75%, and 100% after one, two, three, and four years of service, respectively.
       We also have two plans that supplement the 401(k) plan for highly compensated employees, or HCEs. The first supplemental plan was adopted in August 1999. In October 2004, Congress passed a new law requiring certain changes to our supplemental plan. The Internal Revenue Service issued initial guidance in December 2004 regarding the implementation of the new law. Although formal compliance with the new law is not required until the end of 2005, companies were expected to operate their plans in good faith compliance with the new law starting on January 1, 2005. In March 2005, we adopted a second supplemental plan (effective as of January 1, 2005). The second supplemental plan is substantially similar to the first plan, except for changes made to comply with the new law, which relate to the timing and form of payments under the plan. The first supplemental plan remains in effect for contributions made prior to December 31, 2004. The second supplemental plan applies to contributions commencing as of January 1, 2005.
       All of our executive officers are HCEs. The tax laws impose a maximum percentage of salary that can be contributed each year by HCEs to our 401(k) plan depending on the participation level of non-HCEs. The supplemental plans operate similarly to the 401(k) plan except that contributions by HCEs to the supplemental plans are not subject to the statutory maximum percentage. The terms of the supplemental plans impose a
64

maximum annual contribution on each participant of 50% of the HCE's salary and 100% of commissions and bonuses. In addition, the supplemental plans authorize the Compensation Committee to set a maximum annual contribution amount, which is currently $50,000. Each quarter we transfer from the supplemental plans to the 401(k) plan, on behalf of each HCE who so elects, the maximum amount that could have been contributed directly to the 401(k) plan. The balance remaining in each HCE's account in the supplemental plans is a general asset of ours, and in the event of our insolvency, the HCE would be a general, unsecured creditor with respect to such amount.
Bonus Program
       We have a bonus program for certain of our key employees, including our executive officers. Under the bonus program, each participant is eligible to receive a cash payment equal to a percentage of the participant's base salary, which percentage is dependent on the achievement of specified levels of financial performance of the Company each fiscal year.
65

 
 PRINCIPAL AND SELLING STOCKHOLDERS
       The following table sets forth certain information regarding the beneficial ownership of our common stock as of August 31 2005, by:
•
each stockholder known by us (based on filings made by such persons with the Securities and Exchange Commission) to be the beneficial owner of more than 5% of our outstanding common stock; 

•
each of our directors and named executive officers; 

•
all directors and executive officers as a group; and 

•
each of the selling stockholders.
       We have determined beneficial ownership in the table below in accordance with the rules of the Securities and Exchange Commission. Except as specified below, we believe that the beneficial owners of the common stock listed below, based on information furnished by such owners, have sole voting and investment power with respect to such shares, subject to community property laws where applicable.
       The percentage of beneficial ownership for the following table is based on 21,300,767 shares of our common stock outstanding as of August 31, 2005. For purposes of calculating beneficial ownership after the offering, we have assumed that 23,300,767 shares of our common stock will be outstanding upon completion of the offering, assuming no exercise of the underwriters' over-allotment. In computing the number of shares beneficially owned by a person and the percentage ownership of that person we have deemed shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days of August 31, 2005 to be outstanding, but we have not deemed these shares to be outstanding for computing the percentage ownership of any other person.
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       Except as otherwise noted, the address of the beneficial owner is c/o LKQ Corporation, 120 North LaSalle Street, Suite 3300, Chicago, Illinois 60602.

 	 	Shares Beneficially Owned Prior to this Offering (1)
	 	 	 	Shares Beneficially Owned After this Offering (1)
	
Name and Address of Beneficial Owner
			 	Number of Shares Offered
			
	 	Number
	 	Percent
			 	Number
	 	Percent
	
Donald F. Flynn (2)
c/o Flynn Enterprises, Inc.
676 North Michigan Avenue, Suite 4000
Chicago, Illinois 60611	 	2,133,502	 	9.8	%	 	 	 	 	 	
Leonard A. Damron (3)
4950 W. Norvell
Bryant Highway
Crystal River, Florida 34429	 	1,780,235	 	8.2	%	 	 	 	 	 	
Kevin F. Flynn (4)
c/o Flynn Enterprises, Inc.
676 North Michigan Avenue, Suite 4000
Chicago, Illinois 60611	 	1,335,706	 	6.2	%	 	 	 	 	 	
Waddell & Reed Investment Management Company (5)
6300 Lamar Avenue
Overland Park, KS 66202	 	1,092,176	 	5.1	%	 	 	 	 	 	
A. Clinton Allen (6)	 	113,000	 	*	 	 	 	 	 	*	
Robert M. Devlin	 	90,000	 	*	 	 	 	 	 	*	
Paul M. Meister	 	159,103	 	*	 	 	 	 	 	*	
John F. O'Brien	 	90,000	 	*	 	 	 	 	 	*	
William M. Webster, IV	 	85,000	 	*	 	 	 	 	 	*	
Joseph M. Holsten	 	808,625	 	3.7	%	 	 	 	 	 	
Mark T. Spears	 	479,700	 	2.2	%	 	 	 	 	 	
Stuart P. Willen	 	64,000	 	*	 	 	 	 	 	*	
H. Bradley Willen (7)	 	174,667	 	*	 	 	 	 	 	*	
All directors and executive officers as a group (16 persons)	 	6,549,958	 	27.2	%	 	 	 	 	 	

*
Less than 1 percent.
(1)
Shares are considered beneficially owned, for the purpose of this table only, if held by the person indicated as beneficial owner, or if such person, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares the power to vote, to direct the voting of and/or to dispose of or to direct the disposition of such security, or if the person has the right to acquire beneficial ownership within 60 days, unless otherwise indicated in these footnotes. The numbers and percentages of shares owned by the persons or group of persons in this table assume in each case that currently outstanding stock options or warrants covering shares of common stock that were exercisable within 60 days of August 31, 2005 had been exercised by that person or group as follows: Donald F. Flynn—458,244; Leonard A. Damron—520,235; Kevin F. Flynn—218,244; A. Clinton Allen—40,000; Robert M. Devlin—40,000; Paul M. Meister—40,000; John F. O'Brien—40,000; William M. Webster, IV—40,000; Joseph M. Holsten—736,875; Mark T. Spears—429,700; Stuart P. Willen—18,000; H. Bradley Willen—58,420; all directors and executive officers as a group—2,807,464.
(2)
Includes 1,575,258 shares of common stock owned by DNB, L.P., a Delaware limited partnership wholly-owned by Mr. Flynn, which represents 7.4% of the shares of common stock currently outstanding and will represent            % of the shares of common stock outstanding upon completion of the offering.
(3)
Includes 1,250,000 shares of common stock owned by Damron LKQ Limited Partnership, a Colorado limited partnership indirectly wholly-owned by Mr. Damron, which represents 5.9% of the shares of common stock currently outstanding and will represent            % of the shares of common stock outstanding upon completion of the offering.
(4)
Includes 1,117,462 shares of common stock owned by the Kevin F. Flynn June, 1992 Non-Exempt Trust, of which Mr. Flynn is the trustee and beneficiary, which represents 5.3% of the shares of common stock currently outstanding and will represent            % of the shares of common stock outstanding upon completion of the offering.
(5)
Information reported is based on a Schedule 13G as filed with the Securities and Exchange Commission on February 8, 2005.
(6)
Includes 1,000 shares held by an IRA, of which Mr. Allen is the beneficiary, and 7,000 shares owned by Mr. Allen's wife.
(7)
Includes 116,247 shares of common stock owned by the H. Bradley Willen Grantor Trust, of which Mr. Willen is the sole trustee and beneficiary.
67

 
 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
       We have entered into a number of related party transactions that we believe are on terms no less favorable to us than otherwise could have been obtained from unaffiliated third parties.
Headquarters Lease
       Until July 31, 2004, we leased office space for our headquarters in Chicago, Illinois pursuant to a sublease with Emerald Ventures, Inc. Kevin F. Flynn, a son of Donald F. Flynn and a stockholder and former director of the company, is the sole owner of Emerald Ventures, Inc. The sublease was on substantially the same terms as the main lease between Emerald Ventures, Inc. and its lessor. The total amount paid under this sublease was approximately $263,000, $254,000, and $163,000 during 2002, 2003, and 2004, respectively. We entered into a new lease directly with the owner of the building for the period commencing on August 1, 2004. The owner of the building is not affiliated with us. Emerald Ventures, Inc. now subleases office space from us on a month-to-month basis. There is no written agreement for this sublease. Emerald Ventures pays to us the amount of rent and operating expenses we pay to the owner of the building multiplied by a fraction, the numerator of which is the number of Emerald Ventures employees occupying the space and the denominator of which is the total number of persons occupying the space. The total amount paid to us pursuant to this sublease arrangement was approximately $33,900 during 2004.
Facilities Leases
       We lease various properties where our facilities operate. Three of those properties are owned by affiliates of Leonard A. Damron, a Named Executive Officer and stockholder. Our subsidiaries lease properties from these affiliates of Mr. Damron in Crystal River, Florida; Melbourne, Florida; and Jenkinsburg, Georgia. The aggregate annual rent under these three leases was approximately $714,000, $747,000, and $794,000 in 2002, 2003, and 2004, respectively. Each of these leases was negotiated in 1998 on an arms-length basis in connection with our acquisition of Mr. Damron's business. In addition, three properties where we operate facilities are co-owned by Steven H. Jones, an executive officer and stockholder. A subsidiary of ours leases these properties located in Topeka and Lawrence, Kansas from the owners (including Mr. Jones). The aggregate rent paid to Mr. Jones under these leases was approximately $151,500 in each of 2002, 2003, and 2004. Each of these leases was negotiated in 1999 on an arms-length basis in connection with our acquisition of Mr. Jones's business.
Reimbursements to our Chairman
       Donald F. Flynn, the Chairman of the Board and a stockholder, is the sole owner of Flynn Enterprises. Mr. Flynn and certain employees of Flynn Enterprises incur expenses in connection with work they perform on our behalf. We reimburse Flynn Enterprises for such expenses. We also reimburse Flynn Enterprises for the use of an airplane which we use from time to time for business trips. We reimbursed Flynn Enterprises approximately $12,800, $152,900, and $54,700 for such expenses in 2002, 2003, and 2004, respectively.
Fee Warrants
       Our financial results for the third quarter of 2000 caused us to breach certain covenants of our credit facility including the covenants relating to operating income and minimum required ratio of funded debt to earnings before interest, taxes, depreciation, and amortization. On February 14, 2001, we entered into an amendment to the credit agreement with our banks that waived the breaches and modified certain of the covenants.
       As part of the amendment, the banks required that our stockholders guaranty $10 million of our debt, with the guaranties secured by letters of credit or other highly liquid collateral acceptable to the banks. All of our
68

stockholders were given the opportunity to participate in this transaction. Thirty of our stockholders provided the guaranties, including the following persons: Donald F. Flynn, Chairman of the Board; Kevin F. Flynn, former director and son of Donald Flynn; Brian J. Flynn, son of Donald Flynn; Robert W. Flynn, brother of Donald Flynn; Stuart P. Willen, Senior Vice President of Midwest Region; H. Bradley Willen, Vice President of Procurement and Product Pricing and son of Stuart Willen; Todd D. Willen, son of Stuart Willen; and Leonard A. Damron, Senior Vice President of Southeast Region.
       In exchange for providing the guaranties, each guarantor received certain rights, including a guaranty fee. The guaranty fee consisted of each guarantor's pro rata portion of warrants, referred to herein as fee warrants, to purchase a total of 1,961,112 shares of our common stock (10% of our then outstanding shares of common stock assuming exercise of these warrants) at an exercise price of $2.00 per share. The number of shares of common stock subject to the warrants received by each of the persons identified above was at the time of issuance as follows:

Guarantor
	 	Number of
Shares
	
Donald F. Flynn	 	218,245	
Kevin F. Flynn	 	218,244	
Brian J. Flynn	 	218,244	
Robert W. Flynn	 	98,056	
Stuart P. Willen	 	49,964	
H. Bradley Willen	 	31,018	
Todd D. Willen	 	30,313	
Leonard A. Damron	 	501,035	
Related Party Employees
       During fiscal years 2002, 2003, and 2004, Casey L. Damron and M. Chad Damron, sons of Leonard A. Damron, our Senior Vice President of Southeast Region, were employed by us as a Plant Manager—Sales & Marketing and a Plant Manager—Operations, respectively. Casey L. Damron was paid an aggregate salary (including bonus and amounts paid as matching contributions under our supplemental plan) of $120,126, $114,577, and $124,268 for his services during 2002, 2003, and 2004, respectively, and M. Chad Damron was paid an aggregate salary (including bonus and amounts paid as matching contributions under our supplemental plan) of $119,029, $114,654, and $128,653 for his services during 2002, 2003, and 2004, respectively. Both Casey L. Damron and M. Chad Damron participate in a nonqualified retirement plan for certain employees of one of our subsidiaries that we agreed to continue when the subsidiary was acquired. We fund the plan through premium payments on life insurance policies that we own and maintain to meet the obligations under the plan. Todd D. Willen, the son of Stuart P. Willen, our Senior Vice President of Midwest Region, and brother of H. Bradley Willen, our Vice President of Procurement and Product Pricing, was employed by us as a Plant Manager during fiscal years 2002, 2003, and 2004 and was paid an aggregate salary (including bonus and amounts paid as matching contributions under our 401(k) plan) of $293,526, $301,557, and $244,904 for his services during 2002, 2003, and 2004, respectively.
69

 
 DESCRIPTION OF CAPITAL STOCK
       We are authorized to issue up to 500,000,000 shares of common stock. Each share has a par value of $0.01. The following description summarizes various provisions of our capital stock. The summary is not complete and is subject to, and qualified in its entirety by, our certificate of incorporation and bylaws, copies of which have been filed or incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and the provisions of applicable Delaware law.
Common Stock
       Each share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors. The holders of common stock are entitled to receive dividends, if any, declared from time to time by the directors out of legally available funds. The payment of dividends is limited by the terms of our credit facility. In the event of our liquidation, dissolution, or winding up, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities.
       The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable.
Warrants
       On February 14, 2001, we issued the fee warrants, which entitled the holders to purchase a total of 1,961,112 shares of common stock at an exercise price of $2.00 per share. The fee warrants became exercisable upon issuance and will expire on February 14, 2006. As of June 30, 2005, there were 1,268,111 fee warrants outstanding.
Options
       As of June 30, 2005, options to purchase a total of 4,295,495 shares of common stock were outstanding, of which 3,277,805 have vested. The exercise prices of the outstanding options range from $1.00 to $18.87, with a weighted average of $12.69.
Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws
       Some provisions of our certificate of incorporation and bylaws may be deemed to have an anti-takeover effect and may delay or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interest. These provisions include:
Special Meetings of Stockholders
       Our certificate of incorporation provides that special meetings of our stockholders may be called only by the president or by a majority of the board of directors. As a result, stockholders must rely on the board of directors to call a special meeting or wait until the next annual meeting to hold a vote on extraordinary matters like a significant transaction and would have to comply with the notice provisions described below. The restriction on the ability of stockholders to call a special meeting means that a proposal to replace the board also could be delayed until the next annual meeting.
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Advance Notice Procedure
       Our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors. Generally, the advance notice provisions require that written notice of the proposals or nominations must be given to our secretary no less than 60 days nor more than 90 days prior to the annual meeting. However, if notice or prior public disclosure of the annual meeting date is given less than 70 days prior to the meeting, the notice must be received by our secretary no later than the close of business on the tenth day following the day on which notice of the annual meeting date was mailed or public disclosure was made, whichever occurs first.
       At an annual meeting, stockholders may only consider proposals or nominations specified in the notice of meeting, brought before the meeting by or at the direction of the board of directors, or brought before the meeting by a stockholder who has complied with the notice provisions described above. Our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.
No Stockholder Action by Written Consent
       Delaware law provides that stockholders may take action by written consent in lieu of a stockholder meeting. However, Delaware law also allows us to eliminate stockholder actions by written consent, which we have done. Elimination of written consents of stockholders may lengthen the amount of time required to take stockholder actions because actions by written consent are not subject to the minimum notice requirement of a stockholder meeting. The elimination of stockholders' written consents may also deter hostile takeover attempts. Without the availability of stockholders' actions by written consent, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a stockholders meeting. The holder would have to obtain the consent of a majority of the board of directors to call a special stockholder meeting or comply with the notice periods applicable to annual meetings.
Authorized but Unissued Shares
       The authorized but unissued shares of common stock will be available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including public offerings to raise additional capital, acquisitions, and employee benefit plans. The existence of authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of a majority of our stock by means of a proxy contest, tender offer, merger, or otherwise.
Material Provisions of Delaware Law
       We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, such provisions prohibit a publicly-held Delaware corporation from engaging in any business combination transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
•
the transaction is approved by the board of directors prior to the date the interested stockholder obtained that status; 

•
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares of voting stock outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
71

•
on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2 / 3 % of the outstanding voting stock which is not owned by the interested stockholder.
       A "business combination" is defined to include mergers, asset sales, and other transactions resulting in financial benefit to a stockholder. In general, an "interested stockholder" is a person who, together with affiliates and associates, owns, or at any time in the previous three years owned, 15% or more of a corporation's voting stock. The statute could have the effect of prohibiting or delaying mergers or other takeover or change in control attempts.
Transfer Agent and Registrar
       The transfer agent and registrar for our common stock is LaSalle Bank National Association. Its address is 135 South LaSalle Street, Chicago, Illinois 60603.
72

 
 UNDERWRITING
       Under an underwriting agreement dated                      , 2005, we and the selling stockholders have agreed to sell to the underwriters named below the indicated number of shares of our common stock:

Underwriters
	 	Number of Shares
	
Robert W. Baird & Co. Incorporated	 	 	
Raymond James & Associates, Inc.	 	 	
Morgan Keegan & Company, Inc.	 	 	
Barrington Research Associates, Inc.	 	 	
 	 		
 	Total	 	 	
 	 		
       The underwriting agreement provides that the underwriters are obligated to purchase all of the shares of our common stock offered in this offering if any are purchased, other than those shares covered by the over-allotment option we describe below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or this offering may be terminated.
Commissions and Discounts.
       The underwriters have advised us that the underwriters propose to offer our common stock at the public offering price on the cover page of this prospectus less a selling concession of $            per share. The underwriters may allow a discount of not more than $            per share on sales to other broker/dealers. After the offering, the public offering price and selling concession and discount to dealers may be changed by the representatives. As used in this section:
•
Underwriters are securities broker/dealers that are parties to the underwriting agreement and will have a contractual commitment to purchase shares of our common stock from us and the selling stockholders, and the representatives are the four firms acting on behalf of the underwriters. 

•
Selling group members are securities broker/dealers to whom the underwriters may sell shares of common stock at the public offering price less the underwriting discount, but who do not have a contractual commitment to purchase shares from us. 

•
Broker/dealers are firms registered under applicable securities laws to sell securities to the public. 

•
The syndicate consists of the underwriters and the selling group members.
       The following table summarizes the compensation and estimated expenses that we will pay. The compensation we and the selling stockholders will pay to the underwriters will consist solely of the underwriting discount, which is equal to the public offering price per share of common stock less the amount the underwriters pay to us per share of common stock. The underwriters have not received and will not receive from us or the selling stockholders any other item of compensation or expense in connection with this offering considered by the National Association of Securities Dealers, Inc. to be underwriting compensation under its rule of fair price.

 	 	Per Share
	 	Total
	
 	 	Without over-allotment
	 	With over-allotment
	 	Without over-allotment
	 	With over-allotment
	
Public Offering Price	 	 	 	 	 	 	 	 	
Underwriting discounts and commissions	 	 	 	 	 	 	 	 	
Proceeds, before expenses, to us	 	 	 	 	 	 	 	 	
Proceeds, before expenses, to the selling stockholders	 	 	 	 	 	 	 	 	
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       We have agreed to pay all of the expenses in connection with this offering, which we estimate will be approximately $            . The principal components of the offering expenses payable by us will include the fees and expenses of our accountants and attorneys, the fees of our registrar and transfer agent, the cost of printing this prospectus, the Nasdaq listing fees and filing fees paid to the Securities and Exchange Commission.
Over-allotment Option.
       We have granted the underwriters a 30-day option to purchase up to 412,500 shares of our common stock at the public offering price less the underwriting discount. This option may be exercised only to cover over-allotments, if any, of our common stock.
Indemnity.
       We have agreed to indemnify the underwriters against liabilities under the Securities Act of 1933, or to contribute to payments which the underwriters may be required to make in that respect.
Lock-Up Agreements.
       We have agreed that we will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock for a period of 180 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of the "lock-up" period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the "lock-up" period, we announce that we will release earnings results during the 16-day period beginning on the last day of the "lock-up" period, then in either case the expiration of the "lock-up" period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable, unless the underwriters waive such an extension.
       Our executive officers, directors and the selling stockholders have agreed that they will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, for a period of 90 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of the "lock-up" period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the "lock-up" period, we announce that we will release earnings results during the 16-day period beginning on the last day of the "lock-up" period, then in either case the expiration of the "lock-up" period will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or material event, as applicable, unless the underwriters waive such an extension.
Stabilization.
       The underwriters have advised us that they may engage in transactions, including stabilizing bids, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Exchange Act.
•
A "stabilizing bid" is a bid for or the purchase of the common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock.
74

•
A "syndicate covering transaction" is a bid for or the purchase of common stock on behalf of the underwriters to reduce a short position created by the underwriters in connection with this offering. 

•
A "penalty bid" is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to an underwriter in connection with this offering if the common stock originally sold by that underwriter is purchased by the underwriters in a syndicate covering transaction and has therefore not been effectively placed by that underwriter.
       These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters have advised us that these transactions may be effected on Nasdaq or otherwise. Neither we nor any of the underwriters makes any representation that the underwriters will engage in any of the transactions described above, and these transactions, if commenced, may be discontinued without notice. Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of the effect that the transactions described above, if commenced, may have on the market price of our common stock.
Trading Market for Common Stock.
       The shares of our common stock are traded on the Nasdaq National Market under the symbol "LKQX."
Selling Stockholders.
       The selling stockholders that participate in the distribution of our common stock may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, and any proceeds from the sale of our common stock received by them may be deemed to be underwriting compensation under the Securities Act of 1933. To the extent a selling stockholder may be deemed to be an underwriter, it may be subject to certain statutory liabilities under the Securities Act of 1933, including but not limited to Sections 11 and 12 of the Securities Act of 1933.
 
 LEGAL MATTERS
       Certain legal matters with respect to the shares of common stock offered hereby will be passed upon for us and the selling stockholders by Bell, Boyd & Lloyd LLC, Chicago, Illinois. As of the date of this prospectus, certain attorneys of Bell, Boyd & Lloyd LLC beneficially owned an aggregate of 22,000 shares of our common stock. Certain legal matters will be passed on for the underwriters by McDermott Will & Emery LLP, Chicago, Illinois.
 
 EXPERTS
       The financial statements as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, included in this prospectus and the related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports appearing herein and elsewhere in the registration statement (which reports express an unqualified opinion and the report on the financial statements includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" as of January 1, 2002), and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
75

 
 ADDITIONAL INFORMATION
       We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock offered hereby. This prospectus, which constitutes a part of the registration statement, omits certain of the information contained in the registration statement and the exhibits and schedules thereto on file with the Securities and Exchange Commission pursuant to the Securities Act of 1933. For further information with respect to us and the common stock offered by this prospectus, we refer you to the registration statement and to the exhibits and schedules filed as a part of the registration statement. Statements made in this prospectus concerning the contents of any document referred to in this prospectus are not necessarily complete. With respect to each such document filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved.
       We are required to file annual, quarterly, and special reports, proxy statements, and other information with the Securities and Exchange Commission. You can obtain our filings, including the registration statement and the exhibits, over the Internet at the Securities and Exchange Commission's website at http://www.sec.gov . You may also read and copy any document we file with the Securities and Exchange Commission at the Public Reference Room maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington, DC 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. We also make our public filings available free of charge at our website located at http://www.lkqcorp.com . Our website and the information contained on it shall not be deemed to be incorporated by reference into this prospectus or the registration statement of which it forms a part.
76

 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	 	F-2	

Consolidated Financial Statements:	

Consolidated Balance Sheets at June 30, 2005 (unaudited) and December 31, 2004 and 2003	
 	
F-3	

Consolidated Statements of Operations for the six months ended June 30, 2005
and 2004 (unaudited) and for the years ended December 31, 2004, 2003 and 2002	
 	
F-4	

Consolidated Statements of Stockholders' Equity and Other Comprehensive Income for the six months ended June 30, 2005 (unaudited) and for the three years ended
December 31, 2004	
 	
F-5	

Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004
(unaudited) and for the years ended December 31, 2004, 2003 and 2002	
 	
F-6	

Notes to Consolidated Financial Statements	
 	
F-7	
F-1

 
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of LKQ Corporation:
       We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and other comprehensive income, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule for each of the three years in the period ended December 31, 2004 included in Item 16(b) of the Company's Registration Statement on Form S-1. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
       We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
       In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein for each of the three years in the period ended December 31, 2004.
       As discussed in Note 1, effective January 1, 2002, the Company changed its method of accounting for goodwill and intangible assets upon adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets .
       We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2005, which is not included herein, expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
/s/   DELOITTE & TOUCHE LLP      
Chicago, Illinois
March 8, 2005
F-2

 
 LKQ CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)

 	 	 	 	December 31,
	 	
 	 	June 30,
2005
			 	
Assets
			 	2004
	 	2003
	 	
 	 	(unaudited)
	 	 	 	 	 	
Current Assets:	 	 	 	 	 	 	 	 	 	 	
 	Cash and equivalents	 	$	2,315	 	$	1,612	 	$	16,082	 	
 	Restricted cash	 	 	467	 	 	—	 	 	—	 	
 	Receivables, net	 	 	31,633	 	 	28,305	 	 	22,542	 	
 	Inventory	 	 	81,446	 	 	74,150	 	 	54,003	 	
 	Deferred income taxes	 	 	1,339	 	 	1,109	 	 	422	 	
 	Prepaid expenses	 	 	2,113	 	 	2,266	 	 	2,656	 	

Total Current Assets	

119,313	

107,442	

95,705	

Property and Equipment, net	

74,323	

70,730	

43,893	
 	
Intangibles	 	 	 	 	 	 	 	 	 	 	
 	Goodwill	 	 	118,227	 	 	100,319	 	 	50,799	 	
 	Other intangibles, net	 	 	100	 	 	45	 	 	47	 	
Deferred Income Taxes	 	 	3,501	 	 	4,622	 	 	8,556	 	
Other Assets	 	 	6,302	 	 	5,117	 	 	4,154	 	

Total Assets	
 	
$	
321,766	
 	
$	
288,275	
 	
$	
203,154	

Liabilities and Stockholders' Equity	

 	

 	

 	

Current Liabilities:	

 	

 	

 	
 	
 	Accounts payable	 	$	9,364	 	$	8,424	 	$	6,831	 	
 	Accrued expenses	 	 	 	 	 	 	 	 	 	 	
 	 	Accrued payroll-related liabilities	 	 	8,042	 	 	6,731	 	 	4,661	 	
 	 	Accrued procurement liability	 	 	2,407	 	 	1,989	 	 	1,179	 	
 	 	Other accrued expenses	 	 	10,088	 	 	8,249	 	 	5,267	 	
 	Income taxes payable	 	 	956	 	 	1,251	 	 	—	 	
 	Deferred revenue	 	 	3,171	 	 	2,602	 	 	2,030	 	
 	Current portion of long-term obligations	 	 	276	 	 	317	 	 	1,553	 	

Total Current Liabilities	

34,304	

29,563	

21,521	

Long-Term Obligations, excluding Current Portion	

56,269	

49,945	

2,444	
 	
Other Noncurrent Liabilities	 	 	4,016	 	 	4,079	 	 	4,561	 	

Redeemable Common Stock, $0.01 par value, 50,000 shares issued	

617	

617	

617	

Commitments and Contingencies	

 	

 	

 	

Stockholders' Equity:	

 	

 	

 	
 	
 	Common stock, $0.01 par value, 500,000,000 shares authorized, 21,026,802, 20,565,413, and 19,476,831 shares issued at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively	 	 	210	 	 	206	 	 	195	 	
 	Additional paid-in capital	 	 	207,863	 	 	201,484	 	 	191,602	 	
 	Warrants	 	 	259	 	 	261	 	 	508	 	
 	Retained earnings (Accumulated deficit)	 	 	17,168	 	 	1,140	 	 	(19,433	)	
 	Accumulated other comprehensive income	 	 	1,060	 	 	980	 	 	1,139	 	

Total Stockholders' Equity	

226,560	

204,071	

174,011	

 	 	 	
Total Liabilities and Stockholders' Equity	
 	
$	
321,766	
 	
$	
288,275	
 	
$	
203,154	

The accompanying notes are an integral part of the consolidated financial statements.
F-3

 
 
 LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)

 	 	Six Months Ended
June 30,
	 	Year Ended December 31,
	 	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	 	
 	 	(unaudited)
	 	 	 	 	 	 	 	
Revenue	 	$	269,830	 	$	204,951	 	$	424,756	 	$	327,974	 	$	287,125	 	
Cost of goods sold	 	 	142,702	 	 	108,514	 	 	227,140	 	 	174,238	 	 	154,574	 	
 	 		 		 		 		 		 	
 	Gross margin	 	 	127,128	 	 	96,437	 	 	197,616	 	 	153,736	 	 	132,551	 	
Facility and warehouse expenses	 	 	28,956	 	 	22,529	 	 	47,815	 	 	38,679	 	 	35,778	 	
Distribution expenses	 	 	29,493	 	 	22,427	 	 	47,927	 	 	35,263	 	 	28,530	 	
Selling, general, and administrative expenses	 	 	36,444	 	 	29,247	 	 	60,095	 	 	48,289	 	 	42,385	 	
Depreciation and amortization	 	 	4,029	 	 	3,222	 	 	6,872	 	 	5,446	 	 	5,014	 	
 	 		 		 		 		 		 	
 	Operating Income	 	 	28,206	 	 	19,012	 	 	34,907	 	 	26,059	 	 	20,844	 	
Other (income) expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Interest expense	 	 	1,307	 	 	812	 	 	1,551	 	 	2,074	 	 	2,913	 	
 	Stockholder loan guarantee fee	 	 	—	 	 	—	 	 	—	 	 	—	 	 	160	 	
 	Interest income	 	 	(58	)	 	(22	)	 	(46	)	 	(51	)	 	(165	)	
 	Other income, net	 	 	(240	)	 	(146	)	 	(455	)	 	(117	)	 	(332	)	
 	 		 		 		 		 		 	
 	Total other expense	 	 	1,009	 	 	644	 	 	1,050	 	 	1,906	 	 	2,576	 	
 	 		 		 		 		 		 	
Income before provision for income taxes and cumulative effect of change in accounting principle	 	 	27,197	 	 	18,368	 	 	33,857	 	 	24,153	 	 	18,268	 	
Provision for income taxes	 	 	11,169	 	 	7,390	 	 	13,284	 	 	9,577	 	 	7,263	 	
 	 		 		 		 		 		 	
Income before cumulative effect of change in accounting principle	 	 	16,028	 	 	10,978	 	 	20,573	 	 	14,576	 	 	11,005	 	
Cumulative effect of change in accounting principle, net of tax
(see Note 1)	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(49,899	)	
 	 		 		 		 		 		 	
Net income (loss)	 	$	16,028	 	$	10,978	 	$	20,573	 	$	14,576	 	$	(38,894	)	
 	 		 		 		 		 		 	
Basic earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income before cumulative effect of change in accounting principle	 	$	0.77	 	$	0.55	 	$	1.03	 	$	0.90	 	$	0.62	 	
 	Cumulative effect of change in accounting principle, net of tax
(see Note 1)	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(2.82	)	
 	 		 		 		 		 		 	
 	Net income (loss)	 	$	0.77	 	$	0.55	 	$	1.03	 	$	0.90	 	$	(2.20	)	
 	 		 		 		 		 		 	
Diluted earnings (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income before cumulative effect of change in accounting principle	 	$	0.69	 	$	0.49	 	$	0.92	 	$	0.80	 	$	0.57	 	
 	Cumulative effect of change in accounting principle, net of tax
(see Note 1)	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(2.57	)	
 	 		 		 		 		 		 	
 	 	Net income (loss)	 	$	0.69	 	$	0.49	 	$	0.92	 	$	0.80	 	$	(2.00	)	
 	 		 		 		 		 		 	
The accompanying notes are an integral part of the consolidated financial statements.
F-4

 
 LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
and Other Comprehensive Income
(In thousands)

 	 	Common Stock
	 	 	 	 	 	 	 	 	 	 	 	 	 	
 			 	 	 	 	 	 	 	Related
Earnings/
(Accumulated
Deficit)
	 	Accumulated
Other
Comprehensive
Income
	 	 	 	
 	 	Shares
Issued
	 	Amount
	 	Additional
Paid-In
Capital
	 	Warrants
	 	Deferred
Compensation
Expense
					 	Total
Stockholders'
Equity
	 	
BALANCE, January 1, 2002	 	17,658	 	$	176	 	$	154,659	 	$	546	 	$	(161	)	$	4,885	 	$	—	 	$	160,105	 	
 	Net loss	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(38,894	)	 	 	 	 	(38,894	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Total comprehensive loss	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(38,894	)	
 	Retirement of stock	 	(17	)	 	—	 	 	(103	)	 	—	 	 	—	 	 	—	 	 	—	 	 	(103	)	
 	Repurchase of common shares	 	(15	)	 	—	 	 	(120	)	 	—	 	 	—	 	 	—	 	 	—	 	 	(120	)	
 	Recognition of deferred compensation	 	—	 	 	—	 	 	—	 	 	—	 	 	88	 	 	—	 	 	—	 	 	88	 	
 	Exercise of stockholder guarantor warrants	 	13	 	 	—	 	 	28	 	 	(3	)	 	—	 	 	—	 	 	—	 	 	25	 	
 	Exercise of stock options, including related tax benefits of $9	 	6	 	 	—	 	 	27	 	 	—	 	 	—	 	 	—	 	 	—	 	 	27	 	

BALANCE, December 31, 2002	
 	
17,645	
 	
$	
176	
 	
$	
154,491	
 	
$	
543	
 	
$	
(73	
)	
$	
(34,009	
)	
$	
—	
 	
$	
121,128	

 	Net income	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	14,576	 	 	—	 	 	14,576	 	
 	Unrealized gain on investment in equity securities, net of tax	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	1,139	 	 	1,139	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Total comprehensive income	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	15,715	 	
 	Sale of common stock	 	5,000	 	 	50	 	 	58,219	 	 	—	 	 	—	 	 	—	 	 	—	 	 	58,269	 	
 	Repurchase of common shares from related parties	 	(3,557	)	 	(35	)	 	(22,867	)	 	—	 	 	—	 	 	—	 	 	—	 	 	(22,902	)	
 	Retirement of common stock	 	(80	)	 	(1	)	 	(559	)	 	—	 	 	—	 	 	—	 	 	—	 	 	(560	)	
 	Equity-related compensation expense	 	—	 	 	—	 	 	15	 	 	—	 	 	—	 	 	—	 	 	—	 	 	15	 	
 	Recognition of deferred compensation	 	—	 	 	—	 	 	—	 	 	—	 	 	73	 	 	—	 	 	—	 	 	73	 	
 	Exercise of stockholder guarantor warrants	 	171	 	 	2	 	 	375	 	 	(35	)	 	—	 	 	—	 	 	—	 	 	342	 	
 	Exercise of stock options including related tax benefits of $568	 	298	 	 	3	 	 	1,928	 	 	—	 	 	—	 	 	—	 	 	—	 	 	1,931	 	

BALANCE, December 31, 2003	
 	
19,477	
 	
$	
195	
 	
$	
191,602	
 	
$	
508	
 	
$	
—	
 	
$	
(19,433	
)	
$	
1,139	
 	
$	
174,011	

 	
Net income	
 	
—	

—	

—	

—	

—	

20,573	

—	

20,573	
 	
 	Unrealized loss on investment in equity securities, net of tax	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(127	)	 	(127	)	
 	Foreign currency translation	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(32	)	 	(32	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Total comprehensive income	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	20,414	 	
 	Stock issued in acquisitions	 	187	 	 	2	 	 	3,373	 	 	—	 	 	—	 	 	—	 	 	—	 	 	3,375	 	
 	Stock issued as director compensation	 	2	 	 	—	 	 	45	 	 	—	 	 	—	 	 	—	 	 	—	 	 	45	 	
 	Equity-related compensation expense	 	—	 	 	—	 	 	157	 	 	—	 	 	—	 	 	—	 	 	—	 	 	157	 	
 	Expiration of warrants issued in acquisitions	 	—	 	 	—	 	 	12	 	 	(12	)	 	—	 	 	—	 	 	—	 	 	—	 	
 	Exercise of warrants issued in acquisitions	 	50	 	 	1	 	 	882	 	 	(133	)	 	—	 	 	—	 	 	—	 	 	750	 	
 	Exercise of stockholder guarantor warrants	 	503	 	 	5	 	 	1,103	 	 	(102	)	 	—	 	 	—	 	 	—	 	 	1,006	 	
 	Exercise of stock options including related tax benefits of $1,127	 	346	 	 	3	 	 	4,310	 	 	—	 	 	—	 	 	—	 	 	—	 	 	4,313	 	

BALANCE, December 31, 2004	
 	
20,565	
 	
$	
206	
 	
$	
201,484	
 	
$	
261	
 	
$	
—	
 	
$	
1,140	
 	
$	
980	
 	
$	
204,071	

 	
Net income (unaudited)	
 	
—	

—	

—	

—	

—	

16,028	

—	

16,028	
 	
 	Unrealized gain on investment in equity securities, net of tax (unaudited)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	88	 	 	88	 	
 	Foreign currency translation (unaudited)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(8	)	 	(8	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Total comprehensive income (unaudited)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	16,108	 	
 	Equity-related compensation expense (unaudited)	 	—	 	 	—	 	 	42	 	 	—	 	 	—	 	 	—	 	 	—	 	 	42	 	
 	Exercise of warrants issued in acquisitions (unaudited)	 	59	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
 	Exercise of stockholder guarantor warrants (unaudited)	 	6	 	 	—	 	 	14	 	 	(2	)	 	—	 	 	—	 	 	—	 	 	12	 	
 	Exercise of stock options, including related tax benefits of $1,926 (unaudited)	 	397	 	 	4	 	 	6,323	 	 	—	 	 	—	 	 	—	 	 	—	 	 	6,327	 	

BALANCE, June 30, 2005 (unaudited)	
 	
21,027	
 	
$	
210	
 	
$	
207,863	
 	
$	
259	
 	
$	
—	
 	
$	
17,168	
 	
$	
1,060	
 	
$	
226,560	

The accompanying notes are an integral part of the consolidated financial statements.
F-5

 
 LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)

 	 	Six Months Ended
June 30,
	 	Year Ended December 31,
	 	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	 	
 	 	(unaudited)
	 	 	 	 	 	 	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net income (loss)	 	$	16,028	 	$	10,978	 	$	20,573	 	$	14,576	 	$	(38,894	)	
 	Adjustments to reconcile net income (loss) to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Depreciation and amortization	 	 	4,029	 	 	3,222	 	 	6,872	 	 	5,446	 	 	5,014	 	
 	 	(Gain) loss on sale of property and equipment	 	 	(214	)	 	38	 	 	119	 	 	(89	)	 	24	 	
 	 	Equity-related compensation expense	 	 	42	 	 	22	 	 	202	 	 	15	 	 	—	 	
 	 	Deferred compensation expense	 	 	—	 	 	—	 	 	—	 	 	73	 	 	88	 	
 	 	Writeoff of debt issuance costs	 	 	—	 	 	346	 	 	346	 	 	—	 	 	—	 	
 	 	Deferred income taxes	 	 	831	 	 	1,891	 	 	3,487	 	 	2,328	 	 	1,118	 	
 	 	Gain on early extinguishment of debt	 	 	—	 	 	(49	)	 	(49	)	 	—	 	 	—	 	
 	 	(Gain) loss on interest rate swap	 	 	—	 	 	(70	)	 	(91	)	 	(69	)	 	160	 	
 	 	Cumulative effect of change in accounting principle	 	 	—	 	 	—	 	 	—	 	 	—	 	 	49,899	 	
 	Changes in operating assets and liabilities, net of effects from purchase transactions:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Receivables	 	 	(1,893	)	 	(1,275	)	 	(2,143	)	 	(3,893	)	 	(1,816	)	
 	 	Inventory	 	 	(2,004	)	 	(4,977	)	 	(5,175	)	 	545	 	 	(1,161	)	
 	 	Prepaid expenses and other assets	 	 	(488	)	 	(121	)	 	175	 	 	(1,706	)	 	1,526	 	
 	 	Accounts payable	 	 	(1,185	)	 	(3,132	)	 	(3,091	)	 	2,273	 	 	146	 	
 	 	Accrued expenses	 	 	3,167	 	 	1,739	 	 	3,297	 	 	(177	)	 	2,531	 	
 	 	Income taxes payable	 	 	1,632	 	 	181	 	 	1,866	 	 	459	 	 	(1,631	)	
 	 	Deferred revenue	 	 	568	 	 	210	 	 	205	 	 	666	 	 	330	 	
 	 	Other noncurrent liabilities	 	 	(63	)	 	(374	)	 	(692	)	 	502	 	 	406	 	
 	 		 		 		 		 		 	
 	 	 	Net cash provided by operating activities	 	 	20,450	 	 	8,629	 	 	25,901	 	 	20,949	 	 	17,740	 	

CASH FLOWS FROM INVESTING ACTIVITIES:	

 	

 	

 	

 	

 	
 	
 	Purchases of property and equipment	 	 	(6,471	)	 	(16,160	)	 	(25,670	)	 	(9,097	)	 	(6,851	)	
 	Proceeds from sale of property and equipment	 	 	738	 	 	34	 	 	103	 	 	161	 	 	105	 	
 	Expenditures for intangible assets	 	 	(3	)	 	(3	)	 	(5	)	 	—	 	 	—	 	
 	Purchase of investment securities	 	 	—	 	 	(650	)	 	(650	)	 	—	 	 	—	 	
 	Decrease in restricted cash in escrow	 	 	132	 	 	—	 	 	—	 	 	—	 	 	—	 	
 	Cash used in acquisitions	 	 	(24,037	)	 	(43,443	)	 	(61,601	)	 	(3,286	)	 	—	 	
 	 		 		 		 		 		 	
 	 	 	Net cash used in investing activities	 	 	(29,641	)	 	(60,222	)	 	(87,823	)	 	(12,222	)	 	(6,746	)	

CASH FLOWS FROM FINANCING ACTIVITIES:	

 	

 	

 	

 	

 	
 	
 	Retirement of stock	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(103	)	
 	Proceeds from the sale of common stock	 	 	4,401	 	 	2,438	 	 	3,186	 	 	59,632	 	 	18	 	
 	Proceeds from exercise of warrants	 	 	13	 	 	425	 	 	1,756	 	 	342	 	 	26	 	
 	Debt issuance costs	 	 	(300	)	 	(249	)	 	(249	)	 	(131	)	 	(630	)	
 	Net borrowings (repayments) under line of credit	 	 	6,000	 	 	39,000	 	 	47,000	 	 	(11,000	)	 	(29,500	)	
 	Borrowings under term loans	 	 	—	 	 	—	 	 	—	 	 	9,000	 	 	20,000	 	
 	Repayments under term loans	 	 	—	 	 	—	 	 	—	 	 	(27,750	)	 	(1,250	)	
 	Repayments of long-term debt obligations	 	 	(220	)	 	(4,140	)	 	(4,241	)	 	(421	)	 	(557	)	
 	Repurchase of common stock	 	 	—	 	 	—	 	 	—	 	 	(22,902	)	 	—	 	
 	 		 		 		 		 		 	
 	 	 	Net cash provided by (used in) financing activities	 	 	9,894	 	 	37,474	 	 	47,452	 	 	6,770	 	 	(11,996	)	

Net increase (decrease) in cash and equivalents	

703	

(14,119	
)	
 	
(14,470	
)	
 	
15,497	

(1,002	
)	

Cash and equivalents, beginning of period	

1,612	

16,082	

16,082	

585	

1,587	

Cash and equivalents, end of period	
 	
$	
2,315	
 	
$	
1,963	
 	
$	
1,612	
 	
$	
16,082	
 	
$	
585	

Supplemental disclosure of cash flow information:	

 	

 	

 	

 	

 	
 	
 	Capital lease obligations incurred	 	$	—	 	$	—	 	$	—	 	$	—	 	$	1,050	 	
 	Note issued in connection with property acquisition	 	 	—	 	 	—	 	 	—	 	 	—	 	 	500	 	
 	Notes issued in connection with business acquisitions	 	 	300	 	 	2,379	 	 	2,379	 	 	200	 	 	—	 	
 	Notes assumed in connection with business acquisitions	 	 	203	 	 	1,175	 	 	1,175	 	 	11	 	 	—	 	
 	Stock issued in connection with business acquisitions	 	 	—	 	 	3,375	 	 	3,375	 	 	—	 	 	—	 	
 	Redeemable common stock issued in connection with business acquisition	 	 	—	 	 	—	 	 	—	 	 	617	 	 	—	 	
 	Repurchase of common shares in exchange for cancellation of note receivable	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(120	)	
 	Repurchase and retirement of common stock in exchange for sale of assets	 	 	—	 	 	—	 	 	—	 	 	(560	)	 	—	 	
 	Cash paid for income taxes, net of refunds	 	 	8,832	 	 	5,979	 	 	7,783	 	 	6,978	 	 	6,129	 	
 	Cash paid for interest	 	 	1,357	 	 	611	 	 	1,179	 	 	2,000	 	 	3,173	 	
The accompanying notes are an integral part of the consolidated financial statements.
F-6

 
 LKQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Company Overview
       LKQ Corporation, a Delaware corporation, believes it is the largest nationwide provider of light vehicle recycled original equipment manufacturer ("OEM") products and related services, reaching most major markets in the U.S., and is also one of the nation's largest suppliers of light vehicle aftermarket products, operating primarily east of the Mississippi River.
Principles of Consolidation
       The accompanying consolidated financial statements include the accounts of LKQ Corporation and its subsidiaries. All significant intercompany transactions and accounts have been eliminated.
Interim Financial Information
       The consolidated balance sheet as of June 30, 2005, the consolidated statement of stockholders' equity and other comprehensive income for the six months ended June 30, 2005 and the consolidated statements of operations and cash flows for the six months ended June 30, 2005 and 2004 and the related footnotes are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. Accordingly, certain information related to the Company's significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted. In the opinion of management, the unaudited statements included herein reflect all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, the financial position, results of operations, and cash flows of the Company for the interim periods presented.
       Operating results for interim periods are not necessarily indicative of the results that can be expected for any subsequent interim period or for a full year.
Use of Estimates
       The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
       The majority of the Company's revenue is derived from the sale of recycled OEM products and aftermarket products. Revenue is recognized when the products are shipped and title has transferred, subject to an allowance for estimated returns, discounts, and allowances that management estimates based upon historical information. The Company has recorded a reserve for estimated returns, discounts, and allowances of approximately $2.5 million, $2.2 million, and $1.1 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively. Revenue from the sale of separately-priced extended warranty contracts is reported as Deferred revenue and recognized ratably over the term of the contracts.
F-7

Shipping & Handling
       Revenue also includes amounts billed to customers related to shipping and handling of approximately $3.8 million and $2.8 million during the six month periods ended June 30, 2005 and 2004 (unaudited), and $5.9 million, $5.9 million, and $3.6 million during the years ended December 31, 2004, 2003, and 2002, respectively. Distribution expenses in the accompanying consolidated statements of operations are the costs incurred to prepare and deliver products to customers.
Cash and Equivalents
       The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market value.
Receivables
       The Company has recorded a reserve for uncollectible accounts of approximately $1.7 million, $1.7 million, and $1.5 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively. The reserve is based upon management's assessment of the collectibility of specific customer accounts, the aging of the accounts receivable and historical experience. Receivables include travel advances and relocation loans to employees of approximately $0.3 million, $0.6 million, and $45,000 at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively.
Concentrations of Credit Risk
       Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and equivalents and accounts receivable. The majority of cash and equivalents are maintained with several major financial institutions. Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company's customer base. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures.
Inventory
       A salvage vehicle product is a recycled vehicle part suitable for sale as a replacement part. A core is a recycled mechanical part that is not suitable for sale as a replacement part without further remanufacturing work. Salvage inventory and cores are recorded at the lower of cost or market. Cost is established based upon the price the Company pays for a vehicle, and includes average costs for buying, dismantling, and where applicable, auction fees and storage, and towing. Inventory carrying value is determined using the average cost to sales percentage at each of the Company's facilities and applying that percentage to the facility's inventory at expected selling prices. The average cost to sales percentage is derived from each facility's historical vehicle profitability for salvage vehicles purchased at auction or from contracted rates for salvage vehicles acquired under certain direct procurement arrangements.
       An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer (OEM). Aftermarket inventory is recorded at the lower of cost or market. Cost is established based upon the average price for purchased parts, and includes expenses incurred for freight and buying, where applicable. For items purchased from foreign companies, import fees and duties and transportation insurance are also included.
F-8

       For all inventory, carrying value is reduced regularly to reflect the age of the inventory and current anticipated demand. If actual demand differs from management estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.
       Inventory consists of the following (in thousands):

 	 	 	 	December 31,
	
 	 	June 30,
2005
			
 			 	2004
	 	2003
	
 	 	(unaudited)
	 	 	 	 	
Salvage products	 	$	63,108	 	$	61,390	 	$	50,348	
Aftermarket products	 	 	14,895	 	 	8,999	 	 	—	
Core inventory	 	 	3,443	 	 	3,761	 	 	3,655	
 	 		 		 		
 	 	$	81,446	 	$	74,150	 	$	54,003	
 	 		 		 		
Property and Equipment
       Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at existing Company facilities. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease, including renewal periods, if shorter. Other estimated useful lives are as follows:

Land improvements	 	20 years	
Buildings and improvements	 	20 - 40 years	
Furniture, fixtures, and equipment	 	5 - 20 years	
Computer equipment and software	 	3 - 5 years	
Vehicles and trailers	 	3 - 10 years	
       Property and equipment consists of the following (in thousands):

 	 	 	 	December 31,
	 	
 	 	June 30,
2005
			 	
 			 	2004
	 	2003
	 	
 	 	(unaudited)
	 	 	 	 	 	
Land and improvements	 	$	21,437	 	$	20,763	 	$	9,166	 	
Buildings and improvements	 	 	26,402	 	 	25,582	 	 	10,993	 	
Furniture, fixtures, and equipment	 	 	26,140	 	 	23,509	 	 	16,849	 	
Computer equipment and software	 	 	9,685	 	 	8,882	 	 	7,913	 	
Vehicles and trailers	 	 	8,921	 	 	7,903	 	 	5,271	 	
Leasehold improvements	 	 	8,717	 	 	7,978	 	 	12,442	 	
 	 		 		 		 	
 	 	 	101,302	 	 	94,617	 	 	62,634	 	
Less—Accumulated depreciation	 	 	(29,918	)	 	(26,303	)	 	(21,042	)	
Construction in progress	 	 	2,939	 	 	2,416	 	 	2,301	 	
 	 		 		 		 	
 	 	$	74,323	 	$	70,730	 	$	43,893	 	
 	 		 		 		 	
F-9

Intangibles
       Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired) and covenants not to compete.
       On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires that goodwill and intangible assets with indefinite useful lives must be tested for impairment at least annually and can no longer be amortized. Prior to the adoption of SFAS 142, the Company amortized goodwill over 40 years on a straight-line basis. Intangible assets with finite useful lives will continue to be amortized over their estimated useful lives.
       In connection with the transitional goodwill impairment evaluation, SFAS 142 required the Company, by June 30, 2002, to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. To accomplish this, the Company determined the carrying value of each of its reporting units as of January 1, 2002 and compared them to the fair value estimates of those reporting units. The fair values of the Company's reporting units were estimated using the expected present value of future cash flows and market comparables. Professionals in the valuation industry were utilized to validate our assumptions and overall methodology used to determine the fair value estimates. To the extent a reporting unit's carrying value exceeded its fair value estimate, an indication existed that the reporting unit's goodwill was impaired and the Company then had to perform the second step of the transitional impairment test. The second step of the impairment test, which had to be completed by December 31, 2002, required the Company to compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to its individual assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS No. 141, "Business Combinations" ("SFAS 141"), to its carrying amount, both of which were measured as of the date of adoption. SFAS 142 required the transitional impairment loss to be recognized as a cumulative effect of a change in accounting principle in the Company's consolidated statement of operations.
       At the time of the transitional impairment test, valuations for some of the Company's acquisitions had declined significantly since the Company completed its acquisitions during 1998 and 1999 due to a number of factors, including lower earnings multiples applied in the valuations of comparable companies. As a result, the Company determined that the carrying value of certain reporting units exceeded the fair value of those reporting units at January 1, 2002, and recorded an impairment of goodwill in the amount of $49.9 million, net of tax of $16.1 million.
       The Company has performed annual impairment tests during the fourth quarter of 2004, 2003 and 2002. The results of these tests indicated that goodwill was not impaired.
F-10

       The changes in the carrying amount of goodwill are as follows (in thousands):

Balance as of January 1, 2002	 	$	115,044	 	
 	Adjustment of previously recorded goodwill	 	 	238	 	
 	Impairment losses	 	 	(66,019	)	
 	 		 	
Balance as of December 31, 2002	 	 	49,263	 	
 	Business acquisitions	 	 	1,536	 	
 	 		 	
Balance as of December 31, 2003	 	 	50,799	 	
 	Business acquisitions	 	 	49,520	 	
 	 		 	
Balance as of December 31, 2004	 	 	100,319	 	
 	Business acquisitions (unaudited)	 	 	17,908	 	
 	 		 	
Balance as of June 30, 2005 (unaudited)	 	$	118,227	 	
 	 		 	
       Other intangible assets totaled approximately $151,700, $88,900, and $371,700 at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively. Accumulated amortization of other intangible assets at June 30, 2005 (unaudited) and December 31, 2004 and 2003 was approximately $52,600, $44,300, and $324,800, respectively. Amortization expense was approximately $8,300 and $5,100 during the six month periods ended June 30, 2005 and 2004 (unaudited), and $8,000, $17,300, and $55,400 during the years ended December 31, 2004, 2003, and 2002, respectively. Covenants not to compete are amortized over the lives of the respective agreements on a straight-line basis. Estimated annual amortization expense for the year ended December 31, 2005 is approximately $19,200 (unaudited), and for the years ended December 31, 2006 through 2009 is approximately $20,500 (unaudited).
Impairment of Long-Lived Assets
       Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. There were no adjustments to the carrying value of long-lived assets during the six months ended June 30, 2005 (unaudited), or the years ended December 31, 2004, 2003, or 2002.
Investments
       Included in Other Assets at December 31, 2003 was a warrant to purchase 100,000 common shares of Keystone Automotive Industries, Inc. at $6.50 per share, which was obtained in connection with a supply agreement dated February 21, 2000. This warrant was not valued prior to December 31, 2003 as the Company did not have an expectation of exercising the warrant due to the one year holding period requirement and liquidity considerations. Upon completion of the Company's initial public offering in the fourth quarter of 2003 and the new unsecured revolving credit facility in February 2004 (Note 6), sufficient liquidity was available to the Company that would enable it to exercise the warrant and hold the investment for the minimum one year holding period. As a result, the Company valued and recorded the warrant at December 31, 2003. The Company classified this warrant as an available-for-sale investment security under Emerging Issues Task Force No. 96-11, "Accounting for Forward Contracts and Purchased Options to Acquire Securities Covered by Financial Accounting Standards Board ("FASB") Statement No. 115," that requires the warrant to be accounted for consistent with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Accordingly, the Company reported the warrant at fair value, with the unrealized gain excluded
F-11

from earnings and included in Accumulated other comprehensive income, net of applicable taxes of $0.7 million. The fair value of the warrant at December 31, 2003 was estimated at approximately $1.9 million using a Black-Scholes option-pricing model.
       The Company exercised its warrant in March 2004. The shares are restricted and therefore must either be registered or held for a period of one year in accordance with the applicable securities laws. The Company classifies this investment as an available-for-sale investment security under SFAS 115. Accordingly, the Company has included the investment at its fair value of approximately $2.5 million and $2.3 million in Other Assets at June 30, 2005 (unaudited) and December 31, 2004, respectively, with the unrealized gain excluded from earnings and included in Accumulated other comprehensive income, net of applicable taxes. The fair value of this investment at June 30, 2005 (unaudited) and December 31, 2004 was estimated based upon the quoted market price for these securities.
Fair Value of Financial Instruments
       SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. The Company's financial instruments, excluding the available-for-sale securities discussed above, include cash and equivalents, trade receivables, accounts payable, debt and, through August 2004, an interest rate swap. The carrying amounts of financial instruments approximate fair value.
Accrued Expenses
       The Company has entered into certain arrangements whereby salvage vehicles are obtained directly from major insurance companies and vehicle manufacturers at a cost calculated as a percentage of the revenue generated from each vehicle. Accrued expenses include an estimated liability of approximately $2.4 million, $2.0 million, and $1.2 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively, for salvage inventory procured under such arrangements.
       The Company self-insures for a portion of employee medical benefits under the terms of its employee health insurance program. The Company has purchased stop-loss insurance coverage in order to limit its exposure to employee medical benefit claims. Other accrued expenses include an estimated liability of approximately $1.5 million, $1.4 million, and $0.9 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively, for expenses incurred but not yet paid under the program.
       The Company also self-insures for a portion of general liability and workers compensation claims under the terms of its current insurance program, which began on April 1, 2002. On April 1, 2003, the Company began self-insuring for a portion of automobile claims. The Company has purchased stop-loss insurance coverage in order to limit its exposure to automobile, general liability, and workers compensation claims. Other accrued expenses include an estimated liability of approximately $3.9 million, $3.0 million, and $1.9 million, net of claims deposits of $0.7 million, $0.4 million, and $0.3 million, at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively, for expenses incurred but not yet paid under the program. If the Company were to incur claims up to its aggregate stop-loss insurance coverage during the open policy years, it would have an additional expense of approximately $6.8 million.
F-12

Product Warranties
       The Company generally warrants certain mechanical products against defects for a period of six months. Based on historical warranty claims, the Company accrues the estimated costs of the warranty coverage at the time of sale.
       A rollforward of the warranty reserve is as follows (in thousands):

Balance as of January 1, 2003	 	$	156	 	
Warranty expense	 	 	1,682	 	
Warranty claims	 	 	(1,603	)	

Balance as of December 31, 2003	

235	
 	
Warranty expense	 	 	2,011	 	
Warranty claims	 	 	(1,966	)	

Balance as of December 31, 2004	

280	
 	
Warranty expense (unaudited)	 	 	1,313	 	
Warranty claims (unaudited)	 	 	(1,264	)	

Balance as of June 30, 2005 (unaudited)	
 	
$	
329	

Other Noncurrent Liabilities
       Other Noncurrent Liabilities include approximately $2.6 million, $2.2 million, and $1.7 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively, related to employee deferred compensation plans as discussed in Note 5.
       Other Noncurrent Liabilities also include approximately $1.1 million, $1.5 million, and $2.6 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively, related to unasserted claims that are deemed probable of assertion. In the event the unasserted claims are asserted and resolved for amounts different than those accrued, or are determined to no longer be probable in future periods, the amounts so determined would be adjusted to income in the periods such determination is made. During the six months ended June 30, 2005 (unaudited), approximately $0.4 million was recognized in income due to the favorable resolution of certain unasserted claims. In 2004, approximately $0.9 million was recognized in income, with approximately $1.1 million due to the favorable resolution of certain unasserted claims, partially offset by approximately $0.3 million of higher insurance claims.
Stock-Based Compensation
       The Company has three stock-based compensation plans, the LKQ Corporation 1998 Equity Incentive Plan (the "Equity Incentive Plan"), the Stock Option and Compensation Plan for Non-Employee Directors (the "Director Plan"), and a separate stock option plan for its Chief Executive Officer (the "CEO Plan"), which are described more fully in Note 3. The Company accounts for its stock compensation agreements under the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by SFAS No. 148 "Accounting for Stock-Based Compensation—Transition and Disclosures" ("SFAS 148").
F-13

       Under the CEO Plan, the difference between the fair market value of the options at the time granted in 1998 and the exercise price was recorded as deferred compensation expense and was being charged to operations over the vesting period of the options, which ended in November 2003. No stock-based compensation cost is reflected in net income (loss) for the Equity Incentive Plan or the Director Plan at the date of issuance of the options, as all options granted under these plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant.
       On December 27, 2004, the Company's Board of Directors amended the award of 200,000 options granted to its Chairman on January 29, 2004 under the Equity Incentive Plan, accelerating the vesting schedule to make all unvested shares subject to the options immediately exercisable. The Company recognized compensation expense of approximately $0.2 million in the fourth quarter of 2004 in connection with this amendment.
       The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS 123 to the Equity Incentive Plan and the Director Plan (in thousands, except per share amounts):

 	 	Six Months Ended
June 30,
	 	Year Ended December 31,
	 	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	 	
 	 	(unaudited)
	 	 	 	 	 	 	 	
Net income (loss), as reported	 	$	16,028	 	$	10,978	 	$	20,573	 	$	14,576	 	$	(38,894	)	
Add: Stock-based compensation expense, net of tax, included in net income as reported	 	 	25	 	 	—	 	 	94	 	 	9	 	 	—	 	
Less: Total stock-based compensation expense determined using the Black-Scholes option-pricing model, net of related tax effects	 	 	(4,397	)	 	(1,048	)	 	(2,844	)	 	(1,478	)	 	(1,140	)	

Pro forma net income (loss)	
 	
$	
11,656	
 	
$	
9,930	
 	
$	
17,823	
 	
$	
13,107	
 	
$	
(40,034	
)	

Earnings (loss) per share:	

 	

 	

 	

 	

 	
 	
 	Basic—as reported	 	$	0.77	 	$	0.55	 	$	1.03	 	$	0.90	 	$	(2.20	)	
 	Basic—pro forma	 	$	0.56	 	$	0.50	 	$	0.89	 	$	0.81	 	$	(2.27	)	
 	
Diluted—as reported	
 	
$	
0.69	
 	
$	
0.49	
 	
$	
0.92	
 	
$	
0.80	
 	
$	
(2.00	
)	
 	Diluted—pro forma	 	$	0.50	 	$	0.44	 	$	0.80	 	$	0.72	 	$	(2.06	)	
       The fair value of stock options used to compute the pro forma disclosures has been estimated using the Black-Scholes option-pricing model. This model requires the use of highly subjective assumptions, including the expected volatility of the underlying stock. Projected data related to volatility and expected life of stock options is based upon historical and other information. Changes in the subjective underlying assumptions can materially affect the fair value estimates. For purposes of pro forma disclosure, the estimated fair value of the options is
F-14

amortized to expense over the options' vesting periods. The following table summarizes the assumptions used to compute the weighted average fair value of stock option grants:

 	 	June 30,
	 	December 31,
	 	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	 	
 	 	(unaudited)
	 	 	 	 	 	 	 	
Expected life (in years)	 	 	5.8	 	 	7.5	 	 	6.7	 	 	7.0	 	 	7.5	 	
Risk-free interest rate	 	 	3.94	%	 	3.87	%	 	3.86	%	 	3.75	%	 	4.18	%	
Volatility (1)	 	 	40.0	%	 	40.0	%	 	40.0	%	 	40.0	%	 	—	 	
Dividend yield	 	 	0	%	 	0	%	 	0	%	 	0	%	 	0	%	
Weighted average fair value of options granted	 	$	7.61	 	$	9.13	 	$	8.93	 	$	3.47	 	$	2.15	 	

(1)
A volatility assumption of 0% was used for options granted prior to the Company's initial public offering in October 2003.

Rental Expense
       The Company recognizes rental expense on a straight-line basis over the respective lease terms for all of its operating leases.
Earnings (Loss) per Share
       Basic earnings (loss) per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share incorporate the incremental shares issuable upon the assumed exercise of stock options and warrants. Certain of the Company's stock options and warrants were excluded from the calculation of diluted earnings (loss) per share because they were antidilutive, but these options and warrants could be dilutive in the future.
Segment Information
       Over 99% of the Company's operations are conducted in the U.S. During 2004, the Company acquired a recycled OEM products business with locations in Guatemala and Costa Rica. Revenue generated and properties located outside of the U.S. are not material. The Company manages its operations geographically. The Company's light vehicle replacement products operations are organized into seven operating segments, six for recycled OEM products and one for aftermarket products. These segments are aggregated into one reportable segment because they possess similar economic characteristics and have common products and services, customers and methods of distribution. The light vehicle replacement products operations account for over 90% of the Company's revenue, earnings, and assets.
Foreign Currency Translation
       For the Company's foreign operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statement of Operations amounts are translated to U.S. dollars using average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated other comprehensive income in Stockholders' Equity. Gains and losses from foreign currency transactions are included in current earnings.
F-15

Recent Accounting Pronouncements
       In January 2003, the FASB issued Interpretation No. 46, (subsequently revised in December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties. FIN 46 was effective for all variable interest entities or potential variable interest entities for periods ended after December 15, 2003. Application for all other types of entities was required in financial statements for periods ending after March 15, 2004. The Company adopted the new standard and determined that its implementation did not impact its consolidated financial position, results of operations, or cash flows.
       In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amended and clarified financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 149 was effective for contracts entered into or modified after June 30, 2003. The Company adopted the new standard and determined that its implementation did not impact its consolidated financial position, results of operations, or cash flows.
       In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equity and was effective for periods ending on or after June 15, 2003. The Company adopted the new standard and determined that its implementation did not impact its consolidated financial position, results of operations, or cash flows.
       In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends Accounting Research Bulletin No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS 151 requires that allocation of fixed production overheads to inventory be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial position, results of operations, or cash flows.
       In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment"("SFAS 123R"), a revision of SFAS 123. SFAS 123R requires the adoption of a fair-value method of accounting for stock-based employee compensation. SFAS 123R was to be effective as of the beginning of the first interim fiscal period that begins after June 15, 2005. In applying the fair value concepts of SFAS 123R, the Company will be required to choose among alternative valuation models and other assumptions. Although the Company had not completed its assessment of the impact of SFAS 123R, it had initially estimated that it would negatively impact its results of operations for 2005 by approximately $0.5 million or $0.02 per diluted share.
       On April 14, 2005, the Securities and Exchange Commission announced a deferral of the effective date of SFAS 123R for calendar year companies until the beginning of 2006. As a result, the Company's 2005 (unaudited) results of operations will not be impacted by the implementation of SFAS 123R. The Company is currently assessing the impact that SFAS 123R may have on its future results of operations. The Company does
F-16

not expect that the adoption of this standard will have a material impact on its consolidated financial position or cash flows.
       In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154 replaces Accounting Principles Board Opinion No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS 154 requires "retrospective application" of the direct effect of a voluntary change in accounting principle to prior periods' financial statements where it is practicable to do so. SFAS 154 also redefines the term "restatement" to mean the correction of an error by revising previously issued financial statements. SFAS 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005 unless adopted early. The Company does not expect the adoption of SFAS 154 (unaudited) to have a material impact on its consolidated financial position, results of operations, or cash flows, except to the extent that the statement subsequently requires retrospective application of a future item.
Note 2. Capital Structure
        On March 31, 1999, in connection with a business acquisition, the Company issued warrants to purchase 100,000 shares of its common stock at $15.00 per share, with exercisability contingent upon the achievement of certain operating results in 2000. These results were achieved and the warrants became exercisable on March 31, 2001. These warrants were to expire five years after they became exercisable. In accordance with the antidilution provisions of the warrant agreement, the total number of warrants issued and the exercise price at December 31, 2003 were adjusted to 113,751 and $13.19 per share. In June 2005 (unaudited), the warrants were exercised utilizing a cashless exercise feature as provided in the original agreement. As a result, the Company issued 58,181 shares of its common stock upon the exercise of the warrants. The 55,570 shares retained by the Company were retired.
       The Company issued warrants on January 3, 2000 to purchase 150,000 shares of its common stock at exercise prices ranging from $15.00 to $35.00 per share, in connection with a business acquisition completed in 1999. The warrants were valued at $144,500 at the date of grant. In August 2004, warrants to purchase 50,000 shares of the Company's common stock at a price of $15.00 per share were exercised. Warrants to purchase 100,000 shares of the Company's common stock at prices ranging from $25.00 to $35.00 expired on August 31, 2004.
       On February 14, 2001 the Company issued warrants to purchase 1,961,112 shares of its common stock at an exercise price of $2.00 per share to certain stockholder guarantors. The Company had breached certain covenants of its credit facility including covenants relating to operating income and the minimum required ratio of funded debt to earnings before interest, taxes, depreciation and amortization. The Company entered into an amendment to the credit agreement with its banks that waived the breaches and modified certain of the covenants. As part of the amendment, the banks required that stockholders guaranty $10 million of the debt, with the guaranties secured by letters of credit or other highly liquid collateral acceptable to the banks. All the Company's stockholders were given the opportunity to participate in this transaction and thirty of the Company's stockholders provided the guaranties. In exchange for providing the guaranties, each guarantor received certain rights, including a guaranty fee. The guaranty fee consisted of each guarantor's pro rata portion of warrants to purchase a total of 1,961,112 shares of the Company's common stock (10% of the then outstanding shares of common stock assuming exercise of these warrants) at an exercise price of $2.00 per
F-17

share. The warrants became exercisable upon issuance and will expire on February 14, 2006. The warrants were valued at approximately $401,000 at the date of grant. Warrants to purchase 6,418; 502,818; and 170,939 shares of the Company's common stock at a price of $2.00 per share were exercised during the six months ended June 30, 2005 (unaudited) and years ended December 31, 2004 and 2003, respectively. The stockholder guaranties were cancelled in June 2002 when the Company entered into a new credit facility.
       On January 1, 2003, in connection with a business acquisition, the Company issued 50,000 shares of its common stock. The Company granted a put option on those shares with a single exercise date of January 1, 2007 at a price of $15.00 per share and obtained a call option on those shares with a single exercise date of January 1, 2007 at a price of $22.50 per share. These shares are reflected as Redeemable Common Stock in the consolidated balance sheet as of June 30, 2005 (unaudited) and December 31, 2004 and 2003.
       In February 2003, the Company repurchased 2,000,000 shares of its common stock from existing stockholders, including 1,878,684 shares repurchased from AutoNation, Inc., the Company's largest stockholder at that time, for a total of $12.0 million in cash. The Company partially funded the stock repurchase by obtaining a $9.0 million term loan (see Note 6), with an original maturity date of February 20, 2004. On October 9, 2003, the Company fully paid the balance on the term loan.
       In May 2003, the Company repurchased 1,557,498 shares of its common stock from existing shareholders, including 1,500,000 shares repurchased from AutoNation, Inc., for a total of approximately $10.9 million in cash. The Company partially funded the stock repurchase by borrowing an additional $9.0 million against an existing revolving credit facility (See Note 6).
       In June 2003, the Company sold certain assets no longer deemed pertinent to its operations to an existing stockholder in exchange for 80,000 shares of the Company's common stock. The shares, which were subsequently retired, were valued at approximately $0.6 million.
       On October 2, 2003, the Securities and Exchange Commission declared effective the registration statement pursuant to which the Company sold 5.0 million shares in its initial public offering. Pursuant to the same registration statement, the selling stockholders named in the registration statement sold approximately 3.1 million shares of the Company's common stock. On October 8, 2003, the transaction was closed and the Company received approximately $60.5 million, net of underwriting discount and before offering related expenses of approximately $2.2 million, for the common stock it issued and sold. The Company did not receive any proceeds from the sale of shares by the selling stockholders.
       On October 8, 2003, the Company increased the number of its authorized shares of Common Stock from 100 million shares to 500 million shares.
       On February 20, 2004, in connection with a business acquisition, the Company issued 84,345 shares of its common stock. The purchase agreement contained a provision that if the average market price of the Company's common stock on the five business days immediately preceding the first anniversary of such acquisition was below $16.00 per share, the Company would make an additional payment per share (in cash or in common stock, at the Company's option) equal to $16.00 minus the average closing price over such five day period. The actual average closing price of the Company's common stock on the five business days immediately preceding the first anniversary of the acquisition exceeded $16.00 per share, and no additional payment was required.
F-18

Note 3. Equity Incentive Plans
        In February 1998, the Company adopted the Equity Incentive Plan to attract and retain employees and consultants. Under the Equity Incentive Plan, both qualified and nonqualified stock options, stock appreciation rights, restricted stock, performance shares, and performance units may be granted. On March 6, 2002, the Company's stockholders approved an increase in the number of shares available under the Equity Incentive Plan from 3.0 million to 5.0 million, subject to antidilution and other adjustment provisions. On May 9, 2005, the Company's stockholders approved an increase in the number of shares available under the Equity Incentive Plan from to 5.0 million to 7.0 million, subject to antidilution and other adjustment provisions.
       In November 1998, the Company also adopted the CEO Plan. The terms of the CEO Plan are substantially the same as the terms of the Equity Incentive Plan except that the exercise price of options granted under the CEO Plan may be less than the fair market value of the Company's common stock on the date the option is granted. During 1998, the Company granted 175,000 options under the CEO Plan with an exercise price of $10.00 per share at a time when the fair value of the Company's stock was $12.50 per share, thus creating deferred compensation expense. The difference between the fair market value and the option exercise price was recorded as deferred compensation expense and was charged to operations over the vesting period of the options, which ended in November 2003. There are no additional shares available for award under the CEO Plan.
       In June 2003, the Company's Board of Directors adopted the Director Plan and in September 2003, the plan was approved by the Company's stockholders. Options granted under the Director Plan are automatic and nondiscretionary, and the exercise price of the options is 100% of the fair market value of the Company's stock on the grant date. Only non-employee directors are eligible for grants under the Director Plan. Under the plan, each non-employee director received an initial grant of an option to purchase 30,000 shares of common stock as of October 2, 2003. The plan also provides for an initial grant to a new non-employee director of an option to purchase 30,000 shares of common stock upon election to the board of directors. Subsequent to the initial grants, each non-employee director will be automatically granted an option to purchase 10,000 shares of common stock on each anniversary of the granting of the initial stock option to that non-employee director. The Director Plan will terminate in June 2013, unless the board of directors terminates it sooner. The number of shares available under the Director Plan is 500,000, subject to antidilution and other adjustment provisions.
F-19

       A summary of transactions in the Company's stock-based compensation plans is as follows:

 	 	Options
Available for
Grant
	 	Number of Shares
Outstanding
	 	Weighted
Average
Exercise Price
	
Balance, January 1, 2002	 	552,550	 	2,587,900	 	$	10.00	
 	
Additional shares reserved for Equity Incentive Plan	
 	
2,000,000	
 	
—	

—	
 	Granted	 	(737,150	)	737,150	 	 	8.00	
 	Exercised	 	—	 	(6,000	)	 	3.00	
 	Cancelled	 	150,000	 	(150,000	)	 	9.66	
 	 		 		 		
Balance, December 31, 2002	 	1,965,400	 	3,169,050	 	 	9.56	

Shares reserved for Director Plan	
 	
500,000	
 	
—	

—	
 	Granted	 	(856,700	)	856,700	 	 	10.71	
 	Exercised	 	—	 	(298,505	)	 	4.57	
 	Cancelled	 	89,050	 	(89,050	)	 	10.20	
 	 		 		 		
Balance, December 31, 2003	 	1,697,750	 	3,638,195	 	 	10.23	

Granted	
 	
(715,500	
)	
715,500	

18.09	
 	Exercised	 	—	 	(346,630	)	 	9.19	
 	Cancelled	 	25,080	 	(25,080	)	 	12.81	
 	 		 		 		
Balance, December 31, 2004	 	1,007,330	 	3,981,985	 	 	11.71	

Additional shares reserved for Equity Incentive Plan (unaudited)	
 	
2,000,000	
 	
—	

—	
 	Granted (unaudited)	 	(726,000	)	726,000	 	 	17.26	
 	Exercised (unaudited)	 	—	 	(396,790	)	 	11.09	
 	Cancelled (unaudited)	 	15,700	 	(15,700	)	 	15.97	

Balance, June 30, 2005 (unaudited)	
 	
2,297,030	
 	
4,295,495	
 	
$	
12.69	
 	 		 		 		
       The following table summarizes information about outstanding and exercisable stock options at December 31, 2004:

 	 	Outstanding
	 	Exercisable
	
Range of Exercise
Prices
	 	Shares
	 	Weighted Average
Remaining
Contractual
Life (Yrs)
	 	Weighted
Average
Exercise
Price
	 	Shares
	 	Weighted
Average
Exercise
Price
	
$1.00 - $3.00	 	383,450	 	6.0	 	$	2.93	 	212,300	 	$	2.88	
  8.00 - 10.00	 	1,434,385	 	6.5	 	 	8.78	 	777,800	 	 	9.14	
12.50 - 15.00	 	1,482,450	 	5.6	 	 	13.82	 	1,276,100	 	 	13.88	
15.83 - 18.87	 	681,700	 	9.1	 	 	18.26	 	245,270	 	 	18.69	
 	 		 	 	 	 	 	 		 	 	 	
 	 	3,981,985	 	6.6	 	$	11.71	 	2,511,470	 	$	11.95	
 	 		 	 	 	 	 	 		 	 	 	
F-20

       The following table summarizes information about outstanding and exercisable stock options at June 30, 2005 (unaudited):

 	 	Outstanding
	 	Exercisable
	
Range of Exercise
Prices
	 	Shares
	 	Weighted Average
Remaining
Contractual
Life (Yrs)
	 	Weighted
Average
Exercise
Price
	 	Shares
	 	Weighted
Average
Exercise
Price
	
$1.00 - $3.00	 	319,000	 	5.4	 	$	2.92	 	203,900	 	$	2.88	
  8.00 - 10.00	 	1,319,045	 	6.0	 	 	8.76	 	774,755	 	 	9.04	
12.50 - 15.00	 	1,308,350	 	5.3	 	 	13.84	 	1,166,350	 	 	13.94	
15.83 - 18.87	 	1,349,100	 	9.1	 	 	17.73	 	1,132,800	 	 	17.75	
 	 		 	 	 	 	 	 		 	 	 	
 	 	4,295,495	 	6.7	 	$	12.69	 	3,277,805	 	$	13.41	
 	 		 	 	 	 	 	 		 	 	 	
       At December 31, 2003 and 2002, options to purchase 1,903,233 and 1,646,865 shares of common stock were exercisable pursuant to the Company's stock-based compensation plans with a weighted-average exercise price of $11.26 and $10.73, respectively.
       Stock options expire 10 years from the date they are granted. Most of the options granted under the Equity Incentive Plan and the CEO Plan vest over a period of five years. Options granted under the Director Plan vest six months after the date of grant.
       On December 27, 2004, the Company's Board of Directors amended the award of 200,000 options granted to its Chairman on January 29, 2004 under the Equity Incentive Plan, accelerating the vesting schedule to make all unvested shares subject to the options immediately exercisable. The Company has recognized compensation expense of approximately $0.2 million during the year ended December 31, 2004 in connection with this amendment. The Board of Directors decided to accelerate the vesting schedule of these options in order to conform the vesting to grants normally made under the Director Plan. In addition, the Board of Directors decided it was in the best interests of stockholders to accelerate these options as the Company will avoid compensation expense in future periods that would otherwise result from the effectiveness of SFAS 123R for periods beginning subsequent to December 31, 2005.
       On January 7, 2005, the Company's Board of Directors authorized the Compensation Committee to make the 2005 annual grant of stock options to employees (the "2005 Options"). On January 14, 2005, the Compensation Committee granted options to purchase a total of 422,000 shares of LKQ common stock with an exercise price of $17.68 per share. The vesting schedule for each of the 2005 Options is as follows: June 14, 2005 with respect to 50% of the number of shares subject to such option and, with respect to an additional 5.555% of the number of shares subject to such option, January 14, 2006 and each six month anniversary thereafter until January 14, 2010. This vesting schedule is different than the typical vesting schedule for options granted under the Equity Incentive Plan.
       On January 10, 2005, the Compensation Committee amended the vesting schedule of a total of 428,500 options granted to employees in 2004 under the Equity Incentive Plan, accelerating the vesting schedule to make all unvested shares subject to the options exercisable on January 10, 2005. The Compensation Committee decided to accelerate the vesting schedule of these options primarily as a supplement to compensation due to the expected reduction of cash bonuses to employees for the 2004 calendar year. The bonus formula established by the Company in January 2004 resulted in reduced 2004 bonuses for many LKQ employees as compared to 2003. In addition, the Compensation Committee decided it was in the best interests of
F-21

stockholders to accelerate these options as the Company will avoid compensation expense in future periods that would otherwise result from the effectiveness of SFAS 123R.
       On January 28, 2005, the Company's Board of Directors granted options to employees to purchase a total of 300,000 shares of LKQ common stock at an exercise price of $16.66 per share. The options were immediately exercisable with respect to all of the shares subject to the options. This vesting schedule is different than the typical vesting schedule for options granted under the Equity Incentive Plan.
       On March 3, 2005, the Company's Board of Directors authorized the submission to the Company's stockholders of an amendment to the Equity Incentive Plan to increase the shares reserved for issuance under the plan from 5,000,000 to 7,000,000. The amendment was approved by the Company's stockholders on May 9, 2005.
Note 4. Related Party Transactions
        The Company subleased its corporate office space from an entity owned by one of its principal stockholders for a pro rata percentage of the rent that was charged to that entity. The sublease expired on July 31, 2004. The total amounts paid to this entity were approximately $0.2 million, $0.3 million, and $0.3 million during each of the years ended December 31, 2004, 2003, and 2002, respectively. Beginning in August 2004, the Company entered into a new lease for its corporate office space directly with the owner of the building and subleased a portion of this space to an entity owned by one of its principal stockholders for a pro rata percentage of the rent that the Company is charged. The total amounts received from this entity were approximately $33,900 and $25,800 during the five month period ended December 31, 2004 and the six month period ended June 30, 2005 (unaudited), respectively.
       A corporation owned by the Company's Chairman of the Board, who is one of the Company's principal stockholders, owns a private aircraft that the Company uses from time to time for business trips. The Company reimburses this corporation for out-of-pocket and other related flight expenses, as well as for other direct expenses incurred. The total amounts paid to this corporation were approximately $10,500 during the six months ended June 30, 2005 (unaudited) and $54,700, $152,900, and $12,800 during each of the years ended December 31, 2004, 2003, and 2002, respectively. There were no payments to this corporation during the six month period ended June 30, 2004 (unaudited).
       The Company sells products to various repair facilities owned by a company that was previously one of its principal stockholders. This corporation ceased being a stockholder of the Company in October 2003. The amount of such sales totaled approximately $2.7 million and $2.2 million during the years ended December 31, 2003 and 2002, respectively.
       In connection with the acquisitions of several businesses, the Company entered into agreements with several sellers of those businesses, who became stockholders as a result of those acquisitions, for the lease of certain properties used in its salvage operations. Typical lease terms include an initial term of five years, with three five-year renewal options and purchase options at various times throughout the lease periods. The Company also maintains the right of first refusal concerning the sale of the leased property. Lease payments to a principal stockholder who became an officer of the Company after the acquisition of his business were approximately $0.4 million during each of the six month periods ended June 30, 2005 and 2004 (unaudited) and approximately $0.8 million, $0.7 million, and $0.7 million during the years ended December 31, 2004, 2003, and 2002, respectively.
F-22

       In June 2003, the Company sold certain assets no longer deemed pertinent to its operations to an existing stockholder in exchange for 80,000 shares of the Company's common stock. See Note 2 for further discussion. In April 2005 (unaudited), the Company sold additional assets no longer deemed pertinent to its operations to the same stockholder for $0.6 million.
       The Company believes that the related party transactions described above are comparable to those that could be available from unaffiliated third parties.
Note 5. Retirement Plans
        The Company sponsors the LKQ Corporation Employees' Retirement Plan (the "Plan"), a qualified defined contribution plan covering substantially all full time employees not covered by qualified plans maintained by subsidiaries. Employees may contribute up to 15% of eligible compensation, subject to certain Internal Revenue Service limitations. The Company will match 50% of the portion of the employee's contributions that does not exceed 6% of the employee's salary. Matching Company contributions vest over a four year period and totaled approximately $0.7 million and $0.6 million during the six month periods ended June 30, 2005 and 2004 (unaudited), and $1.2 million, $1.0 million, and $0.9 million in 2004, 2003, and 2002, respectively. The Company may also, at its sole discretion, make annual profit-sharing contributions to the Plan. There were no such discretionary profit sharing contributions to the Plan in the six months ended June 30, 2005 (unaudited) or in 2004, 2003, or 2002. All contribution levels may be subject to further limits, under Internal Revenue Service guidelines.
       Two of the companies acquired by the Company during 2004, Foster Auto Parts, Inc. and Global Trade Alliance, Inc. (See Note 9), also maintain qualified defined contribution plans covering substantially all of their full time employees. Expenses related to these plans totaled approximately $0.1 million during 2004. Bodymaster Auto Parts, Inc., which was acquired by the Company in 2005 (See Note 9), also maintains a qualified defined contribution plan covering substantially all of its full time employees.
       The Company also offers a nonqualified deferred compensation plan to eligible employees who, due to Internal Revenue Service guidelines, may not take full advantage of the LKQ Corporation Employees' Retirement Plan. The plan allows participants to defer up to 50% of eligible compensation, with a maximum deferral of $50,000 per year. The Company will match 50% of the portion of the employee's contributions that does not exceed 6% of the employee's salary. The deferred compensation, together with Company matching contributions and accumulated earnings, is accrued and is payable after retirement or termination of employment, subject to vesting provisions. Participants may also elect to receive amounts deferred in a given year on any plan anniversary five or more years subsequent to the year of deferral. Matching Company contributions vest over a four year period and totaled $5,000, $25,000, and $20,000 in 2004, 2003, and 2002, respectively. The deferred compensation plan is funded under a trust agreement whereby the Company pays to the trust amounts deferred by employees, together with the Company match, with such amounts invested in life insurance policies carried to meet the obligations under the deferred compensation plan. The cash surrender value of these policies was approximately $2.4 million, $1.7 million, and $1.2 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively, and is included in Other Assets in the accompanying balance sheets. Total deferred compensation liabilities were approximately $2.3 million, $2.1 million, and $1.5 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively, and are included in Accrued payroll-related liabilities and Other Noncurrent Liabilities in the accompanying balance sheets.
F-23

       A subsidiary of the Company has a nonqualified retirement plan that the Company agreed to continue when the subsidiary was acquired in 1998. The plan is funded by the Company through premium payments on Company-owned life insurance policies that are carried to meet the obligations under the plan. The cash surrender value of these policies was approximately $0.2 million, $0.2 million, and $0.1 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively, and is included in Other Assets in the accompanying balance sheets. The annual expense for this plan is approximately $30,000. Total obligations were approximately $0.4 million at June 30, 2005 (unaudited) and December 31, 2004 and 2003, and are included in Other Noncurrent Liabilities in the accompanying balance sheets.
Note 6. Long-Term Obligations
        Long-Term Obligations consist of the following (in thousands):

 	 	June 30,
	 	December 31,
	 	
 	 	2005
	 	2004
	 	2003
	 	
 	 	(unaudited)
	 	 	 	 	 	
Revolving credit facility	 	$	53,000	 	$	47,000	 	$	—	 	
Capital lease obligations, payable in monthly installments through March 2009, interest at 7.64% to 7.75% (See Note 7)	 	 	—	 	 	—	 	 	2,842	 	
Notes payable to individuals in monthly installments through November 2010, interest at 3.0% to 10.0%	 	 	3,527	 	 	3,242	 	 	1,155	 	
Various equipment notes, payable in monthly installments through July 2008, interest at various rates up to 9.5%, secured by related equipment	 	 	18	 	 	20	 	 	—	 	
 	 		 		 		 	
 	 	 	56,545	 	 	50,262	 	 	3,997	 	
Less current maturities	 	 	(276	)	 	(317	)	 	(1,553	)	
 	 		 		 		 	
 	 	$	56,269	 	$	49,945	 	$	2,444	 	
 	 		 		 		 	
       The scheduled maturities of long-term obligations outstanding at December 31, 2004 are as follows (in thousands):

2005	 	$	317	
2006	 	 	1,609	
2007	 	 	47,225	
2008	 	 	454	
2009	 	 	605	
Thereafter	 	 	52	
 	 		
 	 	$	50,262	
 	 		
       The scheduled maturities of long-term obligations outstanding at June 30, 2005 (unaudited) are as follows (in thousands):

Six months ending December 31, 2005	 	$	140	
Years ending December 31,	 	 	 	
 	2006	 	 	413	
 	2007	 	 	582	
 	2008	 	 	1,753	
 	2009	 	 	605	
 	2010	 	 	53,052	
 	 		
 	 	$	56,545	
 	 		
F-24

       On February 17, 2004, the Company entered into a new unsecured revolving credit facility that originally matured in February 2007, replacing a secured credit facility that would have expired on June 30, 2005. As a result, the Company recorded a loss of approximately $0.3 million in 2004 from the write-off of debt issuance costs related to the previous secured facility. The new revolving credit facility initially had a maximum availability of $75.0 million, which was amended to $100.0 million on January 31, 2005. On June 1, 2005 (unaudited), the agreement was further amended to increase the maximum availability to $135.0 million, extend the maturity date to June 1, 2010 and modify certain other terms. In order to make any borrowing under the revolving credit facility, after giving effect to such borrowing, the Company must be in compliance with all of the covenants under the credit facility, including, without limitation, a senior debt to EBITDA ratio which cannot exceed 3.00 to 1.00. The revolving credit facility contains customary covenants, including, among other things, limitations on the payment of cash dividends, restrictions on the payment of other dividends; and on purchases, redemptions, and acquisitions of the Company's stock; limitations on additional indebtedness; certain limitations on acquisitions, mergers, and consolidations; and the maintenance of certain financial ratios. The interest rate on advances under the revolving credit facility may be either the bank prime lending rate, on the one hand, or the Interbank Offering Rate ("IBOR") plus an additional percentage ranging from .875% to 1.625%, on the other hand, at the Company's option. The percentage added to IBOR is dependent upon the Company's total funded debt to EBITDA ratio for the trailing four quarters. The Company was in compliance with all covenants throughout the first six months of 2005 (unaudited) and all of 2004 and 2003. The weighted-average interest rate on borrowings outstanding against the Company's credit facility at June 30, 2005 (unaudited) and December 31, 2004 was 4.26% and 3.16%, respectively. Borrowings against the credit facility totaled $53.0 million and $47.0 million at June 30, 2005 (unaudited) and December 31, 2004, respectively, and are classified as long-term obligations.
       The Company's previous secured credit facility consisted of a revolving line of credit (the "Revolving Facility") with a maximum availability of $40.0 million and a $20.0 million term loan ("Term Loan A"). Term Loan A required scheduled quarterly repayments beginning December 31, 2002 with a final payment due on June 30, 2005, but was fully paid during October 2003. On February 20, 2003 the Company's previous credit facility was amended to provide an additional term loan ("Term Loan B") in the amount of $9.0 million. Term Loan B was scheduled to mature on February 20, 2004, but was fully paid during October 2003. There were no borrowings outstanding against the Revolving Facility at December 31, 2003.
       During August 2002, the Company entered into a two-year interest rate swap agreement with a total notional amount of $10.0 million and a fixed rate of 2.65%. The agreement matured in August 2004. The counterparty to the agreement was a member of the Company's bank group. Under the terms of the agreement, the Company was required to make quarterly payments at the specified fixed rate and in return received payments at variable rates. The estimated fair value of the interest rate swap at December 31, 2003 was a loss of approximately $0.1 million and was included in Other Noncurrent Liabilities and Accrued expenses. In accordance with the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, the changes in the fair value of the interest rate swap were included in current period earnings, as the agreement had not been designated as a hedging instrument.
       On January 28, 2004, as part of the consideration for a business acquisition, the Company issued a promissory note in the amount of $1.0 million. The note is secured by certain real property owned by the Company. The annual interest rate on the note is 3.5%. Monthly payments of interest and principal totaling $9,889 are required, with the remaining outstanding principal balance due in a lump sum payment on January 28, 2009.
F-25

       On February 25, 2004, as part of the consideration for a business acquisition, the Company issued two promissory notes totaling $1.25 million. The annual interest rate on the notes is 3.5% and interest is payable annually. The notes mature on February 25, 2006. At the option of the Company, the maturity of the notes may be extended to February 25, 2008. The annual interest rate on the notes during the extension period would be 5.0%.
       On June 10, 2004, as part of the consideration for a business acquisition, the Company issued a promissory note in the amount of approximately $0.1 million. The annual interest rate on the note is 3.0% and the note, along with accrued interest, is payable at maturity on June 10, 2006.
       The Company assumed certain liabilities in connection with a business acquisition during the first quarter of 2004, including two bankers acceptances totaling $1.15 million. The annual interest rate on the bankers acceptances, which were fully paid during the second quarter of 2004, was 2.94%.
       On April 1, 2005 (unaudited), as part of the consideration for a business acquisition, the Company issued a promissory note in the amount of $0.1 million. The annual interest rate on the note is 3.5% and the note, along with accrued interest, is payable at maturity on April 1, 2007.
       On April 26, 2005 (unaudited), as part of the consideration for a business acquisition, the Company issued three promissory notes totaling $0.2 million. The annual interest rate on the notes is 3.0% and the notes, along with accrued interest, are payable at maturity on April 26, 2007.
       The Company assumed certain liabilities in connection with a business acquisition during the second quarter of 2005 (unaudited), including a promissory note with a remaining principle balance of approximately $0.2 million. The annual interest rate on the note is 5.0%. Monthly payments of interest and principal totaling $5,094 are required through October 2008.
Note 7. Commitments and Contingencies
        The Company is obligated under noncancelable operating leases for corporate office space, warehouse and distribution facilities, trucks, and certain equipment.
       The future minimum lease commitments under these leases at December 31, 2004 are as follows (in thousands):

Years ending December 31:	 	 	 	
 	2005	 	$	10,061	
 	2006	 	 	8,274	
 	2007	 	 	7,511	
 	2008	 	 	6,604	
 	2009	 	 	3,094	
 	Thereafter	 	 	499	
 	 		
 	 	$	36,043	
 	 		
F-26

       The future minimum lease commitments under these leases at June 30, 2005 (unaudited) are as follows (in thousands):

Six months ended December 31, 2005	 	$	5,694	
Years ended December 31:	 	 	 	
 	2006	 	 	9,917	
 	2007	 	 	9,047	
 	2008	 	 	8,020	
 	2009	 	 	4,137	
 	2010	 	 	1,164	
 	Thereafter	 	 	2,796	
 	 		
 	 	$	40,775	
 	 		
       Rental expense for operating leases was approximately $9.6 million, $8.0 million, and $7.4 million during the years ended December 31, 2004, 2003, and 2002 and $5.8 million and $4.6 million during the six month periods ended June 30, 2005 and 2004 (unaudited), respectively.
       During 2003, the Company leased certain land and facilities under agreements that were classified as capital leases. Assets recorded under capital leases at December 31, 2003 consisted of (in thousands):

Land and improvements	 	$	1,560	 	
Buildings and improvements	 	 	2,147	 	
 	 		 	
 	 	 	3,707	 	
Accumulated depreciation	 	 	(515	)	
 	 		 	
Net assets under capital leases	 	$	3,192	 	
 	 		 	
       During January 2004, the Company fully paid all the outstanding capital lease obligations as permitted under the contracts and acquired the related properties. The Company recorded a gain of $49,000 before taxes from the early extinguishment of these capital lease obligations.
       The Company guaranties the residual values of the majority of its truck and equipment operating leases. The residual values decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value when a piece of equipment is sold, the Company would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more than the residual value when a piece of equipment is sold, the Company would be paid the amount realized over the residual value. Had the Company terminated all of its operating leases subject to these guaranties at December 31, 2004, the guarantied residual value would have totaled approximately $7.8 million.
       The Company also has certain other contingent liabilities resulting from litigation, claims, and other commitments and is subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. Management believes that the probable resolution of such contingencies will not materially affect the consolidated financial position, results of operations, or cash flows of the Company.
F-27

Note 8. Earnings (Loss) Per Share
        The following table sets forth the computation of earnings (loss) per share (in thousands, except per share amounts):

 	 	Six Months Ended
June 30,
	 	Year Ended December 31,
	 	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	 	
 	 	(unaudited)
	 	 	 	 	 	 	 	
Income before cumulative effect of change in accounting principle	 	$	16,028	 	$	10,978	 	$	20,573	 	$	14,576	 	$	11,005	 	
Cumulative effect of change in accounting principle, net of tax	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(49,899	)	
 	 		 		 		 		 		 	
Net income (loss)	 	$	16,028	 	$	10,978	 	$	20,573	 	$	14,576	 	$	(38,894	)	
 	 		 		 		 		 		 	
Denominator for basic earnings (loss) per share—
Weighted-average shares outstanding	 	 	20,744	 	 	19,847	 	 	20,052	 	 	16,268	 	 	17,654	 	
Effect of dilutive securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Stock options	 	 	1,163	 	 	924	 	 	888	 	 	441	 	 	277	 	
 	Warrants	 	 	1,254	 	 	1,551	 	 	1,474	 	 	1,549	 	 	1,468	 	
 	 		 		 		 		 		 	
Denominator for diluted earnings (loss) per share-	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Adjusted weighted-average shares outstanding	 	 	23,161	 	 	22,322	 	 	22,414	 	 	18,258	 	 	19,399	 	
 	 		 		 		 		 		 	
Earnings (loss) per share, basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income before cumulative effect of change in accounting principle	 	$	0.77	 	$	0.55	 	$	1.03	 	$	0.90	 	$	0.62	 	
 	Cumulative effect of change in accounting principle, net of tax	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(2.82	)	
 	 		 		 		 		 		 	
Earnings (loss) per share, basic	 	$	0.77	 	$	0.55	 	$	1.03	 	$	0.90	 	$	(2.20	)	
 	 		 		 		 		 		 	
Earnings (loss) per share, diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income before cumulative effect of change in accounting principle	 	$	0.69	 	$	0.49	 	$	0.92	 	$	0.80	 	$	0.57	 	
 	Cumulative effect of change in accounting principle, net of tax	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(2.57	)	
 	 		 		 		 		 		 	
Earnings (loss) per share, diluted	 	$	0.69	 	$	0.49	 	$	0.92	 	$	0.80	 	$	(2.00	)	
 	 		 		 		 		 		 	
       The following chart sets forth the number of stock options and warrants outstanding but not included in the computation of diluted earnings (loss) per share because their effect would have been antidilutive (in thousands):

 	 	June 30,
	 	December 31,
	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	
 	 	(unaudited)
	 	 	 	 	 	 	
Antidilutive securities:	 	 	 	 	 	 	 	 	 	 	
 	Stock options	 	—	 	200	 	260	 	1,611	 	2,468	
 	Warrants	 	—	 	100	 	—	 	264	 	262	
Note 9. Business Combinations
      In April 2005 (unaudited), the Company acquired 100% equity interests in two companies, one in the recycled OEM products business in South Carolina and one in the self-service retail recycled vehicle products business in Tennessee, for an aggregate of approximately $8.0 million in cash and $0.3 million in notes issued. The acquisitions enable the Company to serve new market areas.
       On January 31, 2005, the Company acquired Bodymaster Auto Parts, Inc. and an affiliated company ("Bodymaster") that operate in the aftermarket products business for an aggregate of $16.0 million in cash. The acquisition enables the Company to serve new market areas. In connection with the acquisition of Bodymaster, the Company held $0.6 million in restricted cash. In accordance with the terms of the purchase agreement, the
F-28

restrictions will be removed by January 31, 2006 or the Company will be reimbursed from funds currently held in escrow. During the six month period ended June 30, 2005 (unaudited), the amount of cash restricted was reduced by $0.1 million.
       During 2004, the Company acquired a 100% equity interest in each of six businesses (five in the recycled OEM products business, including on October 26, 2004, Foster Auto Parts, Inc., and, on February 20, 2004, Global Trade Alliance, Inc., one of the largest suppliers of aftermarket products in the Midwest) for an aggregate of $61.7 million in cash, of which $50,000 is to be paid subsequent to December 31, 2004, approximately $2.4 million in notes issued (see Note 6) and 186,698 shares of the Company's common stock. The acquisitions enable the Company to serve new market areas, become a significant provider of aftermarket products and become a provider of self-service retail recycled vehicle products.
       During 2003, the Company acquired three recycled OEM products businesses located in upstate New York, California, and Nevada for an aggregate of $3.3 million in cash, $0.2 million in notes issued and 50,000 redeemable shares of the Company's common stock. The business combinations enable the Company to serve new market areas. The Company did not complete any acquisitions during the year ended December 31, 2002.
       The acquisitions are being accounted for under the purchase method of accounting and are included in the Company's financial statements from the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon estimated fair market values at the dates of acquisition. The initial purchase price allocations may be adjusted within one year of the purchase date for changes in estimates of the fair value of assets acquired and liabilities assumed.
       The purchase price allocations for the acquisitions completed during the six months ended June 30, 2005 (unaudited) and the years ended December 31, 2004 and 2003 are as follows (in thousands):

 	 	 	 	December 31,
	 	
 	 	June 30,
2005
			 	
 			 	2004
	 	2003
	 	
 	 	(unaudited)
	 	 	 	 	 	
Restricted cash	 	$	599	 	$	—	 	$	—	 	
Receivables, net	 	 	1,435	 	 	3,619	 	 	57	 	
Inventory	 	 	5,292	 	 	14,972	 	 	804	 	
Prepaid expenses	 	 	64	 	 	368	 	 	27	 	
Property and equipment	 	 	1,667	 	 	8,253	 	 	1,217	 	
Goodwill	 	 	17,908	 	 	49,520	 	 	1,536	 	
Other intangibles	 	 	60	 	 	—	 	 	—	 	
Deferred tax assets	 	 	—	 	 	157	 	 	—	 	
Other assets	 	 	40	 	 	69	 	 	511	 	
Current liabilities assumed	 	 	(2,525	)	 	(8,078	)	 	(38	)	
Notes assumed	 	 	(203	)	 	(1,175	)	 	(11	)	
Other noncurrent liabilities assumed	 	 	—	 	 	(300	)	 	—	 	
Purchase price payable in a subsequent period	 	 	—	 	 	(50	)	 	—	 	
Notes issued (see Note 6)	 	 	(300	)	 	(2,379	)	 	(200	)	
Common stock issued	 	 	—	 	 	(3,375	)	 	—	 	
Redeemable common stock issued	 	 	—	 	 	—	 	 	(617	)	
 	 		 		 		 	
Cash used in acquisitions, net of cash acquired	 	$	24,037	 	$	61,601	 	$	3,286	 	
 	 		 		 		 	
       The Company recorded goodwill of $17.9 million during the six month period ended June 30, 2005 (unaudited), all of which is expected to be deductible for income tax purposes. Of the $49.5 million and
F-29

$1.5 million of goodwill recorded during the years ended December 31, 2004 and 2003, $16.8 million and $1.5 million is expected to be deductible for income tax purposes, respectively.
       The following pro forma summary presents the effect of the businesses acquired during the six months ended June 30, 2005 and the year ended December 31, 2004 as though the businesses had been acquired as of January 1, 2004, and is based upon unaudited financial information of the acquired entities (in thousands, except per share amounts):

 	 	Six Months Ended
June 30,
	
 	 	2005
	 	2004
	
 	 	(unaudited)
	
Revenue as reported	 	$	269,830	 	$	204,951	
Revenue of purchased businesses for the period prior to acquisition	 	 	5,032	 	 	41,325	
 	 		 		
 	Pro forma revenue	 	$	274,862	 	$	246,276	
 	 		 		
Net income as reported	 	$	16,028	 	$	10,978	
Net income of purchased businesses for the period prior to acquisition	 	 	113	 	 	1,846	
 	 		 		
 	Pro forma net income	 	$	16,141	 	$	12,824	
 	 		 		
Earnings per share—basic	 	 	 	 	 	 	
 	As reported	 	$	0.77	 	$	0.55	
 	Effect of purchased businesses for the period prior to acquisition	 	 	0.01	 	 	0.09	
 	 		 		
 	 	Pro forma earnings per share—basic	 	$	0.78	 	$	0.64	
 	 		 		
Earnings per share—diluted	 	 	 	 	 	 	
 	As reported	 	$	0.69	 	$	0.49	
 	Effect of purchased businesses for the period prior to acquisition	 	 	0.01	 	 	0.08	
 	 		 		
 	 	Pro forma earnings per share—diluted	 	$	0.70	 	$	0.57	
 	 		 		
F-30

       The following pro forma summary presents the effect of the businesses acquired during the years ended December 31, 2004 and 2003 as though the businesses had been acquired as of January 1, 2003 and is based upon unaudited financial information of the acquired entities (in thousands, except per share amounts):

 	 	Years Ended December 31,
	
 	 	2004
	 	2003
	
Revenue as reported	 	$	424,756	 	$	327,974	
Revenue of purchased businesses for the period prior to acquisition	 	 	34,392	 	 	85,249	
 	 		 		
 	Pro forma revenue	 	$	459,148	 	$	413,223	
 	 		 		
Net income as reported	 	$	20,573	 	$	14,576	
Net income of purchased businesses for the period prior to acquisition	 	 	1,806	 	 	2,272	
 	 		 		
 	Pro forma net income	 	$	22,379	 	$	16,848	
 	 		 		
Earnings per share—basic	 	 	 	 	 	 	
 	As reported	 	$	1.03	 	$	0.90	
 	Effect of purchased businesses for the period prior to acquisition	 	 	0.08	 	 	0.12	
 	 		 		
 	 	Pro forma earnings per share—basic	 	$	1.11	 	$	1.02	
 	 		 		
Earnings per share—diluted	 	 	 	 	 	 	
 	As reported	 	$	0.92	 	$	0.80	
 	Effect of purchased businesses for the period prior to acquisition	 	 	0.08	 	 	0.11	
 	 		 		
 	 	Pro forma earnings per share—diluted	 	$	1.00	 	$	0.91	
 	 		 		
       These pro forma results are not necessarily indicative either of what would have occurred if the acquisitions had been in effect for the period presented or of future results.
Note 10. Income Taxes
        The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Accordingly, deferred income taxes have been provided to show the effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefit, or that future deductibility is uncertain. Income taxes provided during interim periods are based upon the Company's anticipated annual effective income tax rate.
       Prepaid expenses include approximately $0.2 million at December 31, 2003 in tax payments made by the Company, which were refunded or applied to the Company's future income tax liabilities.
F-31

       The provision for income taxes consists of the following components (in thousands):

 	 	Six Months Ended
June 30,
	 	Year Ended December 31,
	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	
 	 	(unaudited)
	 	 	 	 	 	 	
Current:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	$	8,470	 	$	4,532	 	$	8,201	 	$	5,850	 	$	5,060	
 	State	 	 	1,847	 	 	961	 	 	1,573	 	 	1,399	 	 	1,085	
 	Foreign	 	 	21	 	 	6	 	 	23	 	 	—	 	 	—	
 	 		 		 		 		 		
 	 	 	10,338	 	 	5,499	 	 	9,797	 	 	7,249	 	 	6,145	
Deferred	 	 	831	 	 	1,891	 	 	3,487	 	 	2,328	 	 	1,118	
 	 		 		 		 		 		
 	Provision for income taxes	 	$	11,169	 	$	7,390	 	$	13,284	 	$	9,577	 	$	7,263	
 	 		 		 		 		 		
       Income taxes have been based on the following components of income before provision for income taxes and cumulative effect of change in accounting principle (in thousands):

 	 	Six Months Ended
June 30,
	 	Year Ended December 31,
	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	
 	 	(unaudited)
	 	 	 	 	 	 	
Domestic	 	$	27,131	 	$	18,360	 	$	33,767	 	$	24,153	 	$	18,268	
Foreign	 	 	66	 	 	8	 	 	90	 	 	—	 	 	—	
 	 		 		 		 		 		
 	 	$	27,197	 	$	18,368	 	$	33,857	 	$	24,153	 	$	18,268	
 	 		 		 		 		 		
       The U.S. Federal statutory rate is reconciled to the effective tax rate as follows:

 	 	Six Months
Ended June 30,
	 	Year Ended December 31,
	 	
 	 	2005
	 	2004
	 	2004
	 	2003
	 	2002
	 	
 	 	(unaudited)
	 	 	 	 	 	 	 	
U.S. Federal statutory rate	 	35.0	%	35.0	%	35.0	%	35.0	%	35.0	%	
State income taxes, net of federal tax impact	 	5.0	 	4.6	 	3.8	 	4.1	 	3.3	 	
Non-deductible meals and entertainment expenses	 	0.3	 	0.3	 	0.4	 	0.4	 	0.5	 	
Non-taxable life insurance proceeds	 	—	 	—	 	(0.5	)	—	 	—	 	
Other, net	 	0.8	 	0.3	 	0.5	 	0.2	 	1.0	 	
 	 		 		 		 		 		 	
 	Effective tax rate	 	41.1	%	40.2	%	39.2	%	39.7	%	39.8	%	
 	 		 		 		 		 		 	
       The Company does not provide for U.S. federal income taxes on the undistributed earnings of its foreign subsidiaries because such earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely.
F-32

        The significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):

 	 	 	 	December 31,
	 	
 	 	June 30,
2005
			 	
 			 	2004
	 	2003
	 	
 	 	(unaudited)
	 	 	 	 	 	
Deferred Tax Assets:	 	 	 	 	 	 	 	 	 	 	
 	Accounts receivable	 	$	1,361	 	$	1,255	 	$	1,044	 	
 	Inventory	 	 	1,202	 	 	1,050	 	 	631	 	
 	Goodwill	 	 	5,060	 	 	6,686	 	 	8,688	 	
 	Accrued expenses	 	 	950	 	 	1,473	 	 	1,279	 	
 	Net operating loss carryforwards	 	 	2,384	 	 	2,332	 	 	2,100	 	
 	Other	 	 	1,867	 	 	1,187	 	 	873	 	
 	 		 		 		 	
 	 	 	12,824	 	 	13,983	 	 	14,615	 	
 	Less valuation allowance	 	 	(655	)	 	(544	)	 	(198	)	
 	 		 		 		 	
 	 	Total deferred tax assets	 	$	12,169	 	$	13,439	 	$	14,417	 	
 	 		 		 		 	
Deferred Tax Liabilities:	 	 	 	 	 	 	 	 	 	 	
 	Property and equipment	 	$	5,776	 	$	6,187	 	$	4,649	 	
 	Investments	 	 	722	 	 	663	 	 	746	 	
 	Other	 	 	831	 	 	858	 	 	44	 	
 	 		 		 		 	
 	 	Total deferred tax liabilities	 	$	7,329	 	$	7,708	 	$	5,439	 	
 	 		 		 		 	
 	 	Net deferred tax asset	 	$	4,840	 	$	5,731	 	$	8,978	 	
 	 		 		 		 	
       Deferred tax assets and liabilities are reflected on the Company's consolidated balance sheets as follows (in thousands):

 	 	 	 	December 31,
	
 	 	June 30,
2005
			
 			 	2004
	 	2003
	
 	 	(unaudited)
	 	 	 	 	
Current deferred tax assets	 	$	1,339	 	$	1,109	 	$	  422	
Noncurrent deferred tax assets	 	 	3,501	 	 	4,622	 	 	8,556	
       In connection with the adoption of SFAS 142, the Company recorded a deferred tax asset totaling approximately $16.1 million during 2002. At June 30, 2005 (unaudited), December 31, 2004 and 2003, the Company had net operating loss carryforwards for certain of its state tax jurisdictions, the tax benefits of which total approximately $2.4 million, $2.3 million, and $2.1 million, respectively. A valuation allowance has been established for a portion of these deferred tax assets. The tax benefits expire over the period from 2005 through 2024. While the Company expects to realize the deferred tax assets, net of valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.
       The Internal Revenue Service is currently performing an income tax audit for the 2002 tax year, and the Company has been notified by one state of an income tax audit for the 2001, 2002, and 2003 tax years. Adjustments from such audits, if any, are not expected to have a material effect on the Company's Consolidated Financial Statements.
F-33

Note 11. Accumulated Other Comprehensive Income
        The components of accumulated other comprehensive income are as follows (in thousands):

 	 	Foreign
Currency
Translation
	 	Unrealized
(Loss) Gain
on Securities
	 	Accumulated
Other
Comprehensive
Income
	 	
Balance at January 1, 2002	 	$	—	 	$	—	 	$	—	 	
 	Pretax income	 	 	—	 	 	1,885	 	 	1,885	 	
 	Income tax expense	 	 	—	 	 	(746	)	 	(746	)	
 	 		 		 		 	
Balance at December 31, 2003	 	 	—	 	 	1,139	 	 	1,139	 	
 	Pretax loss	 	 	(32	)	 	(210	)	 	(242	)	
 	Income tax benefit	 	 	—	 	 	83	 	 	83	 	
 	 		 		 		 	
Balance at December 31, 2004	 	 	(32	)	 	1,012	 	 	980	 	
 	Pretax income (loss) (unaudited)	 	 	(8	)	 	148	 	 	140	 	
 	Income tax benefit (expense) (unaudited)	 	 	—	 	 	(60	)	 	(60	)	
 	 		 		 		 	
Balance at June 30, 2005 (unaudited)	 	$	(40	)	$	1,100	 	$	1,060	 	
 	 		 		 		 	
Note 12. Selected Quarterly Data (unaudited)
      The following table presents unaudited selected quarterly financial data for the two years ended December 31, 2004 and the six months ended June 30, 2005. The operating results for any quarter are not necessarily indicative of the results for any future period.

(In thousands, except per share data)
	
Quarter Ended
	 	Mar. 31
	 	Jun. 30
	 	Sep. 30
	 	Dec. 31
	
2003	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	79,256	 	$	81,017	 	$	83,472	 	$	84,228	
Gross margin	 	 	37,453	 	 	38,345	 	 	39,041	 	 	38,897	
Operating income	 	 	7,020	 	 	7,344	 	 	6,562	 	 	5,134	
Net income	 	 	3,940	 	 	4,119	 	 	3,519	 	 	2,998	
Earnings per share: (1)	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic earnings per share	 	 	0.23	 	 	0.27	 	 	0.25	 	 	0.16	
 	Diluted earnings per share	 	 	0.21	 	 	0.25	 	 	0.22	 	 	0.14	
(In thousands, except per share data)
	
Quarter Ended
	 	Mar. 31
	 	Jun. 30
	 	Sep. 30
	 	Dec. 31
	
2004	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	100,073	 	$	104,878	 	$	106,045	 	$	113,760	
Gross margin	 	 	46,996	 	 	49,441	 	 	48,683	 	 	52,496	
Operating income	 	 	9,862	 	 	9,150	 	 	7,975	 	 	7,920	
Net income	 	 	5,635	 	 	5,343	 	 	4,562	 	 	5,033	
Earnings per share: (1)	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic earnings per share	 	 	0.29	 	 	0.27	 	 	0.23	 	 	0.25	
 	Diluted earnings per share	 	 	0.25	 	 	0.24	 	 	0.20	 	 	0.22	
(In thousands, except per share data)
	 	 	 	 	
Quarter Ended
	 	Mar. 31
	 	Jun. 30
	 	 	 	 	
2005	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	133,807	 	$	136,023	 	 	 	 	
Gross margin	 	 	62,636	 	 	64,492	 	 	 	 	
Operating income	 	 	14,396	 	 	13,810	 	 	 	 	
Net income	 	 	8,401	 	 	7,627	 	 	 	 	
Earnings per share: (1)	 	 	 	 	 	 	 	 	 	 	
 	Basic earnings per share	 	 	0.41	 	 	0.37	 	 	 	 	
 	Diluted earnings per share	 	 	0.37	 	 	0.33	 	 	 	 	

(1)
The sum of the quarters may not equal the total of the respective year's earnings per share on either a basic or diluted basis due to changes in weighted average shares outstanding throughout the year.
F-34

LKQ Corporation
2,750,000 Shares of Common Stock

Prospectus
                    , 2005

Robert W. Baird & Co.
Raymond James
 Morgan Keegan & Company, Inc.
Barrington Research

 
 PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
  Item 13. Other Expenses of Issuance and Distribution.
        The following table sets forth the estimated costs and expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the registration, sale, and distribution of the securities being registered hereby, including the shares offered for sale by the selling stockholders. All amounts shown are estimates except the Securities and Exchange Commission registration fee, the National Association of Securities Dealers, Inc. filing fee and the Nasdaq National Market listing fee.

SEC Registration Fee	 	$	10,612.17	
NASD Filing Fee	 	$	9,516.00	
Accounting Fees and Expenses	 	$	*	
Legal Fees and Expenses	 	$	*	
Printing and Engraving Expenses	 	$	*	
Blue Sky Fees and Expenses	 	$	*	
Transfer Agent and Registrar's Fees and Expenses	 	$	*	
Miscellaneous	 	$	*	
Total	 	$	*	

*
To be filed by amendment.
 
 Item 14.    Indemnification of Directors and Officers.
        The registrant is organized under the Delaware General Corporation Law (DGCL), which empowers Delaware corporations to indemnify any director or officer, or former director or officer, who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement, actually and reasonably incurred in connection with such action, suit, or proceeding, provided that such director or officer acted in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, provided further that such director or officer has no reasonable cause to believe his conduct was unlawful.
       The DGCL also empowers Delaware corporations to provide similar indemnity to any director or officer, or former director or officer, for expenses, including attorneys' fees, actually and reasonably incurred by the person in connection with the defense or settlement of actions or suits by or in the right of the corporation if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the interests of the corporation, except in respect of any claim, issue, or matter as to which such director or officer shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all of the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses that the Court of Chancery or such other court shall deem proper.
       The DGCL further provides that (i) to the extent a present or former director or officer of a corporation has been successful in the defense of any action, suit, or proceeding described above or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person, in connection therewith and (ii) indemnification and
II-1

advancement of expenses provided by, or granted pursuant to, the DGCL shall not be deemed exclusive of any other rights to which the indemnified party may be entitled.
       The DGCL permits a Delaware corporation to purchase and maintain, on behalf of any director or officer, insurance against liabilities incurred in such capacities. The DGCL also permits a corporation to pay expenses incurred by a director or officer in advance of the final disposition of an action, suit, or proceeding, upon receipt of an undertaking by the director or officer to repay such amount if it is determined that such person is not entitled to indemnification.
       As permitted by the DGCL, the registrant's certificate of incorporation eliminates the personal liability of a director to the corporation or its stockholders for monetary damages for violations of the director's fiduciary duty except, to the extent provided by applicable law, (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions), or (iv) for any transaction from which a director derived an improper personal benefit. In addition, the registrant's certificate of incorporation provides that it is required to indemnify its directors and officers to the fullest extent permitted by the DGCL for any expenses, liabilities or other matters, that such indemnification is not exclusive of any other right to indemnification that such person may be entitled to otherwise, and that the right to such indemnification is available for current and former directors and officers, and inures to the benefit of their heirs, executors, and administrators. The registrant's amended and restated bylaws also contain provisions for indemnification of its directors and officers consistent with the provisions of the DGCL.
       The registrant has also entered into an indemnification agreement with each of its directors and officers which provides for certain rights to indemnification and payment of expenses in addition to and in furtherance of the indemnification provisions in our certificate of incorporation.
       The foregoing statements are subject to the detailed provisions of the DGCL, the registrant's certificate of incorporation, amended and restated bylaws, and the form of indemnification agreement the latter three of which are filed as exhibits to this Registration Statement.
       The registrant has obtained insurance policies indemnifying its directors and officers against certain civil liabilities and related expenses.
       The registrant also expects to enter into an underwriting agreement with the several underwriters and the selling stockholders, which will provide for cross-indemnification between the registrant; its directors, officers, and controlling persons; the selling stockholders; and the underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933.
 
 Item 15.    Recent Sales of Unregistered Securities.
        During the last three years, the registrant has issued unregistered securities in the transactions described below. These securities were offered and sold by the registrant in connection with acquisitions and exercises of warrants in reliance upon the exemptions provided for in Section 4(2) of the Securities Act of 1933, relating to sales not involving any public offering, and Rule 506 of the Securities Act of 1933, relating to sales to accredited investors, and, with respect to the option grants and exercises described below, in reliance upon the exemption provided for in Rule 701 of the Securities Act of 1933 relating to a compensatory benefit plan. The sales were made without the use of an underwriter and the certificates representing the securities sold included a restrictive legend that prohibits transfer without registration or an applicable exemption.
       On August 20, 2002, the registrant issued 1,500 shares of common stock to an employee upon exercise of options under the registrant's 1998 equity incentive plan at $3.00 per share.
II-2

       On September 2, 2002, the registrant issued 12,826 shares of common stock to a stockholder guarantor upon exercise of one of the registrant's fee warrants at $2.00 per share, for an aggregate purchase price of $25,652.
       On October 25, 2002, the registrant issued 4,500 shares of common stock to an employee upon exercise of options under the registrant's 1998 equity incentive plan at $3.00 per share.
       On January 1, 2003, the registrant issued 50,000 shares of common stock in connection with a business acquisition, along with a put option with a single exercise date of January 1, 2007 at a price of $15 per share. In addition, the registrant obtained a call option with a single exercise date of January 1, 2007 at a price of $22.50 per share.
       On January 14, 2003, the registrant granted options to purchase 464,200 shares of common stock to certain of its employees at an exercise price of $8.75 per share pursuant to the registrant's 1998 equity incentive plan.
       On May 12, 2003, the registrant issued 22,500 shares of common stock to an employee upon exercise of options under the registrant's 1998 equity incentive plan at $3.00 per share.
       On May 14, 2003, the registrant issued an aggregate of 30,000 shares of common stock to an employee upon exercise of options under the registrant's 1998 equity incentive plan at prices ranging from $1.00 to $3.00, for an aggregate consideration of $50,000.
       On June 4, 2003, the registrant issued 10,000 shares of common stock to an employee upon exercise of options under the registrant's 1998 equity incentive plan at $1.00 per share.
       On July 28, 2003, the registrant issued an aggregate of 72,000 shares of common stock to employees upon exercise of options under the registrant's 1998 equity incentive plan at prices ranging from $1.00 to $3.00 per share, for an aggregate consideration of $200,000.
       On August 7, 2003, the registrant issued 25,000 shares of common stock to an employee upon exercise of options under the registrant's 1998 equity incentive plan at $3.00 per share.
       On August 13, 2003, the registrant issued 5,400 shares of common stock to an employee upon exercise of options under the registrant's 1998 equity incentive plan at $8.00 per share.
       On August 27, 2003, the registrant issued 5,000 shares of common stock to an employee upon exercise of options under the registrant's 1998 equity incentive plan at $3.00 per share.
       On August 28, 2003, the registrant issued an aggregate of 10,000 shares of common stock to employees upon exercise of options under the registrant's 1998 equity incentive plan at $3.00 per share.
       On August 29, 2003, the registrant issued an aggregate of 23,000 shares of common stock to employees upon exercise of options under the registrant's 1998 equity incentive plan at $3.00 per share.
       On September 3, 2003, the registrant issued an aggregate of 7,500 shares of common stock to employees upon exercise of options under the registrant's 1998 equity incentive plan at prices ranging from $3.00 to $8.00 per share, for an aggregate consideration of $47,500.
       On October 9, 2003, the registrant issued an aggregate of 80,166 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $160,332.
       On October 10, 2003, the registrant issued an aggregate of 78,188 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $156,376.
II-3

       On November 19, 2003, the registrant issued an aggregate of 11,783 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $23,566.
       On December 16, 2003, the registrant issued an aggregate of 802 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $1,604.
       On January 20, 2004, the registrant issued an aggregate of 18,037 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $36,074.
       On January 28, 2004, the registrant issued an aggregate of 26,357 shares of common stock in connection with a business acquisition.
       On February 9, 2004, the registrant issued an aggregate of 8,017 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $16,034.
       On February 20, 2004, the registrant issued an aggregate of 84,345 shares of common stock in connection with a business acquisition.
       On February 25, 2004, the registrant issued an aggregate of 12,594 shares of common stock in connection with a business acquisition.
       On April 2, 2004, the registrant issued an aggregate of 63,402 shares of common stock in connection with a business acquisition.
       On May 3, 2004, the registrant issued an aggregate of 59,317 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $118,634.
       On May 5, 2004, the registrant issued an aggregate of 83,009 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $166,018.
       On May 21, 2004, the registrant issued an aggregate of 44,125 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $88,250.
       On July 15, 2004, the registrant issued an aggregate of 8,886 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $17,772.
       On August 19, 2004, the registrant issued an aggregate of 50,000 shares of common stock upon exercise of warrants for an aggregate consideration of $750,000.
       On December 16, 2004, the registrant issued an aggregate of 63,183 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $126,366.
       On December 21, 2004, the registrant issued an aggregate of 218,244 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $436,488.
       On April 20, 2005, the registrant issued an aggregate of 6,418 shares of common stock to a stockholder guarantor upon exercise of a fee warrant for an aggregate consideration of $12,836.
       On June 10, 2005, the registrant issued an aggregate of 58,181 shares of common stock for an aggregate consideration of 55,570 shares of common stock retained by the registrant pursuant to the cashless exercise of a warrant.
II-4

 
 Item 16.    Exhibits and Financial Statement Schedules.
(a)
Exhibits
       A list of exhibits included as part of this Registration Statement is set forth in the Exhibit Index appearing elsewhere herein and is incorporated by this reference.
(b)
Financial Statement Schedule
       Other than as set forth below, all schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted because they are not required under the related instructions, are not applicable, or the information has been provided in the consolidated financial statements or the notes thereto.
 
 SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(In thousands) 

Descriptions
	 	Balance at
Beginning
of Period
	 	Additions
Charged to
Costs and
Expenses
	 	Acquisitions
and Other
	 	Deductions
	 	Balance at
End of
Period
	
ALLOWANCE FOR DOUBTFUL ACCOUNTS:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Year ended December 31, 2002	 	$	974	 	$	1,097	 	$	—	 	$	(824	)	$	1,247	
 	Year ended December 31, 2003	 	 	1,247	 	 	1,240	 	 	—	 	 	(993	)	 	1,494	
 	Year ended December 31, 2004	 	 	1,494	 	 	938	 	 	213	 	 	(944	)	 	1,701	

ALLOWANCE FOR ESTIMATED RETURNS, DISCOUNTS & ALLOWANCES:	

 	

 	

 	

 	

 	
 	Year ended December 31, 2002	 	$	708	 	$	46,818	 	$	—	 	$	(46,746	)	$	780	
 	Year ended December 31, 2003	 	 	780	 	 	68,257	 	 	—	 	 	(67,975	)	 	1,062	
 	Year ended December 31, 2004	 	 	1,062	 	 	97,453	 	 	273	 	 	(96,606	)	 	2,182	
 
 Item 17.    Undertakings.
        Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
       The undersigned registrant hereby undertakes that:
(1)
For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

(2)
For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-5

 
 SIGNATURES
       Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on September 2, 2005.

 	LKQ CORPORATION	

By:	
 	
/s/   JOSEPH M. HOLSTEN       

Joseph M. Holsten
 President, Chief Executive Officer and Director	
 
 POWER OF ATTORNEY
       KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Joseph M. Holsten and Mark T. Spears and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to execute any and all amendments to this Registration Statement, including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby ratify and confirm all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
       Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on September 2, 2005.

Signature
	 	Title

 	

Principal Executive Officer:	 	 	

/s/   JOSEPH M. HOLSTEN       

Joseph M. Holsten	
 	
President, Chief Executive Officer and Director	

Principal Financial Officer:	

/s/   MARK T. SPEARS       

Mark T. Spears	
 	
Senior Vice President and Chief Financial Officer	

Principal Accounting Officer:	

/s/   FRANK P. ERLAIN       

Frank P. Erlain	
 	
Vice President of Finance and Controller	
 	 	 	
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Majority of Directors:	

/s/   DONALD F. FLYNN       

Donald F. Flynn	
 	
Director	

/s/   A. CLINTON ALLEN       

A. Clinton Allen	
 	
Director	

/s/   ROBERT M. DEVLIN       

Robert M. Devlin	
 	
Director	

/s/   PAUL M. MEISTER       

Paul M. Meister	
 	
Director	

/s/   JOHN F. O'BRIEN       

John F. O'Brien	
 	
Director	

William M. Webster, IV	
 	
Director	
II-7

 
 EXHIBIT INDEX

 	Exhibit No.
	 	Description
	
 	1.1*	 	Form of Underwriting Agreement.	

3.1(i)	
 	
Certificate of Incorporation of LKQ Corporation dated February 13, 1998, and as amended on May 20, 1998, June 15, 1998, August 17, 2000, and February 22, 2001 (incorporated herein by reference to Exhibit 3.1(i) to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

3.1(ii)	
 	
Amendment to Certificate of Incorporation filed on October 8, 2003 (incorporated herein by reference to Exhibit 3.1(ii) to the Company's report on Form 10-K for the fiscal year ended December 31, 2003).	

3.1(iii)	
 	
Conformed copy of Certificate of Incorporation of LKQ Corporation, as amended to date (incorporated herein by reference to Exhibit 3.1(iii) to the Company's report on Form 10-K for the fiscal year ended December 31, 2003).	

3.2	
 	
Amended and Restated Bylaws of LKQ Corporation (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

4.1	
 	
Specimen of common stock certificate (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

4.2	
 	
Credit Agreement by and among LKQ Corporation, Bank of America, N.A., as Administrative Agent, LaSalle Bank National Association, as Syndication Agent, Bank One, NA, as Documentation Agent, National City Bank, as Co-Agent, and Banc of America Securities LLC, as Arranger, dated February 17, 2004 (incorporated herein by reference to Exhibit 99.3 to the Company's report on Form 8-K filed with the SEC on February 24, 2004).	

4.3	
 	
First Amendment to Credit Agreement dated as of January 31, 2005 by and among LKQ Corporation, Bank of America, N.A., LaSalle Bank National Association, JP Morgan Chase Bank, National Association and National City Bank (incorporated herein by reference to Exhibit 99.4 to the Company's report on Form 8-K filed with the SEC on February 2, 2005).	

4.4	
 	
Second Amendment to Credit Agreement dated as of June 1, 2005 by and among LKQ Corporation, Bank of America, N.A., LaSalle Bank National Association, JP Morgan Chase Bank National Association and National City Bank (incorporated herein by reference to Exhibit 99.1 to the Company's report on Form 8-K filed with the SEC on June 3, 2005).	

5.1*	
 	
Opinion of Bell, Boyd & Lloyd LLC.	

10.1	
 	
Registration Rights Agreement by and among LKQ Corporation and certain stockholders signatories thereto dated June 19, 1998 (incorporated herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.2	
 	
Form of Fee Warrant Agreement (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.3	
 	
Office Lease for 120 North LaSalle Street, Suite 3300, Chicago, Illinois by and between the Prudential Insurance Company of America, as Landlord, and LKQ Corporation, as Tenant, dated as of February 18, 2004 (incorporated by reference to Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended March 31, 2004).	
 	 	 	 	
II-8

 

10.4	
 	
Industrial Building Lease between Leonard A. Damron, III, LLC, as Landlord, and Damron Auto Parts, L.P., as Tenant, dated July 29, 1998 for Jenkinsburg, Georgia facility (incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.5	
 	
Industrial Building Lease between Damron Auto Parts East, Inc., as Landlord, and Damron Holding Company, as Tenant, dated July 29, 1998 for Melbourne, Florida facility (incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.6	
 	
Industrial Building Lease between Damron Family Limited Partnership, as Landlord, and Damron Auto Parts, Inc., as Tenant, dated July 29, 1998 for Crystal River, Florida facility (incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.7	
 	
LKQ Corporation Stock Option and Compensation Plan for Non-Employee Directors, as amended (incorporated herein by reference to Exhibit 99.1 to the Company's Form 8-K/A filed with the SEC on March 18, 2005).	

10.8	
 	
LKQ Corporation CEO Stock Option Plan (incorporated herein by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.9	
 	
LKQ Corporation 1998 Equity Incentive Plan, as amended.	

10.10	
 	
LKQ Corporation 401(k) Plus Plan dated August 1, 1999 (incorporated herein by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.11	
 	
Amendment to LKQ Corporation 401(k) Plus Plan (incorporated herein by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.12	
 	
Trust for LKQ Corporation 401(k) Plus Plan (incorporated herein by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.13	
 	
LKQ Corporation Employees' Retirement Plan (incorporated herein by reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.14	
 	
First Amendment to LKQ Corporation Employees' Retirement Plan (incorporated herein by reference to Exhibit 10.27 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.15	
 	
Second Amendment to LKQ Corporation Employees' Retirement Plan (incorporated herein by reference to Exhibit 10.28 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.16	
 	
LKQ Corporation Employees' Retirement Plan Non-Discretionary Trust Agreement (incorporated herein by reference to Exhibit 10.29 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.17	
 	
LKQ Corporation 401(k) Plus Plan II dated March 3, 2005 (incorporated by reference to Exhibit 10.17 to the Company's report on Form 10-K for the fiscal year ended December 31, 2004).	

10.18	
 	
Form of LKQ Corporation Executive Officer 2005 Bonus Program (Corporate) (incorporated herein by reference to Exhibit 99.2 to the Company's report on Form 8-K/A filed with the SEC on March 18, 2005).	

II-9

 

10.19	
 	
Form of LKQ Corporation Executive Officer 2005 Bonus Program (Regional) (incorporated herein by reference to Exhibit 99.3 to the Company's report on Form 8-K/A filed with the SEC on March 18, 2005).	

10.20	
 	
Amendment Agreement dated December 27, 2004 between LKQ Corporation and Donald F. Flynn, Chairman of the Board of LKQ Corporation (incorporated herein by reference to Exhibit 99.1 to the Company's report on Form 8-K filed with the SEC on January 3, 2005).	

10.21	
 	
Form of Award Agreement dated January 14, 2005 between LKQ Corporation and optionees (incorporated herein by reference to Exhibit 99.1 to the Company's report on Form 8-K filed with the SEC on January 11, 2005).	

10.22	
 	
Form of Notice to Optionees dated January 10, 2005 (incorporated herein by reference to Exhibit 99.2 to the Company's report on Form 8-K filed with the SEC on January 11, 2005).	

10.23	
 	
Form of Indemnification Agreements between directors and officers of LKQ Corporation and LKQ Corporation (incorporated herein by reference to Exhibit 10.30 to the Company's Registration Statement on Form S-1, Registration No. 333-107417).	

10.24	
 	
Stock Purchase Agreement by and among LKQ Corporation and Robert H. Cruikshank, Trustee, and Rowens R. Cruikshank, Trustee, dated February 20, 2004 (incorporated herein by reference to Exhibit 99.2 to the Company's report on Form 8-K filed with the SEC on February 24, 2004).	

10.25	
 	
Stock Purchase Agreement dated as of October 26, 2004 between LKQ Corporation and Fred J. Hopp (incorporated herein by reference to Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended September 30, 2004).	

10.26	
 	
Stock Purchase Agreement dated as of January 31, 2005 by and among LKQ Corporation, Henry Sheshene and Shelly Ho (incorporated herein by reference to Exhibit 99.2 to the Company's report on Form 8-K filed with the SEC on February 2, 2005).	

10.27	
 	
Stock Purchase Agreement dated as of January 31, 2005 by and among LKQ Corporation, Henry Sheshene, Shelly Ho and Chia-Kai Hsu (incorporated herein by reference to Exhibit 99.3 to the Company's report on Form 8-K filed with the SEC on February 2, 2005).	

10.28	
 	
Industrial Building Lease between Steven Jones, as Landlord, and Mid-America Auto Parts, Inc.
(f/k/a Recyclers Group, Inc.), as Tenant, dated February 28, 1999, for 5725 South Topeka, Topeka, Kansas facility.	

10.29	
 	
First Amendment to Lease Agreement between Steven Jones, as Landlord, and Mid-America Auto Parts, Inc. (f/k/a Recyclers Group, Inc.), as Tenant, dated February 28, 1999, for 5725 South Topeka, Topeka, Kansas facility.	

10.30	
 	
Industrial Building Lease between Steven Jones and Mark Fitzgibbons, as Landlord, and Mid-America Auto Parts, Inc. (f/k/a Recyclers Group, Inc.), as Tenant, dated February 28, 1999, for 5310 SW Topeka, Topeka, Kansas facility.	

10.31	
 	
Industrial Building Lease between Mark Fitzgibbons, as Landlord, and Mid-America Auto Parts, Inc. (f/k/a Recyclers Group, Inc.), as Tenant, dated February 28, 1999, for 2001 East 19 th , Lawrence, Kansas facility.	

21.1	
 	
List of subsidiaries, jurisdictions and assumed names.	

23.1	
 	
Consent of Deloitte & Touche LLP.	

23.2*	
 	
Consent of Bell, Boyd & Lloyd LLC (included as part of Exhibit 5.1 hereto).	

24.1	
 	
Power of Attorney (included in the signature pages).	

*
To be filed by amendment.
II-10

QuickLinks
 LKQ Corporation
 TABLE OF CONTENTS
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 SUMMARY
 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
 RISK FACTORS
 USE OF PROCEEDS
 PRICE RANGE OF COMMON STOCK
DIVIDEND POLICY
 CAPITALIZATION
 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 INDUSTRY
 BUSINESS
 MANAGEMENT
 PRINCIPAL AND SELLING STOCKHOLDERS
 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
DESCRIPTION OF CAPITAL STOCK
 UNDERWRITING
LEGAL MATTERS
EXPERTS
ADDITIONAL INFORMATION
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 LKQ CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share data)
LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share data)
 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity and Other Comprehensive Income (In thousands)
 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Item 14. Indemnification of Directors and Officers.
Item 15. Recent Sales of Unregistered Securities.
Item 16. Exhibits and Financial Statement Schedules.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Item 17. Undertakings.
 SIGNATURES
POWER OF ATTORNEY
 EXHIBIT INDEX
 
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 EXHIBIT 10.9
LKQ CORPORATION
1998 EQUITY INCENTIVE PLAN
AMENDED AND RESTATED
as of August 5, 2005
ARTICLE 1
ESTABLISHMENT, OBJECTIVES, AND DURATION
        1.1     Establishment of the Plan. LKQ Corporation,     a Delaware corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the LKQ 1998 Equity Incentive Plan (hereinafter referred to as the "Plan") as set forth in this document. The Plan became effective as of February 13, 1998 (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof.
        1.2     Purpose of the Plan.     The purpose of this Plan is to benefit the Company and its subsidiaries and affiliated companies by enabling the Company to offer to certain present and future executives, key personnel and other persons affiliated with the Company stock based incentives and other equity interests in the Company, thereby giving them a stake in the growth and prosperity of the Company and encouraging the continuance of their relationship with the Company or subsidiaries or affiliated companies.
        1.3     Duration of the Plan.     The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to Article 15 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan provisions.
 
 ARTICLE 2
DEFINITIONS
        Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:
        "AWARD" means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or Performance Units.
        "AWARD AGREEMENT" means a writing provided by the Company to each Participant setting forth the terms and provisions applicable to Awards granted under this Plan. The Participant's acceptance of the terms of the Award Agreement shall be evidenced by his or her continued employment without written objection before any exercise or payment of the Award. If the Participant objects in writing, the grant of the Award shall be revoked.
        "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
        "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the Company.
        "CAUSE" shall mean, with respect to termination of a Participant's employment, consulting arrangement or other affiliation, the occurrence of any one or more of the following, as determined by the Committee, in the exercise of good faith and reasonable judgment:
        (i) In the case where there is no employment, change in control or similar agreement in effect between the Participant and the Company or a Subsidiary at the time of the grant of the Award, or where there is such an agreement but the agreement does not define "cause" (or similar words) or a
1

"cause" termination would not be permitted under such agreement at that time because other conditions were not satisfied, the termination of an employment or consulting arrangement is due to the willful and continued failure or refusal by the Participant to substantially perform assigned duties (other than any such failure resulting from the Participant's Disability), the Participant's dishonesty or theft, the Participant's violation of any obligations or duties under any employee agreement, or the Participant's gross negligence or willful misconduct; or
        (ii) In the case where there is an employment, change in control or similar agreement in effect between the Participant and the Company or a Subsidiary at the time of the grant of the Award that defines "cause" (or similar words) and a "cause" termination would be permitted under such agreement at that time, the termination of an employment or consulting arrangement is or would be deemed to be for "cause" (or similar words) as defined in such agreement.
        No act or failure to act on a Participant's part shall be considered willful unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company.
        "CHANGE OF CONTROL" of the Company shall mean:
        (a) the Company is merged or consolidated or reorganized into or with another corporation or other legal person (an "Acquiror") and as a result of such merger, consolidation or reorganization less than 50% of the outstanding voting securities or other capital interests of the surviving, resulting or acquiring corporation or other legal person are owned in the aggregate by the stockholders of the Company, directly or indirectly, immediately prior to such merger, consolidation or reorganization, other than by the Acquiror or any corporation or other legal person controlling, controlled by or under common control with the Acquiror;
        (b) The Company sells all or substantially all of its business and/or assets to an Acquiror, of which less than 50% of the outstanding voting securities or other capital interests are owned in the aggregate by the stockholders of the Company, directly or indirectly, immediately prior to such sale, other than by any corporation or other legal person controlling, controlled by or under common control with the Acquiror;
        (c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any person or group (as the terms "person" and "group" are used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act and the rules and regulations promulgated thereunder) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 50% or more of the issued and outstanding shares of voting securities of the Company; or
        (d) During any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director of the Company was approved by a vote of at least two-thirds of such directors of the Company then still in office who were directors of the Company at the beginning of any such period.
        "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation thereto.
        "COMMITTEE" means the Committee as specified in Article 3 herein appointed by the Board to administer the Plan with respect to grants of Awards.
        "COMMON STOCK" means the common stock of the Company.
2

        "COMPANY" means LKQ Corporation, a Delaware corporation, as well as any successor to such entity as provided in Article 17 herein.
        "DIRECTOR" means any individual who is a member of the Board of Directors of the Company.
        "DISABILITY" shall have the meaning ascribed to such term in the Participant's governing long-term disability plan. If no long term disability plan is in place with respect to a Participant, then with respect to that Participant, Disability shall mean: for the first 24 months of disability, that the Participant is unable to perform his or her job; thereafter, that the Participant is unable to perform any and every duty of any gainful occupation for which the Participant is reasonably suited by training, education or experience.
        "EFFECTIVE DATE" shall have the meaning ascribed to such term in Section 1.1 hereof.
        "EMPLOYEE" means any employee of the Company or any Subsidiary.
        "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
        "FAIR MARKET VALUE" means (a) if the Common Stock is not listed or traded on a stock exchange or market, the value of the Common Stock determined in good faith by the Committee; or (b) if the Common Stock is listed or traded on a stock exchange or market, (i) for purposes of setting any Option Price, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, or unless the Committee otherwise determines, means as of the date of the Award, the average of the closing sales prices of the Common Stock on the applicable stock exchange or market (as reported in THE WALL STREET JOURNAL, Midwest Edition) on each of the five trading dates immediately preceding such date; and (ii) for purposes of the valuation of any Shares delivered in payment of the Option Price upon the exercise of an Option, for purposes of the valuation of any Shares withheld in payment of the Option Price or to pay taxes due on an Award, or for purposes of the exercise of any SAR or conversion of a Performance Unit, means the average of the high and low sales prices of the Common Stock on the applicable stock exchange or market (as reported in THE WALL STREET JOURNAL, Midwest Edition) on the date of exercise (or if the date of exercise is not a trading day, on the trading day next preceding the date of exercise).
        "FREESTANDING SAR" means a stock appreciation right that is granted independently of any Options, as described in Article 7 herein.
        "GOOD REASON" shall mean, with respect to the termination of a Participant's employment or consulting arrangement,
        (i) in the case where there is no employment, change in control or similar agreement in effect between the Participant and the Company or a Subsidiary at the time of the grant of the Award, or where there is such an agreement but the agreement does not define "good reason" (or similar words) or a "good reason" termination would not be permitted under such agreement at that time because other conditions were not satisfied, a voluntary termination of an employment or consulting arrangement due to "good reason" as the Committee, in its sole discretion, decides to treat as a "Good Reason" termination; or
        (ii) in the case where there is an employment, change in control or similar agreement in effect between the Participant and the Company or a Subsidiary at the time of the grant of the Award that defines "good reason" (or similar words) and a "good reason" termination would be permitted under such agreement at that time, the termination of an employment or consulting arrangement is or would be deemed to be for "good reason" (or similar words) as defined in such agreement.
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        "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares granted under Article 6 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Section 422 of the Code.
        "INSIDER" shall mean an individual who is, on the relevant date, an officer, director or more than ten percent (10%) beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.
        "NAMED EXECUTIVE OFFICER" means a Participant who is one of the group of covered employees as defined in the regulations promulgated under Section 162(m) of the Code, or any successor statute.
        "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Section 422 of the Code.
        "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.
        "OPTION PRICE" means the price at which a Share may be purchased by a Participant pursuant to an Option.
        "PARTICIPANT" means a Person who or which has outstanding an Award granted under the Plan.
        "PERFORMANCE-BASED EXCEPTION" means the exception for performance-based compensation from the tax deductibility limitations of Section 162(m) of the Code.
        "PERFORMANCE PERIOD" means the time period during which performance goals must be achieved with respect to an Award, as determined by the Committee.
        "PERFORMANCE SHARE" means an Award granted to a Participant, as described in Article 9 herein.
        "PERFORMANCE UNIT" means an Award granted to a Participant, as described in Article 9 herein.
        "PERIOD OF RESTRICTION" means the period during which the transfer of Shares of Restricted Stock is limited in some way, and the Shares are subject to a substantial risk of forfeiture, as provided in Article 8 herein. Except as provided in Aritcle 8 herein, the Period of Restriction shall be a minimum of one year for Awards that include a performance-based condition or restriction and a minimum of three years for Awards that do not include a performance-based condition or restriction.
        "PERSON" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Section 13(d) and 14(d) thereof, including a group as defined in Section 13(d) thereof.
        "RESTRICTED STOCK" means an Award granted to a Participant pursuant to Article 8 herein.
        "RETIREMENT" means the Participant's termination of employment with the Company or its Subsidiaries under circumstances which the Committee determines, in its sole discretion, that qualify as a Retirement termination from the Company.
        "SHARES" means shares of Common Stock of the Company.
        "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone or in connection with a related Option, designated as an SAR, pursuant to the terms of Article 7 herein.
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        "SUBSIDIARY" means any corporation, partnership, joint venture, affiliate, or other entity in which the Company is the direct or indirect beneficial owner of not less than 20% of all issued and outstanding equity interests.
        "TANDEM SAR" means an SAR that is granted in connection with a related Option pursuant to Article 7 herein, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be forfeited).
 
 ARTICLE 3
ADMINISTRATION
        3.1     The Committee.     The Plan shall be administered by the Committee appointed by the Board. If and to the extent that no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board.
        3.2     Authority of the Committee.     Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Persons who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan, establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 15 herein) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate the authority granted to it herein.
        3.3     Decisions Binding.     All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all Persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries.
 
 ARTICLE 4
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
        4.1     Shares Available for Awards.     The aggregate number of Shares which may be issued for or used for reference purposes under this Plan or with respect to which Awards may be granted shall not exceed 7,000,000 Shares (subject to adjustment as provided in Section 4.3), which may be either authorized and unissued Shares or Shares held in or acquired for the treasury of the Company. Upon (a) a payout of a Freestanding SAR, Tandem SAR, or Restricted Stock award in the form of cash; (b) a cancellation, termination, expiration, forfeiture, or lapse for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Options, or the termination of a related Option upon exercise of the corresponding Tandem SAR) of any Award; or (c) payment of an Option Price and/or payment of any taxes arising upon exercise of an Option or payout of any Award with previously acquired Shares or by withholding Shares which otherwise would be acquired on exercise or issued upon such payout, then the number of Shares underlying any such Award which were not issued as a result of any of the foregoing actions shall again be available for the purposes of Awards under the Plan.
        4.2     Individual Participant Limitations.     Unless and until the Committee determines that an Award to a Named Executive Officer shall not be designed to comply with the Performance-Based Exception, the following rules shall apply to grants of such Awards under the Plan:
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        (a) Subject to adjustment as provided in Section 4.3 herein, the maximum aggregate number of Shares (including Options, SARs, Restricted Stock, Performance Units and Performance Shares to be paid out in Shares) that may be granted in any one fiscal year to a Participant shall be 300,000.
        (b) The maximum aggregate cash payout (including Performance Units and Performance Shares paid out in cash) with respect to Awards granted in any one fiscal year which may be made to any Participant shall be $1,000,000.
        4.3     Adjustments in Authorized Shares.     In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of Shares available for Awards, the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan and the number of Shares set forth in Sections 4.1 and 4.2, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number.
 
 ARTICLE 5
ELIGIBILITY AND PARTICIPATION
        5.1     Eligibility.     Persons eligible to participate in this Plan include all officers and other employees of the Company and its Subsidiaries, and other Persons affiliated with the Company and its Subsidiaries, as determined by the Committee, including Employees who are members of the Board and Employees who reside in countries other than the United States of America.
        5.2     Actual Participation.     Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Persons, those to whom Awards shall be granted and shall determine the nature and amount of each Award.
 
 ARTICLE 6
STOCK OPTIONS
        6.1     Grant of Options.     Subject to the terms and provisions of the Plan, Options may be granted to one or more Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee. The Committee may grant Nonqualified Stock Options or Incentive Stock Options. The Committee shall have complete discretion in determining the number of Options granted to each Participant (subject to Article 4 herein).
        6.2     Award Agreement.     Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement with respect to the Option also shall specify whether the Option is intended to be an ISO within the meaning of Section 422 of the Code, or an NQSO whose grant is intended not to fall under the provisions of Section 422 of the Code.
        6.3     Option Price.     The Committee shall designate the Option Price for each grant of an Option under this Plan which Option Price shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted, and which Option Price may not be subsequently changed by the Committee except pursuant to Section 4.3 hereof or to the extent provided in the Award Agreement.
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        6.4     Duration of Options.     Each Option granted to an Employee shall expire at such time as the Committee shall determine at the time of grant; provided, however, that unless otherwise designated by the Committee at the time of grant, no Option shall be exercisable later than the tenth (10th) anniversary date of its grant.
        6.5     Exercise of Options.     Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
        6.6     Payment.     Options granted under this Article 6 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either:
        (a) in cash or its equivalent,
        (b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price,
        (c) by a combination of (a) and (b).
        The Committee also may allow cashless exercises as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).
        In connection with the exercise of Options granted under the Plan, the Company may make loans to the Participants as the Committee, in its discretion, may determine. Such loans shall be subject to the following terms and conditions and such other terms and conditions as the Committee shall determine not inconsistent with the Plan. Such loans shall bear interest at such rates as the Committee shall determine from time to time, which rates may be below then current market rates or may be made without interest. In no event may any such loan exceed the Fair Market Value, at the date of exercise, of the shares covered by the Option, or portion thereof, exercised by the Optionee. No loan shall have an initial term exceeding two years, but any such loan may be renewable at the discretion of the Committee. When a loan shall have been made, Shares having a fair market value at least equal to 150 percent of the principal amount of the loan shall be pledged by the Participant to the Company as security for payment of the unpaid balance of the loan.
        6.7     Restrictions on Share Transferability.     The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.
        6.8     Termination of Relationship.     Each Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment or other relationship with the Company and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination, including, but not limited to, termination of employment for Cause or Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants. Subject to Article 14, in the event that a Participant's
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Option Award Agreement does not set forth such termination provisions, the following termination provisions shall apply:
        (a) In the event a Participant's employment, consulting arrangement or other affiliation with the Company and/or its Subsidiaries is terminated for any reason other than death, Disability or Retirement, all Options held by the Participant shall expire and all rights to purchase Shares thereunder shall termination immediately; provided, however, that notwithstanding the foregoing, all Options to which the Participant has a vested right immediately prior to such termination shall be exercisable for the lesser of (i) 30 days following the date of termination or (ii) the expiration date of the Option, unless the termination was for Cause.
        (b) In the event a Participant's employment, consulting arrangement or other affiliation with the Company and/or its Subsidiaries is terminated due to death or Disability, all Options shall immediately become fully vested on the date of termination.
        (c) Subject to Article 14, in the event of termination of a Participant's employment, consulting arrangement or other affiliation due to death or Disability, all Options in which the Participant has a vested right upon termination shall be exercisable until the expiration date of the Option.
        (d) Subject to Article 14, in the event of termination of a Participant's employment, consulting arrangement or other affiliation due to Retirement, all Options in which the Participant has a vested right upon termination shall be exercisable for the lesser of (i) three years following the date of termination or (ii) the expiration date of the Option.
6.9 Nontransferability of Options.
        (a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.
        (b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a Participant's Award Agreement, no NQSO granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all NQSOs granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant.
 
 ARTICLE 7
STOCK APPRECIATION RIGHTS
        7.1     Grant of SARs.     Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SARs. The Committee shall have complete discretion in determining the number of SARs granted to each Participant (subject to Article 4 herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs. The Committee shall designate, at the time of grant, the grant price of Freestanding SARs which grant price shall at least equal the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option. Grant prices of SARs shall not subsequently be changed by the Committee except pursuant to Section 4.3 hereof.
        7.2     Exercise of Tandem SARs.     Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related
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Option is then exercisable. Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO.
        7.3     Exercise of Freestanding SARs.     Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them.
        7.4     SAR Agreement.     Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine.
        7.5     Term of SARs.     The term of an SAR granted under the plan shall be determined by the Committee, in its sole discretion; provided, however, that unless otherwise designated by the Committee, such term shall not exceed ten (10) years.
        7.6     Payment of SAR Amount.     Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
        (a) The excess of the Fair Market Value of a Share on the date of exercise over the grant price; by
        (b) The number of Shares with respect to which the SAR is exercised.
        At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.
        7.7     Termination of Relationship.     Each SAR Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant's employment or other relationship with the Company and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination, including, but not limited to, termination of employment for Cause or Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants. Subject to Article 14, in the event that a Participant's SAR Award Agreement does not set forth such termination provisions, the following termination provisions shall apply:
        (a) In the event a Participant's employment, consulting arrangement or other affiliation with the Company and/or its Subsidiaries is terminated for any reason other than death, Disability or Retirement, all SARs held by the Participant shall expire and all rights thereunder shall terminate immediately; provided, however, that notwithstanding the foregoing, all SARs to which the Participant has a vested right immediately prior to such termination shall be exercisable for the lesser of (i) 30 days following the date of termination or (ii) the expiration date of the SAR, unless the termination was for Cause.
        (b) In the event a Participant's employment, consulting arrangement or other affiliation with the Company and/or its Subsidiaries is terminated due to death or Disability, all SARs shall immediately become fully vested on the date of termination.
        (c) Subject to Article 14, in the event of termination of a Participant's employment, consulting arrangement or other affiliation due to death or Disability, all SARs in which the Participant has a vested right upon termination shall be exercisable until the expiration date of the SAR.
        (d) Subject to Article 14, in the event of termination of a Participant's employment, consulting arrangement or other affiliation due to Retirement, all SARs in which the Participant has a vested right
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upon termination shall be exercisable for the lesser of (i) three years following the date of termination or (ii) the expiration date of the SAR.
        7.8     Nontransferability of SARs.     Except as otherwise provided in a Participant's Award Agreement, no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.
 
 ARTICLE 8
RESTRICTED STOCK
        8.1     Grant of Restricted Stock.     Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine.
        8.2     Restricted Stock Agreement.     Each Restricted Stock grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine.
        8.3     Transferability.     Except as provided in this Article 8, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily, until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant.
        8.4     Other Restrictions.     Subject to Article 10 herein, the Committee may impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals (Company-wide, Subsidiary-wide, divisional, and/or individual), time-based restrictions on vesting which may or may not be following the attainment of the performance goals, and/or restrictions under applicable federal or state securities laws. The Company shall retain the certificates representing Shares of Restricted Stock in the Company's possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied. Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the applicable Period of Restriction.
        8.5     Voting Rights.     Unless otherwise designated by the Committee at the time of grant, Participants to whom Shares of Restricted Stock have been granted hereunder may exercise full voting rights with respect to those Shares during the Period of Restriction.
        8.6     Dividends and other Distributions.     Unless otherwise designated by the Committee at the time of grant, Participants holding Shares of Restricted Stock granted hereunder shall be credited with regular cash dividends paid with respect to the underlying Shares while they are so held during the Period of Restriction. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Shares of Restricted Stock granted to a Named Executive Officer is designed to comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Shares of Restricted Stock, such that the dividends and/or the Shares of Restricted Stock maintain eligibility for the Performance-Based
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Exception. In the event that any dividend constitutes a derivative security or an equity security pursuant to the rules under Section 16 of the Exchange Act, such dividend shall be subject to a vesting period equal to the remaining vesting period of the Shares of Restricted Stock with respect to which the dividend is paid.
        8.7     Termination of Relationship.     Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested Shares of Restricted Stock following termination of the Participant's employment or other relationship with the Company and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination, including, but not limited to, termination of employment for Cause or Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants; provided, however, that, except in the cases of terminations connected with a Change of Control and terminations by reason of death or Disability, the vesting of Shares of Restricted Stock which qualify for the Performance-Based Exception and which are held by Named Executive Officers shall not occur prior to the time they otherwise would have, but for the employment termination. Subject to Article 14, in the event that a Participant's Restricted Stock Award Agreement does not set forth such termination provisions, the following termination provisions shall apply:
        (a) In the event a Participant's employment, consulting arrangement or other affiliation with the Company and/or its Subsidiaries is terminated for any reason other than death or Disability, all Shares of Restricted Stock which are unvested at the date of termination shall be forfeited to the Company.
        (b) Unless the Award qualifies for the Performance-Based Exception, in the event a Participant's employment, consulting arrangement or other affiliation with the Company and/or its Subsidiaries is terminated due to death or Disability, all Shares of Restricted Stock of such participant shall immediately become fully vested on the date of termination and the restrictions shall lapse.
 
 ARTICLE 9
PERFORMANCE UNITS AND PERFORMANCE SHARES
        9.1     Grant of Performance Units/Shares.     Subject to the terms of the Plan, Performance Units and/or Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
        9.2     Value of Performance Units/Shares.     Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares that will be paid out to the Participant. For purposes of this Article 9, the time period during which the performance goals must be met shall be referred to as a "Performance Period" and the Performance Period shall be a minimum of one year.
        9.3     Earning of Performance Units/Shares.     Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payout on the number and value of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function to the extent to which the corresponding performance goals have been achieved, as established by the Committee.
        9.4     Form and Timing of Payment of Performance Units/Shares.     (a) Except as provided below, payment of earned Performance Units/Shares shall be made in a single lump sum as soon as reasonably practicable following the close of the applicable Performance Period. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Units/Shares in the form of cash or
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in Shares which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period (or in a combination thereof). Such Shares may be granted subject to any restrictions deemed appropriate by the Committee.
        (b) At the time of grant or shortly thereafter, the Committee, at its discretion and in accordance with the terms designated by the Committee, may provide for a voluntary and/or mandatory deferral of all or any part of an otherwise earned Performance Unit/Share Award.
        (c) At the discretion of the Committee, Participants may be entitled to receive any dividends declared with respect to Shares which have been earned but not yet distributed to Participants in connection with grants of Performance Units and/or Performance Shares (such dividends shall be subject to the same accrual, forfeiture, and payout restrictions as apply to dividends earned with respect to Shares of Restricted Stock, as set forth in Section 8.6 herein). In addition, Participants may, at the discretion of the Committee, be entitled to exercise their voting rights with respect to such Shares.
        9.5     Termination of Relationship.     Subject to Article 14, in the event a Participant's employment or other relationship with the Company and/or its Subsidiaries is terminated during a Performance Period for any reason other than death, Disability or Retirement, all Performance Units/Shares shall be forfeited by the Participant to the Company. Subject to Article 14, in the event a Participant's employment, consulting arrangement or other affiliation with the Company and/or its Subsidiaries is terminated during a Performance Period due to death, Disability or Retirement, the Participant shall receive a prorated payout of the Performance Units/Shares, unless the Committee determines otherwise. The prorated payout shall be determined by the Committee, shall be based upon the length of time that the Participant held the Performance Units/Shares during the Performance Period, and shall further be adjusted based on the achievement of the pre-established performance goals. Subject to Article 14, unless the Committee determines otherwise in the event of a termination due to death, Disability or Retirement payment of earned Performance Units/Shares shall be made at the same time as payments are made to Participants who did not terminate employment during the applicable Performance Period.
        9.6     Nontransferability.     Except as otherwise provided in a Participant's Award Agreement, Performance Units/Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by a Participant or the Participant's legal representative.
 
 ARTICLE 10
PERFORMANCE MEASURES
        (a) Unless and until the Committee proposes for stockholder vote and stockholders approve a change in the general performance measures set forth in this Article 10, the attainment of which may determine the degree of payout and/or vesting with respect to Awards to Named Executive Officers which are designed to qualify for the Performance-Based Exception, the performance goals to be used for purposes of such grants shall be established by the Committee in writing and stated in terms of the attainment of specified levels of, or percentage changes in, any one or more of the following measurements: revenue, primary or fully-diluted earnings per Share, pretax income, cash flow from operations, total cash flow, return on equity, return on capital, return on assets, net operating profits after taxes, economic value added, total stockholder return or return on sales, or any individual performance objective which is measured solely in terms of quantitative targets related to the Company or the Company's business, or any combination thereof. In addition, such performance goals may be based in whole or in part upon the performance of the Company, a Subsidiary, division and/or other operational unit, under one or more of such measures.
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        (b) The degree of payout and/or vesting of such Awards designed to qualify for the Performance-Based Exception shall be determined based upon the written certification of the Committee as to the extent to which the performance goals and any other material terms and conditions precedent to such payment and/or vesting have been satisfied. The Committee shall have the discretion to adjust the determinations of the degree of attainment of the pre-established performance goals; provided, however, that the performance goals applicable to Awards which are designed to qualify for the Performance-Based Exception, and which are held by Named Executive Officers, may not be adjusted so as to increase the payment under the Award (the Committee shall retain the discretion to adjust such performance goals upward, or to otherwise reduce the amount of the payment and/or vesting of the Award relative to the pre-established performance goals).
        (c) In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards which shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code and, thus, which use performance measures other than those specified above.
 
 ARTICLE 11
BENEFICIARY DESIGNATION
        Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate.
 
 ARTICLE 12
DEFERRALS
        The Committee may permit a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant upon the exercise of any Option or by virtue of the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.
 
 ARTICLE 13
RIGHTS OF EMPLOYEES, CONSULTANTS AND OTHERS
        13.1     Employment, Consulting or other Arrangements.     Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment, consulting arrangement or other affiliation at any time, nor confer upon any Participant any right to continue in the employ of or consulting arrangement or other affiliation with the Company or any Subsidiary. For purposes of this Plan, temporary absence from employment because of illness, vacation, approved leaves of absence, and transfers of employment among the Company and its Subsidiaries, shall not be considered to terminate employment or to interrupt continuous employment. Temporary cessation of the provision of consulting or other services because of illness, vacation or any other reason approved in advance by the Company shall not be considered a termination of the consulting or other
13

arrangement or an interruption of the continuity thereof. Conversion of a Participant's employment relationship to a consulting or other arrangement shall not result in termination of previously granted Awards.
        13.2     Participation.     No Employee, consultant or other affiliated Person shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
 
 ARTICLE 14
CHANGE OF CONTROL
        Upon the occurrence of a Change of Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:
        (a) Any and all Options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term;
        (b) Any Period of Restriction and other restrictions imposed on Restricted Shares shall lapse; and
        (c) Unless otherwise specified in a Participant's Award Agreement at time of grant, the maximum payout opportunities attainable under all outstanding Awards of Performance Units and Performance Shares shall be deemed to have been fully earned for the entire Performance Period(s) as of the effective date of the Change of Control. The vesting of all such Awards shall be accelerated as of the effective date of the Change of Control, and in full settlement of such Awards, there shall be paid out in cash to Participants within thirty (30) days following the effective date of the Change of Control the maximum of payout opportunities associated with such outstanding Awards.
 
 ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
        15.1     Amendment, Modification and Termination.     The Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part, subject to any requirement of stockholder approval imposed by applicable law, rule or regulation. The Board may not, without shareholder approval, (i) materially increase the benefits accruing to Participants, (ii) materially increase the number of securities which may be issued under the Plan, or (iii) materially modify the requirements for participation in the Plan.
        15.2     Awards Previously Granted.     No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.
 
 ARTICLE 16
WITHHOLDING
        16.1     Tax Withholding.     The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.
        16.2     Share Withholding.     With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares
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having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which would be imposed on the transaction. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
 
 ARTICLE 17
SUCCESSORS
        All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect merger, consolidation, purchase of all or substantially all of the business and/or assets of the Company or otherwise.
 
 ARTICLE 18
LEGAL CONSTRUCTION
        18.1     Gender and Number.     Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular and the singular shall include the plural.
        18.2     Severability.     In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if as if the illegal or invalid provision had not been included.
        18.3     Requirements of Law.     The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
        18.4     Securities Law Compliance.     With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.
        18.5     Governing Law.     To the extent not pre-empted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.
        *    *    *
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QuickLinks
EXHIBIT 10.9
ARTICLE 2 DEFINITIONS
ARTICLE 3 ADMINISTRATION
ARTICLE 4 SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
ARTICLE 5 ELIGIBILITY AND PARTICIPATION
ARTICLE 6 STOCK OPTIONS
ARTICLE 7 STOCK APPRECIATION RIGHTS
ARTICLE 8 RESTRICTED STOCK
ARTICLE 9 PERFORMANCE UNITS AND PERFORMANCE SHARES
ARTICLE 10 PERFORMANCE MEASURES
ARTICLE 11 BENEFICIARY DESIGNATION
ARTICLE 12 DEFERRALS
ARTICLE 13 RIGHTS OF EMPLOYEES, CONSULTANTS AND OTHERS
ARTICLE 14 CHANGE OF CONTROL
ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION
ARTICLE 16 WITHHOLDING
ARTICLE 17 SUCCESSORS
ARTICLE 18 LEGAL CONSTRUCTION
 
QuickLinks -- Click here to rapidly navigate through this document 
 
 Exhibit 10.28
INDUSTRIAL BUILDING LEASE
BETWEEN
Steven Jones,
Landlord
and
Recyclers Group, Inc.,
Tenant
DATE OF LEASE : February 28, 1999
Premises:
5725 South Topeka
Topeka, Kansas

 TABLE OF CONTENTS

 	 	 	 	Page
	
ARTICLE I	 	GRANT AND TERM	 	1	
ARTICLE II	 	RENT	 	1	
ARTICLE III	 	USE	 	2	
ARTICLE IV	 	POSSESSION	 	2	
ARTICLE V	 	TAXES	 	2	
ARTICLE VI	 	INSURANCE	 	4	
ARTICLE VII	 	UTILITIES	 	4	
ARTICLE VIII	 	MAINTENANCE AND ALTERATIONS	 	5	
ARTICLE IX	 	COMPLIANCE WITH LAWS AND ORDINANCES	 	5	
ARTICLE X	 	MECHANIC'S LIENS	 	6	
ARTICLE XI	 	OPTIONS TO EXTEND	 	6	
ARTICLE XII	 	DEFAULTS OF TENANT	 	7	
ARTICLE XIII	 	DESTRUCTION AND RESTORATION	 	9	
ARTICLE XIV	 	CONDEMNATION	 	10	
ARTICLE XV	 	ASSIGNMENT AND SUBLETTING	 	11	
ARTICLE XVI	 	SUBORDINATION, NONDISTURBANCE AND ATTORNMENT	 	11	
ARTICLE XVII	 	SIGNS	 	12	
ARTICLE XVIII	 	LANDLORD'S ACCESS	 	12	
ARTICLE XIX	 	SURRENDER AND HOLDING-OVER	 	13	
ARTICLE XX	 	HAZARDOUS AND TOXIC MATERIALS	 	14	
ARTICLE XXI	 	RIGHT OF FIRST REFUSAL	 	16	
ARTICLE XXII	 	MISCELLANEOUS PROVISIONS	 	17	
ARTICLE XXIII	 	LANDLORD'S REPRESENTATIONS AND WARRANTIES	 	21	
ARTICLE XXIV	 	LANDLORD DEFAULT	 	23	
ARTICLE XXV	 	OPTION TO PURCHASE	 	23	
ARTICLE XXVI	 	FAIRMARKET VALUE	 	24	
EXHIBITS	 	 	 	 	
EXHIBIT A —	 	Legal Description	 	 	
EXHIBIT B —	 	Purchase Agreement	 	 	
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LEASE
         THIS LEASE (this "Lease") is made as of the 28 th day of February, 1999, by and between Steven Jones ("Landlord"), and Recyclers Group, Inc., a Kansas corporation ("Tenant").
ARTICLE I

 GRANT AND TERM
        1.1   Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, that certain approximately seven (7) acre parcel of real estate (the "Land") located at 5725 South Topeka, Topeka, Kansas, as legally described on Exhibit A attached hereto and by this reference made a part hereof, together with all improvements located thereon (the "Improvements"), and all appurtenances belonging to or in any way pertaining to such premises (the Land, Improvements and appurtenances hereinafter collectively referred to as the "Premises").
        1.2   The term hereof (the "Term") shall commence on February 28, 1999 (the "Commencement Date"), and shall terminate on the last day of the eighty-fourth (84th>) complete calendar month to occur after the Commencement Date (the "Expiration Date") (unless the Term shall be terminated or extended in accordance herewith).
ARTICLE II

 RENT
        2.1   Annual rent ("Rent") throughout the first seven (7) years of the Term shall be Ninety Five Thousand and 00/100 Dollars ($95,000.00). On the seventh anniversary of either (i) the Commencement Date, if the same falls on the first day of a month, or (ii) the first day of the month immediately following the Commencement Date, if the same falls on other than the first day of a month, and on each succeeding fifth anniversary of such date during the Term, including any Extension Period(s), Rent shall increase by a percentage equal to the lesser of (x) the product of Two and One-Half Percent (2.5%) multiplied by the number of years since the last Rent increase, or, at the first Rent adjustment date, since the Commencement Date, or (y) the cumulative percentage increase in the Consumer Price Index since the last Rent increase, or, at the first Rent adjustment date, since the Commencement Date, as calculated using the Consumer Price Index for the month of January in the relevant year. As used herein, "Consumer Price Index" means the Consumer Price Index, for all Urban Consumers—Kansas City, All Items (based index year 1982-84 = 100), as published by the United States Department of Labor, Bureau of Labor Statistics. If the manner in which the Consumer Price Index is determined by the Bureau of Labor Statistics shall be substantially revised, including without limitation, a change in the base index year, an adjustment shall be made by Landlord in such revised index which would produce results equivalent, as nearly as possible, to those which would have been obtained if the Consumer Price Index had not been so revised. If the Consumer Price Index shall become unavailable to the public because publication is discontinued, or otherwise, or if equivalent data is not readily available to enable Landlord to make the adjustment referred to in the preceding sentence, then Landlord will substitute therefor a comparable index based upon changes in the cost of living or purchasing power of the consumer dollar published by any other governmental agency or, if no such index shall be available, then a comparable index published by a major bank or other financial institution or by a university or a recognized financial publication.
        2.2   Tenant shall pay Rent in equal monthly installments ("Monthly Rent") in advance on the first day of each and every calendar month during the Term. Monthly Rent for the first seven (7) years of the Term shall equal Seven Thousand Nine Hundred Sixteen and 67/100 Dollars ($7,916.67)
        2.3   Rent shall be paid to or upon the order of Landlord at Landlord's address set forth herein or as otherwise designated in writing by Landlord. Landlord may change its address by notice to Tenant of such change pursuant to Section 22.2 hereof.

        2.4   Rent not paid within fifteen (15) days after the same is due shall bear interest from the date when due and payable under the terms hereof until the same is paid at an annual rate of interest equal to ten percent (10%), unless a lesser rate shall then be the maximum rate permissible by law, in which event said lesser rate shall be charged. The rate of interest determined pursuant to the preceding sentence is sometimes hereinafter referred to as the "Maximum Rate of Interest."
        2.5   If the Commencement Date occurs on other than the first day of the month, or the Term shall end other than on the last day of the month, Tenant shall pay proportionate Rent at the monthly rate set forth herein (in advance) for such partial month, as well as any other charges payable for such partial month.
ARTICLE III

 USE
        The Premises may be used and occupied for any lawful purpose. Tenant shall not use or permit the Premises to be used for any unlawful purpose.
ARTICLE IV

 POSSESSION
        Except as otherwise expressly provided herein, Landlord shall deliver exclusive possession of the Premises to Tenant on or before the Commencement Date.
ARTICLE V

 TAXES
        5.1   "Taxes" shall mean real estate taxes, sewer rents, rates and charges, and any other federal, state or local governmental charge, general, special, ordinary or extraordinary (but not including special or general assessments, which Landlord and Tenant agree to split equally, and income or franchise taxes or any other taxes imposed upon or measured by Landlord's income or profits, except as provided herein), which may now or hereafter be levied or imposed against the Premises or any portion thereof or interest therein. Notwithstanding the year for which any such Taxes are levied, in the case of special taxes which may be payable in installments, the amount of each installment, plus any interest payable thereon, payable during any year shall be considered Taxes assessed and levied for that year. Except as provided in the preceding sentence, all references to Taxes levied, confirmed or imposed during a particular year or Taxes "for" a particular year shall be deemed to refer to Taxes levied or otherwise imposed during such year without regard to when such Taxes are payable; provided, however, that in no event shall such Taxes be charged to or against Tenant or its successors or assigns, more than once. Landlord represents and warrants that it has received no written notice of special assessments affecting the Premises as of the date hereof.
        5.2   Tenant shall pay, before any fine, penalty, interest or cost is incurred, all Taxes which are levied, confirmed, imposed or which become a lien upon the Premises with respect to any period of time within the Term; provided, however, that as to any calendar year not falling entirely within the Term, Tenant shall be obligated to pay only a prorata share of Taxes based upon the number of days of the Term falling within the calendar year. Within ten (10) days after receipt of a copy of a tax bill, Landlord shall forward same to Tenant. Tenant shall not be liable for any costs, penalties or other expenses due to Landlord's failure to provide copies of such tax bills in a timely manner.
        5.3   Tenant shall have the right to contest at its own expense the amount or validity, in whole or in part, of any Taxes by appropriate proceedings diligently conducted in good faith, but only after payment of such Taxes, unless such payment, or a payment thereof under protest, would operate as a bar to such contest or interfere materially with the prosecution thereof, in which event, notwithstanding the
2

provisions of Section 5.2 hereof, Tenant may postpone or defer payment of such Taxes if neither the Premises nor any portion thereof, by reason of such postponement or deferment, would be in danger of being forfeited or lost. Tenant also shall have the right to select the counsel to be retained in connection with the prosecution of any such proceedings. Upon the termination of any such proceedings, Tenant shall pay the amount of such Taxes or part thereof, if any, as finally determined in such proceedings, the payment of which may have been deferred during the prosecution of such proceedings, together with any costs, fees, including attorneys' fees, interest, penalties, fines and other liability in connection therewith. Tenant shall be entitled to the refund of any Taxes, penalty, fine and interest thereon received by Landlord which have been paid by Tenant or which have been paid by Landlord but for which Landlord previously has been reimbursed in full by Tenant. Landlord shall not be required to join in any proceedings referred to in this Section 5.3 unless the provisions of any law, rule or regulation at the time in effect shall require that such proceedings be brought by or in the name of Landlord, in which event Landlord shall join in such proceedings or permit the same to be brought in Landlord's name.
        5.4   Tenant covenants to furnish to Landlord, upon request by Landlord therefor, official receipts of the appropriate taxing authority, or other appropriate proof reasonably satisfactory to Landlord, evidencing the payment of the same.
ARTICLE VI

 INSURANCE
        6.1   Tenant shall procure and maintain policies of insurance, at its own cost and expense, in character and amounts substantially similar to that insurance carried on the Premises by Landlord prior to the date of this Lease, and shall maintain such policies throughout the Term, and any Extension Period(s), in a commensurate ratio of insurance to replacement cost; provided, however, that if the same becomes unreasonably expensive or impracticable to maintain, Tenant shall maintain insurance in accordance with industry standards.
        6.2   Notwithstanding anything herein contained to the contrary, and provided the party providing the self-insurance has a consolidated net worth (computed to include the net worth of any subsidiaries and affiliates) equal to or exceeding $100 million, Tenant shall have the right to self-insure against any and all risks.
        6.3   Notwithstanding any other provision of this Lease to the contrary, and without limitation of the provisions of this Article VI, whenever (a) any loss, cost, damage or expense resulting from fire, explosion or any other casualty or occurrence is incurred by either of the parties hereto, or anyone claiming by, through, or under it in connection with the Premises, and (b) such party then is covered in whole or in part by insurance with respect to such loss, cost, damage or expense or is required under this Lease to be so insured, then the party so insured (or so required) hereby waives any claims against and releases the other party from any liability said other party may have on account of such loss, cost, damage or expense to the extent of any amount recovered by reason of such insurance (or which could have been recovered had such insurance been carried as so required). The parties agree to furnish to each insurance company which has or will issue policies of casualty insurance on the Improvements, written notice of said waivers and to have the insurance policies properly endorsed, if necessary, to acknowledge such subrogation waivers. Such release of liability and waiver of the right of subrogation shall not be operative in any case where the effect thereof is to invalidate such insurance coverage or increase the cost thereof (except that in the case of increased cost, the other party shall have the right, within thirty (30) days following written notice, to pay such increased cost, thereby keeping such release and waiver in full force and effect).
        6.4   Tenant shall, within 30 days of the Commencement Date, provide Landlord with a certificate of insurance demonstrating that Tenant has obtained the required insurance. Thereafter, upon
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Landlord's written request, Tenant shall provide Landlord with a certificate of insurance evidencing the renewal and continued maintenance of such insurance.
ARTICLE VII

 UTILITIES
        Tenant will pay, when due, all charges of every nature, kind or description for utilities consumed by Tenant at the Premises, including all charges for water, sewage, heat, gas, light, garbage, electricity, telephone, steam, power or other public or private utility services.
ARTICLE VIII

 MAINTENANCE AND ALTERATIONS
        8.1   Tenant shall keep and maintain the exterior and interior of the Premises in good condition and repair. As used herein, each and every obligation of Tenant to keep, maintain and repair shall include, without limitation, all ordinary nonstructural repairs and replacements. To the extent possible, Tenant shall keep the Premises from falling temporarily out of repair or deteriorating. Further, Tenant shall keep and maintain the improvements at any time situated upon the Premises, the parking area and all sidewalks and areas adjacent thereto, safe, secure, clean and sanitary (including, without limitation, snow and ice clearance, planting and replacing flowers and landscaping, and necessary interior painting and carpet cleaning), and in substantial compliance with all zoning, municipal, county and state laws, ordinances and regulations applicable to the Premises. Landlord represents and warrants that the Premises are as of the date of this Lease, in compliance with all applicable zoning, municipal, county and state laws, ordinances and regulations.
        8.2   Tenant shall make all repairs, alterations, additions and improvements (hereinafter, "Alterations") on the Premises, and on and to the Improvements, parking areas, sidewalks, and equipment thereon, which may be made necessary by the act or neglect of Tenant, its employees, agents or contractors, or any persons, firm or corporation, claiming by, through or under Tenant or which are necessary or desirable in Tenant's sole opinion for the safer or more efficient operation of Tenant's business. All Alterations performed by Tenant shall be performed with new materials in a good and workmanlike manner.
        8.3   Notwithstanding anything to the contrary contained in the foregoing, Landlord shall maintain and repair the Premises' structure, foundation and roof, and plumbing, electrical, heating, ventilating, air conditioning and other mechanical systems (the "Systems") in accordance with all Federal, state and local requirements and shall make all necessary maintenance and structural repairs to the Premises and Systems, which under generally accepted accounting principles are properly classified as capital expenses. Tenant shall be responsible, at its sole cost and expense, for routine maintenance of the Systems.
ARTICLE IX

 COMPLIANCE WITH LAWS AND ORDINANCES
        9.1   Except with respect to matters arising prior to Tenant's occupancy of the Premises, and except as expressly provided elsewhere in this Lease, including without limitation Section 20.3, at its sole cost and expense throughout the Term, Tenant shall comply or cause compliance in all material respects with or remove or cure any material violation of any and all present and future laws, ordinances, orders, rules, regulations and requirements of all federal, state, municipal and other governmental bodies having jurisdiction over the Premises and relating solely to Tenant's use of the Premises. Notwithstanding the foregoing, Landlord shall be responsible to cause the Premises to comply with the Americans with Disabilities Act.
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        9.2   After prior written notice to Landlord, Tenant, at its sole cost and expense, shall have the right to contest the validity or application of any law or ordinance referred to in this Article IX in the name of Tenant or Landlord, or both, by appropriate legal proceedings diligently conducted. If necessary or proper to permit Tenant to so contest the validity or application of any such law or ordinance, Landlord shall execute and deliver any appropriate papers or other documents.
ARTICLE X

 MECHANIC'S LIENS
        Tenant shall not suffer or permit any mechanic's lien or other lien to be filed against the Premises, or any portion thereof, by reason of work, labor, skill, services, equipment or materials supplied or claimed to have been supplied to the Premises at the request of Tenant, or of anyone holding the Premises, or any portion thereof, by through or under Tenant. If any such mechanic's lien or other lien at any time shall be filed against the Premises or any portion thereof, Tenant, within thirty (30) days after the date Tenant first becomes aware of the filing of the same, at Tenant's election, shall cause said lien either to be discharged of record or to be bonded over in a manner which is reasonably acceptable to Landlord. If Tenant shall fail to discharge such mechanic's lien or liens or other lien or to bond over the same within such period, then Landlord may, but shall not be obligated to, discharge the same by paying to the claimant the amount claimed to be due or by procuring the discharge of such lien as to the Premises by deposit of a cash sum or a bond or other security, or in such other manner as is now or may in the future be provided by present or future law for the discharge of such lien as a lien against the Premises. Any amount paid by Landlord, or the value of any deposit so made by Landlord, together with all costs, fees and expenses in connection therewith (including reasonable attorneys' fees), together with interest thereon at the Maximum Rate of Interest, shall be repaid by Tenant to Landlord within thirty (30) days after demand therefor. Tenant shall indemnify, defend and hold harmless Landlord and the Premises from all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorneys' fees, resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanic's lien or other lien.
ARTICLE XI

 OPTIONS TO EXTEND
        11.1 Subject to the provisions hereinafter set forth in this Article XI, Landlord hereby grants Tenant options to extend the Term on the same terms, conditions and provisions as contained in this Lease, except as otherwise expressly provided herein, for three (3) periods of five (5) years each (collectively the "Extension Periods," or individually an "Extension Period," as applicable). If exercised in accordance herewith, the first Extension Period shall commence on the first (1st) day after the Expiration Date and each successive Extension Period shall commence on the day after the expiration of the immediately preceding Extension Period.
        11.2 Said options to extend each shall be exercisable in the following manner:
        (a)   Not less than sixty (60) days prior to the Expiration Date or the last day of the applicable Extension Period, Tenant, by written notice to Landlord ("Extension Notice"), may exercise Tenant's option to extend for the next occurring Extension Period; provided, however, that if Tenant shall fail to give such Extension Notice, Tenant's right to exercise such option nevertheless shall continue until thirty (30) days after Landlord shall have given Tenant written notice of Landlord's election to terminate such option to extend, and Tenant may exercise such option at any time until the expiration of said thirty (30) day period by the giving of an Extension Notice, it being the intention of the parties to avoid forfeiture of Tenant's right to extend the Term through inadvertent failure to deliver an Extension Notice within the time limit prescribed. If an option to
5

extend the Term, as the same may have been previously extended, is not extended in the aforesaid manner, the Term and Tenant's rights hereunder and its rights to occupy and possess the Premises shall expire on the Expiration Date, or the last day of the then applicable Extension Period, as the case may be.
        (b)   Subject to Section 11.3 hereof, if Tenant delivers an Extension Notice as aforesaid, the Term shall be extended on the same terms, conditions and provisions as contained herein
        11.3 Rent during the Extension Period(s) shall be determined in accordance with the provisions of Section 2.1.
ARTICLE XII

 DEFAULTS OF TENANT
        12.1 The occurrence of any one or more of the following events shall constitute an "Event of Default":
        (a)   If default shall be made in the due and punctual payment of any Rent or in the payment of any other amount to be paid by Tenant to Landlord, when and as the same shall become due and payable, and such default shall continue for a period of fifteen (15) days after Tenant's receipt of written notice thereof from Landlord; or
        (b)   If default shall be made by Tenant in keeping, observing or performing any of the terms contained in this Lease, other than as referred to in subsection (a) of this Section 12.1, and such default shall continue for a period of thirty (30) days after Tenant's receipt of written notice thereof given by Landlord, or such longer period as is reasonable to cure said default, if said default cannot, with due diligence and in good faith, be cured within said thirty (30) days, provided that Tenant promptly and with due diligence and in good faith fails to commence the cure of the same within the thirty (30) day period and thereafter fails to prosecute the curing of such default with due diligence and in good faith.
        12.2 If an Event of Default occurs, Landlord shall have the rights and remedies hereinafter set forth, which shall be distinct, separate and cumulative.
        (a)   Landlord may terminate this Lease by giving Tenant written notice of its election to do so, in which event the Term shall end and all right, title and interest of Tenant hereunder shall expire on the date stated in such notice;
        (b)   Landlord may terminate Tenant's right to possess the Premises without terminating this Lease by giving written notice to Tenant that Tenant's right of possession shall end on the date stated in such notice, whereupon Tenant's right to possess the Premises or any part thereof shall cease on the date stated in such notice; and
        (c)   Landlord may enforce the provisions of this Lease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, and for the enforcement of any other appropriate legal or equitable remedy, including, without limitation, injunctive relief, and for recovery of all monies due or to become due from Tenant under any of the provisions of this Lease.
        12.3 If Landlord exercises either of the remedies provided for in Sections 12.2(a) and 12.2(b), Tenant shall surrender possession of and vacate the Premises and immediately deliver possession thereof to Landlord, and Landlord may, upon proper process of law, re-enter and take complete and peaceful possession of the Premises.
        12.4 If Landlord terminates Tenant's right to possess the Premises without terminating this Lease, such termination of possession shall not release Tenant, in whole or in part, from Tenant's obligation to
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pay the Rent hereunder for the full Term, as and when the same becomes due and payable, and Landlord shall have the right, from time to time, to recover from Tenant, and Tenant shall remain liable for, all Rent and any other sums due and payable to Landlord during the period from the date of such notice of termination of possession to the stated end of the Term. In any such case, Landlord shall use reasonable efforts to mitigate damages and to re-let the Premises or any part thereof for the account of Tenant for such time (which may be for a term extending beyond the Term) and upon such terms as Landlord reasonably shall determine. Also, in any such case, Tenant shall pay the cost of Landlord's reasonable expenses of re-letting. Landlord shall collect the rents from any such re-letting and apply the same first to the payment of its unreimbursed expenses of re-letting and second to the payment of Rent herein provided to be paid by Tenant, and any excess or residue, until the expiration of the Term, shall operate only as an offsetting credit against the amount of Rent due and owing which thereafter becomes due and payable hereunder, and upon the expiration of the Term, the total aggregate amount of all such excesses which Landlord has then accumulated, if any, shall be paid to Tenant. No such re-entry, repossession or re-letting shall be construed as an eviction or ouster of Tenant or as an election on Landlord's part to terminate this Lease, unless a written notice of such intention is given to Tenant, and Landlord, at any time and from time to time, may sue and seek a judgment for any deficiencies from time to time remaining after the application of the proceeds of any such re-letting. In no event shall Landlord be entitled to collect Rent or other charges from Tenant prior to the date the same is due and payable under the terms of this Lease.
        12.5 If Landlord terminates this Lease pursuant to Section 12.2(a) hereof, Landlord shall be entitled to recover, as and for final damages for Tenant's default, an amount equal to the difference between the present value of the aggregate Rent to be paid by Tenant hereunder for the unexpired portion of the Term, and the then present value of the aggregate reasonable fair market rent for the Premises over the same period. In the computation of present value, a discount rate of six percent (6%) per annum shall be employed.
ARTICLE XIII

 DESTRUCTION AND RESTORATION
        13.1 Tenant covenants and agrees that, subject to the availability of insurance proceeds, in case of damage or destruction of the Improvements after the Commencement Date by fire or otherwise, Tenant shall promptly restore, repair, replace and rebuild the same as nearly as possible to the condition that the same were in immediately prior to such damage or destruction with such changes or alterations (made in conformity with Article VIII hereof) as may be reasonably acceptable to Landlord or required by law. Such restoration, repairs, replacements, rebuilding, changes and alterations, including the cost of temporary repairs for the protection of the Improvements, or any portion thereof, pending completion thereof are sometimes hereinafter referred to as the "Restoration." The Restoration shall be carried on and completed in accordance with the provisions and conditions of this Section and Article VIII hereof. All insurance monies payable on account of such damage or destruction shall be applied to the payment of the costs of the Restoration. Notwithstanding anything to the contrary herein contained, if the insurance monies in the hands of Tenant shall be insufficient to pay the entire costs of the Restoration, Landlord may, but shall not be obligated to, pay any deficiency. If Landlord elects not to pay any such deficiency, Tenant shall have the right to terminate this Lease upon thirty (30) days prior written notice to Landlord. Upon completion of the Restoration, Tenant shall be entitled to any insurance monies then remaining.
        13.2 From and after any destruction of or damage to the Improvements, or any portion thereof, by fire, casualty or otherwise, which, results in the inability of Tenant to conduct its business, in part or in whole, at the Premises, all Rent and all other charges payable by Tenant hereunder shall abate from the date of such suspension of business until the earlier of (a) the date such business is resumed, or (b) the completion of Restoration; and in connection therewith, if the Improvements are damaged in
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part but Tenant elects to continue to conduct its business therein, the Rent shall abate and be diminished in proportion to that part of the Improvements which is rendered unusable.
        13.3 Notwithstanding the foregoing provisions of this Article XIII, in case of damage or destruction of the Improvements which, in Tenant's reasonable judgment cannot be repaired or restored within six (6) months following the date of damage or destruction, Tenant shall have the option of terminating this Lease as of the date of such damage or destruction by notice in writing given to Landlord within thirty (30) days after the occurrence of such damage or destruction. In such event, Landlord shall be entitled to all of the casualty insurance proceeds payable on account of such damage or destruction (excluding any insurance coverage for Tenant's contents, trade fixtures and other personal property), and Tenant shall assign to Landlord, Tenant's rights to such insurance proceeds.
ARTICLE XIV

 CONDEMNATION
        14.1 If, during the Term, the entire Premises shall be taken as the result of the exercise of the power of eminent domain or conveyed under threat thereof (hereinafter referred to as the "Proceedings"), this Lease and all right, title and interest of Tenant hereunder shall terminate on the earlier of taking of possession by the condemning authority or the date of vesting of title pursuant to such Proceedings. Landlord and Tenant each shall be entitled to an allocation of the award to be made in such Proceedings relative to their respective interests in the Premises. For purposes of determining the value of Tenant's interest, it shall be assumed that Tenant would extend the Term for the maximum number of Extension Periods.
        14.2 If, during the Term, less than the entire Premises shall be taken in any such Proceedings, but such taking shall materially effect Tenant's use of the Premises, Tenant may terminate this Lease. Such termination shall be effected by notice in writing given not more than sixty (60) days after the date of vesting of title in such Proceedings, and shall specify a date not more than sixty (60) days after the giving of such notice as the date for such termination. Upon the date specified in such notice, the Term this Lease, and all right, title and interest of Tenant hereunder shall cease and terminate. If this Lease is terminated as provided in this Section 14.2, Landlord and Tenant each shall be entitled to an allocation of the award to be made in such Proceedings relative to their respective interests in the Premises. For purposes of determining the value of Tenant's interest, it shall be assumed that Tenant would extend the Term for the maximum number of Extension Periods.
        14.3 If during the Term, less than the entire Premises shall be taken, but either (i) such taking shall not materially effect Tenant's use of the Premises or (ii) Tenant does not elect to terminate pursuant to Section 14.2, this Lease, upon the earlier of taking of possession by the condemning authority or vesting of title in the Proceedings, shall terminate as to the parts so taken, and the proceeds of the award for such taking shall be delivered to Tenant to the extent necessary to restore that portion of the Improvements on the Premises not so taken to a complete architectural and mechanical unit and otherwise to make the remaining Premises appropriate for the use and occupancy of Tenant. In the event that the net amount of the award (after deduction of all costs and expenses, including attorneys' fees) that may be received in any such Proceedings for physical damage to the Improvements or the Land as a result of such taking is insufficient to pay all costs of such restoration work, Landlord shall deposit with Tenant such additional sum as may be required. The provisions and conditions in Article VIII applicable to changes and alterations shall apply to Tenant's obligations to restore as aforesaid.
        14.4 In the event of any termination of this Lease, or any part thereof, as a result of any such Proceedings, Tenant shall pay to Landlord all Rent and all other charges payable hereunder with respect to that portion of the Premises so taken, apportioned to the date of such termination.
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        14.5 If Tenant either is not entitled, or does not elect, to terminate this Lease in the event of a partial taking of the Premises, the Rent payable hereunder during the period from and after the earlier of the taking of possession by the condemning authority and the date of vesting of title in such Proceedings through to the expiration or termination of this Lease (as the Term may be extended) shall abate and be diminished in proportion to that part of the Improvements and the Land which has been taken.
ARTICLE XV

 ASSIGNMENT AND SUBLETTING
        15.1 Tenant, at any time and from time to time during the Term, upon Landlord's prior written approval, which approval shall not be unreasonably withheld or delayed, may: (a) assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest under it; (b) allow to exist or occur any transfer of or lien upon this Lease or Tenant's interest herein by operation of law; or (c) sublet the Premises or any part thereof; provided, however, that the same shall not relieve Tenant from liability for performance of any covenant or obligation hereunder. Notwithstanding the foregoing, Tenant may assign its rights and interest in this Lease to (i) any party affiliated with Tenant, (ii) any entity resulting from a merger or consolidation of Tenant into or with another entity or (iii) any entity succeeding to the business and assets of Tenant, without Landlord's prior written consent; provided, however, that such assignment shall not relieve Tenant from liability for the performance of any covenant or obligation hereunder, and, provided further, that Tenant shall notify Landlord in writing of such actions.
        15.2 If Tenant shall assign this Lease, the assignee expressly shall assume in writing all of the obligations of Tenant hereunder.
        15.3 Landlord shall have the ability to transfer the Premises and assign its interest in the Lease to an entity affiliated with Landlord, without Tenant's prior consent, provided that Landlord shall give Tenant written notice of any such transfer. The provisions of Article XXI shall not apply to a transfer under this Section 15.3.
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 ARTICLE XVI

 SUBORDINATION, NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT
        16.1 This Lease is and shall be subject and subordinate to the lien of any mortgage, deed of trust, security instrument or other document of like nature, hereinafter referred to as "Mortgage", which now or at any time hereafter may be placed upon the Premises, or any portion thereof or interest therein, and to all present and future ground or underlying leases of the Land, and to any replacements, renewals, amendments, modifications, extensions or refinancing of any of the foregoing, and to each and every advance made under any Mortgage (unless the holder of any Mortgage or the lessor under any such ground or underlying lease [such holder or lessor being hereinafter referred to as a "Mortgagee"] requires in writing that this Lease be superior thereto); provided that the Mortgagee agrees in writing that so long as no Event of Default is continuing, neither Tenant's right to quiet enjoyment under this Lease, nor the right of Tenant to continue to occupy the Premises and all portions thereof, and to conduct its business thereon in accordance with the covenants, conditions, provisions, terms and agreements of this Lease, shall be interfered with or disturbed by Landlord or anyone claiming by, through or under Landlord, including Mortgagee. Tenant agrees at any time hereafter, and from time to time within thirty (30) days after demand of Landlord, to execute and deliver to Landlord any instruments, releases or other documents that reasonably may be required to effect or confirm the subordination or superiority of this Lease to the lien of any such Mortgage or to any such ground or underlying lease. In addition, Landlord shall cause any Mortgagee currently holding a Mortgage, to agree in writing in a manner satisfactory to Tenant not to interfere with or disturb Tenant's rights as aforesaid so long as no Event of Default is continuing said writing to be delivered to Tenant within thirty (30) days of the Commencement Date. The lien of any Mortgage shall not cover Tenant's trade fixtures or other personal property located in or on the Premises.
        16.2 If any Mortgagee shall succeed to the rights of Landlord under this Lease or to ownership of the Premises, whether through foreclosure or the delivery of a deed in lieu thereof, then upon the written request of such Mortgagee, and provided that such Mortgagee agrees in writing to assume and be bound by all of Landlord's obligations hereunder, Tenant shall attorn to and recognize such Mortgagee as Tenant's landlord under this Lease, and shall execute and deliver any instrument that such Mortgagee may reasonably request to evidence such attornment. Subject to the terms of Section 22.7 hereof, in the event of any other transfer of Landlord's interest hereunder, upon the written request of the transferee and Landlord, and provided such transferee agrees in writing to assume and be bound by all of Landlord's obligations hereunder, Tenant shall attorn to and recognize such transferee as Tenant's landlord under this Lease and shall execute and deliver any instrument that such transferee and Landlord reasonably may request to evidence such attornment.
ARTICLE XVII

 SIGNS
        Tenant may erect any signs on the exterior or interior of the Improvements or on the landscaped area adjacent thereto, provided that such sign or signs (i) do not cause any irreparable structural damage or other damage to the Improvements; (ii) do not violate applicable governmental laws, ordinances, rules or regulations; and (iii) do not violate any covenants, conditions or restrictions affecting the Premises.
ARTICLE XVIII

 LANDLORD'S ACCESS
        18.1 Tenant agrees to permit Landlord and its authorized representatives, at Landlord's sole cost and expense, to enter upon the Premises at all reasonable times during ordinary business hours, upon
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not less than two (2) business days prior notice, for the purpose of inspecting the same and making any necessary repairs or replacements which are the obligation of Landlord. Landlord may, during the progress of any work required hereunder, keep and store upon the Premises all reasonably necessary materials, tools and equipment.
        18.2 Landlord is hereby also given the right at all reasonable times during ordinary business hours, upon not less than two (2) business days prior notice, to enter upon the Premises and to exhibit the same for the purpose of mortgaging or selling the same or, during the final four (4) months of the Term, leasing the same.
        18.3 In exercising its rights hereunder, Landlord shall refrain from any acts which may interfere with Tenant's use or occupancy of the Premises or access thereto. Without limiting the generality of the foregoing, Landlord acknowledges that it is necessary for Tenant to control access to the Premises in order to avoid unauthorized persons from viewing Tenant's trade secrets, proprietary products, technology and/or processes. Accordingly, while within the Premises, Landlord and its representatives, at Tenant's option, shall be accompanied by a representative of Tenant and shall comply with reasonable directions of such representative relative to safety and to the protection of Tenant's trade secrets and other proprietary information. Landlord also agrees to defend, indemnify and hold Tenant harmless against any and all claims, damages, liability, costs and expenses arising out of or alleged to have arisen out of any entry onto the Premises by Landlord and/or its authorized representatives. Landlord agrees to execute and cause its authorized representatives to execute confidentiality agreements as required by Tenant.
ARTICLE XIX

 SURRENDER AND HOLDING-OVER
        19.1 Upon the termination of this Lease, whether by forfeiture, lapse of time or otherwise, or upon termination of Tenant's right to possession of the Premises, Tenant will at once surrender and deliver up the Premises, together with all improvements thereon, to Landlord, in good condition and repair, reasonable wear and tear and damage by casualty and condemnation excepted. Said improvements shall include all plumbing, lighting, electrical, heating, cooling and ventilating fixtures and equipment, and all alterations. All permanent alterations, additions and improvements made in or upon the Premises by Tenant shall become Landlord's property and shall remain upon the Premises on any such termination without compensation, allowance or credit to Tenant.
        19.2 Upon the termination of this Lease, Tenant shall remove Tenant's personal property, trade fixtures and equipment; provided, however, that Tenant shall repair any injury or damage to the Premises which may result from such removal and shall restore the Premises to the same condition as existed prior to the installation thereof. If Tenant does not remove Tenant's personal property, trade fixtures and equipment from the Premises prior to the expiration or earlier termination of the Term, Landlord, upon thirty (30) days' notice to Tenant, at its option, may remove the same (and repair any damage occasioned thereby) and dispose thereof or deliver the same to any other place of business of Tenant or warehouse the same, and Tenant shall pay the cost of such removal, repair, delivery and warehousing to Landlord within thirty (30) days of demand therefor.
        19.3 Tenant shall have no right to occupy the Premises or any portion thereof after the expiration of this Lease or after the termination of this Lease or of Tenant's right to possession pursuant to Article XII hereof. In the event Tenant or any party claiming by, through or under Tenant holds over, Landlord may exercise any and all remedies available to it at law or in equity to recover possession of the Premises, and for direct damages; provided, however, that Landlord shall not be entitled to recover, and hereby expressly waives any right to recover, consequential damages. Notwithstanding anything contained herein to the contrary, in the event Tenant or any party claiming by, through or under Tenant holds-over after the expiration of the Term, Landlord may elect, in lieu of any other remedy provided
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by law or herein, that the same shall constitute a month-to-month tenancy upon the same terms as in this Lease at a rate of rent equal to one hundred twenty five percent (125%) of the Monthly Rent for the month in which the Term expires.
ARTICLE XX

 HAZARDOUS AND TOXIC MATERIALS
        20.1 As used herein:
        (a)   "Claim" shall mean and include any demand, cause of action, proceeding or suit (i) for damages, losses, injuries to person or property, damages to natural resources, fines, penalties, interest, or contribution; (ii) for the costs of site investigations, feasibility studies, information requests, health or risk assessments or Response actions; or (iii) for enforcing this Article XX.
        (b)   "Environmental Law" means federal, state, regional, county and local administrative rules, statutes, codes, ordinances, regulations, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders, judgments, and any similar items, relating to the protection of human health, safety, or the environment including without limitation: (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") (42 U.S.C. §§ 9601 et seq .; (b) the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. §§ 9601 et seq .); (c) The Hazardous Materials Transportation Control Act of 1970 (49 U.S.C. §§ 1802 et seq .; (d) the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Act Amendments ("RCRA") (42 U.S.C. §§ 6901 et seq .); (e) the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977 (33 U.S.C. §§ 1251 et seq .) (the "Clean Water Act"); (f) the Safe Drinking Water Act (42 U.S.C. §§ 300h et seq .); (g) the Clean Air Act, as amended by the Clean Air Act Amendments of 1990 (42 U.S.C. §§ 1857 et seq .); (h) the Solid Waste Disposal Act, as amended by RCRA (42 U.S.C. § 6901 et seq .); (i) the Toxic Substances Control Act (15 U.S.C. §§ 2601 et seq .); (j) the Emergency Planning and Community Right-to-Know Act of 1986 ("EPCRA") (42 U.S.C. §§ 11001 et seq .); (k) the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA") (7 U.S.C. §§ 136 et seq .); (l) the National Environmental Policy Act of 1975 (42 U.S.C. §§ 4321 et seq .); (m) the Radon Gas and Indoor Air Quality Reserve Act (42 U.S.C. §§ 7401 et seq .); (n) the National Environmental Policy Act of 1975 (42 U.S.C. §§ 4321 et seq .); (o) the Rivers and Harbors Act of 1899 (33 U.S.C. §§ 401 et seq .); (p) the Oil Pollution Act of 1990 (33 U.S.C. §§ 1321 et seq .); (q) the Endangered Species Act of 1973, as amended (16 U.S.C. §§ 1531 et seq .); (r) the Occupational Safety and Health Act of 1970, as amended, (29 U.S.C. §§ 651 et seq .); (s) North American Free Trade Act, (t) counterparts of any of the foregoing federal statutes enacted within or outside the United States or by any other nation, any U.S. state, region, county or local government (including any subdivisions thereof); (u) any and all laws, rules, regulations, codes, ordinances, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders and judgments enacted or promulgated under any of the foregoing, all as amended and as may be amended in the future, and (v) common law theories of nuisance, trespass, waste, negligence, and abnormally dangerous activities arising out of or relating to the presence of Hazardous Substances in the environment or work place.
        (c)   "Hazardous Substance" shall be construed broadly to include any substance, material or waste, including without limitation any constituent, chemical, element, particle, compound, material, substance or waste which is defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous substance," "restricted hazardous waste," "contaminant," "toxic waste," "toxic substance," or "special waste" under any Environmental Law which includes, but is not limited to, petroleum, petroleum by-products (including crude oil and
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any fraction thereof), waste oils, any hydrocarbon based substance, asbestos, asbestos-containing materials, urea formaldehyde and polychlorinated biphenyls.
        (d)   "Manage" or "Management" means to generate, manufacture, process, treat, store, use, re-use, refine, recycle, reclaim, blend or burn for energy recovery, incinerate, accumulate speculatively, transport, transfer, dispose of or abandon Hazardous Substance.
        (e)   "Release" shall mean releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping into the indoor or outdoor environment, including without limitation the abandonment or discarding of barrels, drums, containers, tanks and other receptacles containing or previously containing any Hazardous Substance.
        (f)    "Response" or "Respond" shall mean action required by any Environmental Law to correct, remove, remediate, cleanup, prevent, mitigate, monitor, evaluate, investigate, assess or abate a Release of a Hazardous Substance.
        20.2 During the Term, Tenant, at its sole cost and expense, shall (a) comply with all Environmental Laws relating solely to its use of the Premises, and permits issued thereunder; (b) conduct any Management of Hazardous Substances by Tenant on the Premises in compliance with Environmental Laws; (c) use commercially reasonable efforts so as to not cause or allow the Release of any Hazardous Substances on, to or from the Premises, except in compliance with Environmental Laws and permits issued thereunder; (d) arrange for the lawful transportation and off-site disposal of all Hazardous Substances that it generates; and (e) secure, maintain, and comply with all permits required by Environmental Laws in connection with Tenant's use of the Premises.
        20.3 During the Term, Landlord, at its sole cost and expense, shall (a) comply with all Environmental Laws other than those relating solely to Tenant's use of the Premises, and permits issued thereunder; (b) secure, maintain and comply with all permits required by Environmental Laws other than those required solely by reason of Tenant's use of the Premises; and (c) cure any violation of any Environmental Laws attributable to the period prior to the Commencement Date.
        20.4 Landlord and Landlord's agents and employees shall have the right to enter upon the Premises to conduct appropriate inspections or tests in order to determine Tenant's compliance with Environmental Laws, provided that (a) such inspections and tests shall be performed at the sole cost and expense of Landlord; (b) Landlord shall provide Tenant with written notice not less than five business (5) days prior to conducting such inspections or tests; (c) such tests shall be performed at reasonable times designated by Tenant, shall be subject to the provisions of Section 18.3 and in all other respects shall not interfere with Tenant's business operations and shall be in compliance with Tenant's security procedures; and (d) Landlord promptly shall communicate and, when appropriate, delivery copies of the results of any investigation and tests, to Tenant.
        20.5 If Tenant's Management of Hazardous Substances at the Premises (a) results in or causes a Release which violates an Environmental Laws or permits issued thereunder; (b) gives rise to liability or a Claim or requires a Response under common law or any Environmental Law or permit issued thereunder; (c) causes a significant public health effect; or (d) creates a nuisance, Tenant, in any and all such occurrences and at its sole cost and expense, promptly shall take all applicable action in Response.
        20.6 Tenant shall indemnify, defend and hold harmless Landlord, its beneficiary, managing agents and mortgagees from all Claims arising from or attributable to any breach by Tenant of any of its warranties, representations or covenants in this Article XX.
        20.7 Notwithstanding anything in the Article XX to the contrary, Tenant shall not be liable and Landlord shall fully indemnify and hold Tenant harmless from and against any and all liabilities, damages, expenses, costs and losses arising from, or as a result of, any use and occupancy of the
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Premises prior to the Commencement Date, including any violation of any Environmental Laws attributable to the period prior to the Commencement Date, and from, or as a result of, any breach of Landlord's obligations under this Lease.
ARTICLE XXI

 RIGHT OF FIRST REFUSAL
        If, at any time after the date of this Lease and while this Lease is in full force and effect, Landlord should receive from a third party purchaser a written offer to purchase the Premises (the "Third Party Offer"), and should Landlord desire to accept the Third Party Offer, it shall first make a written offer (the "Tenant Offer") to sell said Premises to Tenant at the price and upon the terms and conditions set forth in the Third Party Offer. The Tenant Offer shall be accompanied by a copy of the Third Party Offer. Tenant may accept the Tenant Offer by service of notice of acceptance on Landlord on or before the thirtieth (30th) day following delivery of the Tenant Offer to Tenant. If the Tenant Offer is accepted, the purchase and sale shall be closed at the principal office of Landlord on the date set forth in the Third Party Offer or at such other place, time and date as Landlord and Tenant may agree upon, by payment of the purchase price against conveyance of the Premises free and clear of liens and encumbrances of every kind and description except as permitted by the Tenant Offer. If Tenant fails to fully and timely accept the Tenant Offer as herein provided, Landlord may make the sale of the Premises to the prospective purchaser making the Third Party Offer in accordance with the terms thereof; provided, however, that if Landlord fails to consummate the sale of the Premises on exactly the same terms and conditions as are set forth in the Third Party Offer, the Premises shall again be subject to Tenant's right of first refusal. Tenant's right of first refusal as set forth in this Article XXI shall be a continuing right and shall survive each sale of the Premises during the term hereof (as it may be extended as provided herein).
ARTICLE XXII

 MISCELLANEOUS PROVISIONS
        22.1 To the fullest extent allowed by law, Tenant, at all times, shall indemnify, defend and hold Landlord, its officers, directors, employees and agents, harmless from and against any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from the conduct or management of or from any work or things whatsoever done in or about, the Premises (except to the extent arising out of Landlord's negligence or other wrongful conduct), and further will indemnify, defend and hold Landlord, its officers, directors, employees and agents, harmless against and from any and all claims arising during the Term and based upon any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or arising from any act or neglect of Tenant, its agents, servants, employees, licensees, or contractors, or arising from any accident, injury or damage whatsoever caused to any person, firm or corporation occurring during the Term in or about the Premises, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or with respect to any such claim or action or proceeding brought thereon. To the fullest extent allowed by law, Landlord, at all times, shall indemnify, defend and hold Tenant, its officers, directors, employees and agents, harmless from and against any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from the conduct or management of, or from any work or things whatsoever done in or about, the Premises (except to the extent arising out of Tenant's negligence or other wrongful conduct), and further will indemnify, defend and hold Tenant, its officers, directors, employees and agents harmless against and from any and all claims arising during the Term and based upon any breach or default on the part of Landlord in the performance of any covenant or agreement on the part of Landlord to be performed pursuant to the terms of this Lease, including, without limitation, the breach of any representation or warranty of Landlord contained in this Lease, or arising from any act
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or neglect of Landlord, its agents, servants, employees, licensees or contractors, whenever and wherever occurring or arising from any accident, injury or damage whatsoever caused to any person, firm or corporation occurring prior to or after the Term in or about the Premises, and from and against all costs, attorneys' fees, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon.
        22.2 All notices, demands and requests which may be or are required to be given, demanded or requested by either party to the other shall be in writing. All notices, demands and requests by Landlord to Tenant shall be sent by United States registered or certified mail, postage prepaid, or by commercial overnight delivery service or other personal service (with evidence of receipt), addressed as follows:
        LKQ Corporation
        120 N. LaSalle Street
        Suite 3300
        Chicago, Illinois 60602
        Attn: General Counsel
or at such other place as Tenant may from time to time designate by written notice to Landlord. All notices, demands and requests by Tenant to Landlord shall be sent by United States registered or certified mail, postage prepaid, or by commercial overnight delivery service or other personal service (with evidence of receipt), addressed to Landlord as follows:
        Steven H. Jones
        3701 SW Stonybrook
        Topeka, Kansas 66610
or at such other place as Landlord from time to time may designate by written notice to Tenant. Notices, demands and requests which shall be served upon Landlord by Tenant, or upon Tenant by Landlord, by mail in the manner aforesaid, shall be deemed to be sufficiently served or given for all purposes hereunder on the second business day after mailing, and notices served by overnight delivery service shall be deemed served or given on the second (2nd) business day after delivery to such service.
        22.3 Landlord covenants and agrees that Tenant, upon paying the Rent, and upon observing and keeping the covenants, agreements and conditions of this Lease on its part to be kept, observed and performed, shall lawfully and quietly hold, occupy and enjoy the Premises (subject to the provisions of this Lease) during the Term (as it may be extended from time to time as expressly provided herein) without hindrance or molestation by Landlord or by any person or persons claiming under Landlord. In the event of a breach by Landlord of this Section 22.3, or of any other covenant herein, then, anything in this Lease notwithstanding, Tenant shall have the full right to cure such breach at the expense of Landlord, and Landlord shall upon demand pay Tenant's costs, including attorneys' fees and expenses, of curing said breach (or Tenant, at its option, may deduct said costs and fees and expenses from the next accruing installment(s) of Rent or other charges payable by it to Landlord), or Tenant may enforce any and all remedies at law or in equity or under this Lease which may be available to Tenant under the particular circumstances.
        22.4 Tenant and Landlord, each without charge at any time and from time to time, within thirty (30) days after written request by the other party, shall certify by written instrument, duly executed, acknowledged and delivered to any Mortgagee, assignee of a Mortgagee, proposed Mortgagee, or to any purchaser or proposed purchaser or transferee of the Landlord, Tenant or Premises or any interest therein:
        (a)   That this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect, as modified, and stating the modifications);
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        (b)   The dates to which the Rent has been paid in advance;
        (c)   Whether or not there are then existing any breaches or defaults by the certifying party or by the other party and known by the certifying party under any of the covenants, conditions, provisions, terms or agreements of this Lease, and specifying such breach or default, if any, or any set-offs or defenses against the enforcement of any covenant, condition, provision, term or agreement of this Lease upon the part of Landlord or Tenant, as the case may be, to be performed or complied with (and, if so, specifying the same and the steps being taken to remedy the same);
        (d)   That Tenant has made no advancements to or on behalf of Landlord for which it has the right to deduct from, or offset against, future Rent payments;
        (e)   Tenant has accepted the Premises and is in full and complete possession thereof; and
        (f)    Such other statements or certificates as Landlord or Tenant or any Mortgagee may reasonably request.
        22.5 Upon not less than thirty (30) days prior written request by either party, the parties hereto agree to execute and deliver to each other a memorandum of lease, in recordable form, setting forth the following:
        (a)   the date of this Lease;
        (b)   the parties to this Lease;
        (c)   the Term of this Lease;
        (d)   the three (3), five (5) year extension options set forth in Article XI;
        (e)   the right of first refusal set forth in Article XXI;
        (f)    the legal description of the Premises;
        (g)   the option to purchase set forth in Article XXV; and
        (h)   such other matters reasonably requested by Landlord or Tenant to be stated therein.
        22.6 If any covenant, condition, provision, term or agreement of this Lease shall, to any extent, be held invalid or unenforceable, the remaining covenants, conditions, provisions, terms and agreements of this Lease shall not be affected thereby, but each covenant, condition, provision, term or agreement of this Lease shall be valid and in force to the fullest extent permitted by law. This Lease shall be construed and be enforceable in accordance with the laws of the State of Kansas.
        22.7 The covenants and agreements herein contained shall bind and inure to the benefit of Landlord and its successors and assigns, and Tenant and its successors and assigns.
        22.8 The caption of each article of this Lease is for convenience and reference only and in no way defines, limits or describes the scope or intent of such article or of this Lease.
        22.9 This Lease does not create the relationship of principal and agent, or of partnership, joint venture, or of any association or relationship between Landlord and Tenant, the sole relationship between Landlord and Tenant being that of landlord and tenant.
        22.10 All preliminary and contemporaneous negotiations are merged into and incorporated in this Lease. This Lease contains the entire agreement between the parties and shall not be modified or amended in any manner except by an instrument in writing executed by the parties hereto.
        22.11 There shall be no merger of this Lease or the leasehold estate created by this Lease with any other estate or interest in the Premises by reason of the fact that the same person, firm, corporation or other entity may acquire, hold or own directly or indirectly, (a) this Lease or the leasehold interest
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created by this Lease or any interest therein, and (b) any other estate or interest in the Premises or any portion thereof. No such merger shall occur unless and until all persons, firms, corporations or other entities having an interest (including a security interest) in (1) this Lease or the leasehold estate created hereby, and (2) any such other estate or interest in the Premises or any portion thereof, shall join in a written instrument expressly effecting such merger and shall duly record the same.
        22.12 All obligations, monetary or otherwise, accruing prior to expiration of the Term (as it may be extended from time to time) shall survive the expiration or other termination of this Lease.
        22.13 Time is of the essence of this Lease, and all provisions herein relating thereto shall be strictly construed.
        22.14 Each party represents and warrants to the other that it has not dealt with any broker in connection with this Lease and agrees to indemnify and hold the other party and its agents, officers, directors and employees harmless from all losses, damages, liabilities, claims, liens, costs and expenses, including, without limitation, attorneys' fees, arising from any claims or demands of any broker or brokers, salespersons or finders for any commission or fee alleged to be due such broker or brokers, salespersons or finders based upon such broker or brokers, salespersons or finders having dealt with the indemnifying party in connection with this Lease.
        22.15 To the extent either party indemnifies and agrees to defend the other under the terms of this Lease, the indemnifying party shall have the right to select counsel to undertake such defense, which counsel shall be reasonably acceptable to the indemnified party.
        22.16 Subject to specific conditions as to consents and approvals provided for in other sections of this Lease, no consent or approval required under this Lease shall be unreasonably withheld or delayed.
        22.17 This Lease may be executed in counterparts, each of which when taken together shall constitute one instrument.
        22.18 This Lease represents the product of the joint negotiation, preparation and agreement of and between the parties hereto and is not to be construed against one party or the other as the principal drafter.
        22.19 In the event of any litigation between the Landlord and the Tenant arising out of an alleged breach of this Lease by either of them and such litigation terminates upon the issuance of a final, unappealable judicial order, the unsuccessful party therein shall pay the successful party's reasonable attorneys' fees and expenses in such litigation. This provision shall inure only to the Landlord and Tenant and their respective successors and permitted assigns, if any.
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 ARTICLE XXIII

 LANDLORD'S REPRESENTATIONS AND WARRANTIES
        23.1 In addition to the other representations and warranties made herein, Landlord hereby represents and warrants to Tenant that as of the date hereof the following representations and warranties are true, correct and complete and that the same will be true, correct and complete on and as of the Commencement Date:
        (a)   Landlord warrants and represents that the execution and delivery of this Lease by the signatory hereto on behalf of Landlord and the performance of this Lease by Landlord have been duly authorized by Landlord and this Lease is binding upon Landlord and enforceable against Landlord in accordance with its terms.
        (b)   Landlord warrants and represents that it is and shall be the owner of fee simple title to the Land, free and clear of all liens, encumbrances, covenants, conditions, restrictions, rights of way, easements, leases, tenancies, licenses, claims, options, and any other matters which would impair the marketability of title to the Land.
        (c)   Landlord represents and warrants that there are no condemnation or judicial proceedings, administrative actions or examinations, claims or demands of any type which have been instituted or which are pending or threatened against Landlord with respect to the Premises or any part thereof. There are no actions or proceedings pending or to the best of Landlord's knowledge, threatened against Landlord with respect to the Premises before any court or administrative agency which would result in any material adverse change in the condition and operation of the Premises. In the event Landlord receives notification of any of the foregoing prior to Commencement Date, copies of such notice shall be provided to Tenant by Landlord within three (3) days following its receipt thereof, but in no event later than the Commencement Date.
        (d)   Intentionally omitted.
        (e)   Landlord represents and warrants that the Premises will be delivered on the Commencement Date in substantially the same condition as on the date hereof, reasonable wear and tear excepted, and free of any occupants, tenants or rights of first refusal, right of reverter or rights of first offer relating to the Premises, other than as provided in this Lease; any service contracts or management agreements; and any employee, employment agreements or union contract affecting the Premises.
        (f)    Landlord represents and warrants that Landlord has not filed any proceeding or petition in, nor received notice that any proceeding or petition has been filed against Landlord in bankruptcy or insolvency, or for reorganization or for the appointment of a receiver, custodian or trustee, or for the arrangement of debts under any state or federal statute relating to debtor protection or insolvency, and further that Landlord is not insolvent and will not be rendered insolvent by the consummation of the transaction contemplated by this Lease.
        (g)   Landlord represents and warrants that it has received no notice of any violations of building, fire, air pollution, or Environmental Law and that Landlord has no knowledge of any suits or judgments threatened or pending relating to violations at the Premises or any portion of the Premises of any such laws, ordinances and regulations.
        (h)   Landlord represents and warrants that there are no special taxes or assessments pending and/or unpaid with respect to any improvements not yet completed on the Premises;
        (i)    Landlord represents and warrants that there are no parties that have any rights to possession of any part of the Premises other than Landlord or that have any leases to any portion of the Premises, other than as provided in this Lease.
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        (j)    Landlord represents and warrants that there are no written or oral service agreements or other contracts or leases with respect to the Property or any part thereof, except this Lease.
        (k)   Landlord represents and warrants that there are no underground storage tanks on the Premises or any condition on the Premises which materially violates the terms of any applicable environmental law.
        (l)    Intentionally omitted.
        (m)  Landlord represents and warrants that between the date of this Lease and the Commencement Date that it will not enter into any leases, service agreements or other contracts with respect to the Premises, which will be effective beyond the Commencement Date without express written consent of Tenant, which consent shall not be unreasonably withheld; provided, however, the Tenant shall not be required to consent to any agreement which will terminate on or before the Commencement Date.
        (n)   All other representations and warranties of Landlord in this Lease are true, correct and complete.
        All representations made by Landlord in this Article XXIII shall survive the execution of this Lease and, if later, the Commencement Date.
ARTICLE XXIV

 LANDLORD DEFAULT
        In the event Landlord breaches any of the representations and warranties contained in this Lease, or in the event any such representation or warranty is untrue when made, or in the event Landlord breaches any of its obligations under Article XX hereof, and if such breach is curable and is not cured within thirty (30) days after written notice thereof, Tenant shall have the right to terminate this Lease. In addition to Tenant's rights contained herein or available in law or at equity, in the event Landlord neglects or fails to comply with any of Landlord's obligations contained in this Lease, Tenant may, after giving Landlord not less than 30 days prior written notice, (a) cure any such Landlord's default and (b) withhold rent in an amount not to exceed any amount which Tenant spends to cure any such default or otherwise incurs by reason of Landlord's default (including attorneys' fees and expenses).
ARTICLE XXV

 OPTION TO PURCHASE
        25.1 In consideration of the Rent to be paid by Tenant under this Lease and other good and valuable consideration and in addition to the right of first refusal granted to Tenant in Article XXI herein, Landlord hereby irrevocably grants to Tenant the exclusive option (the "Option") to purchase the Premises, including but not limited to all structures and improvements thereon and all appurtenances thereto, on the terms and conditions set forth herein and in accordance with the Real Estate Purchase Agreement attached as Exhibit B hereto and made a part hereof (the "Purchase Agreement") for a purchase price (the "Purchase Option Price") equal to the lesser of (i) the Fair Market Value of the Premises as of the date of Tenant's Option Exercise Notice, as that term is hereinafter defined, determined in accordance with Article XXVI hereof; and (ii) Eight Hundred Thousand and no/100 Dollars ($800,000.00), adjusted on the first day of the second and third Extension Periods, if any, by a percentage equal to the lesser of (x) the product of Two and One-Half Percent (2.5%) multiplied by the number of years since the last Rent increase, or (y) the cumulative percentage increase in the Consumer Price Index since the last Rent increase, as calculated using the Consumer Price Index for the month of January in the relevant year.
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        25.2 Tenant shall have the right to exercise the Option at any time during the third year of the initial Term of this Lease, and during the period which is ninety (90) days prior to the first day of each Extension Period, by Tenant giving Landlord written notice of Tenant's exercise (the "Option Exercise Notice"), which notice shall be no less than ninety (90) days prior to the proposed closing date set forth in the Option Exercise Notice. The Option Exercise Notice shall be accompanied by four (4) copies of the Purchase Agreement each dated as of the date of Tenant's notice and executed by Tenant, as purchaser. Within three (3) days of Landlord's receipt of Tenant's exercise of the Option, Landlord shall execute and return to Tenant two (2) of the four (4) copies of the Purchase Agreement which Tenant shall have sent to Landlord. In the event that the Option is not exercised by Tenant in the manner provided herein before the end of the Term, as the same may be extended pursuant to the terms hereof, the Option shall be null and void and of no further force or effect.
        25.3 The Option is a continuing option and shall survive any and all sales of the Premises by Landlord.
        25.4 The Purchase Option Price shall be payable, at Tenant's option, (i) in cash, or (ii) if shares of LKQ Corporation, the parent corporation of Tenant ("LKQ"), are publicly traded, shares of LKQ common stock; provided, however, that Tenant shall not be allowed to pay in accordance with clause (ii) if the disposition of such shares is restricted in any way by law or contract.
ARTICLE XXVI

 FAIRMARKET VALUE
        26.1 "Fair Market Value" shall be determined in the manner provided below:
        (a)   Upon Tenant providing Landlord with the Option Exercise Notice (as provided in Article XXV herein), Landlord and Tenant shall meet within ten (10) days to agree upon the Fair Market Value for the Purchase Option Price (as defined in Article XXV herein). If Landlord and Tenant shall so agree on the Fair Market Value for such Purchase Option Price within such time as specified above, they shall forthwith execute the Purchase Agreement as provided in Article XXV herein.
        (b)   If Landlord and Tenant are unable to agree on Fair Market Value within the time provided, Landlord shall appoint a licensed real estate broker within ten (10) days and immediately notify Tenant in writing of said appointment and of the name and address of the licensed real estate broker so appointed. Tenant shall have the right to appoint a licensed real estate broker within such ten (10) days, and shall immediately notify Landlord in writing of said appointment and of the name and address of the licensed real estate broker so appointed. If within ten (10) days after their appointment, the two licensed real estate brokers agree on the Fair Market Value within a five percent (5%) differential, the Fair Market Value shall equal the average of the determination made by each of said two licensed real estate brokers, and shall be binding upon Landlord and Tenant. If the two licensed real estate brokers do not, within ten (10) days after their appointment, agree on the Fair Market Value, within a five percent (5%) differential, the licensed real estate brokers shall then appoint a third licensed real estate broker within ten (10) days thereafter. Such third appraiser shall, within twenty (20) days of such appointment, choose either the Fair Market Value determined by Landlord's broker or the Fair Market Value determined by Tenant's broker as the final Fair Market Value. The third appraiser's choice shall be based upon its determination of which of the two proposed Fair Market Value determinations is more reasonable. The Fair Market Value chosen by the third appraiser shall be binding on Landlord and Tenant. The decision shall be made in writing and signed by the licensed real estate brokers in duplicate. One of the writings shall be delivered to Landlord and the other
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shall be delivered to Tenant. The charges for services of the licensed real estate brokers, if any, shall be borne by the Landlord and Tenant hereto in equal shares.
        (c)   The licensed real estate brokers appointed pursuant to this Section must be licensed real estate brokers specializing in industrial real estate with at least five (5) years' continuous and active experience in the Topeka, Kansas metropolitan area.
        (d)   In the event Tenant or Landlord fails to appoint an appraiser as provided above, the appraiser so appointed shall determine Fair Market Value and such determination shall be binding on the parties, subject to the right of such party failing to appoint an appraiser to have another appraiser appointed jointly by the appraiser so appointed and the party that failed to appoint an appraiser. The appraiser so appointed as provided in this Subsection shall be deemed the "third appraiser" for purposes of this Section.
        (e)   In the event the appraisers selected by Landlord and Tenant are unable to agree on a third appraiser, the matter shall be submitted to the American Arbitration Association for the appointment of a third appraiser in accordance with the requirements of the Lease.
         IN WITNESS WHEREOF , each of the parties has caused this Lease to be duly executed as of the day and year first above written.

TENANT:	 	LANDLORD:	

RECYCLERS GROUP, INC.	

By:	
 	
/s/ Thomas B. Raterman

/s/ Steven Jones

Steven Jones	

Name:	
 	
Thomas B. Raterman

        

Date	

Title:	
 	
Vice President

 	

Date:	

	

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EXHIBIT A

LEGAL DESCRIPTION

Tract 1: Part of the North Half of the Southeast Quarter of Section 36, Township 12 South, Range 15, West of the 6th P.M., described as follows: Beginning at a point 462 feet West and 315 feet South of the Northeast Corner of said Southeast Quarter of Section 36; thence South parallel with the East line of said Quarter Section, 358.35 feet to a wire fence and being the North line of property as recorded in Volume MG1 Page 307 in the Office of the Register of Deeds, Shawnee County, Kansas; thence Easterly along said wire fence, 297.8 feet to the West Right-of-Way line of the Atchison, Topeka and Santa Fe Railway; thence Northerly parallel with the Atchison, Topeka and Santa Fe Railway, 302 feet to a point described as being 950 feet North of the South line of said North Half of the Southeast Quarter of Section 36; thence East 100 feet to the West Right-of-Way line of the Atchison, Topeka and Santa Fe Railway Right-of-Way, 57.75 feet to a point 315 feet South of the North line of said Quarter Section; thence West 395.3 feet to the place of beginning, in Shawnee County, Kansas, now being part of Lot 1, Block A, Mid-America Subdivision, Shawnee County, Kansas.
        Tract 7: Part of the North Half of the Southeast Quarter of Section 36, Township 12 South, Range 15, East of the 6th P.M., described as follows: Beginning at a point on the West line of the Right-of-Way of the Atchison, Topeka and Santa Fe Railway, which is 225 feet South of the North line of said Southeast Quarter; thence South along the West line of said Right-of-Way, 50 feet; thence West parallel with the North line of said Quarter Section, 150 feet; thence North parallel with the West line of Right-of-Way of Atchison, Topeka and Santa Fe Railway, 50 feet; thence East parallel with the North line of said Quarter Section 150 feet to the place of beginning, in Shawnee County, Kansas, now being a part of Lot 1, Block A, Mid-America Subdivision, Shawnee County, Kansas.
        Tract 3: A Tract in the Southeast Quarter of Section 36, Township 12 South, Range 15, East of the 6th P.M., described as follows: Beginning at a point 315 feet South and 66.7 feet West of the Northeast Corner of said Quarter; thence North 40 feet; thence West parallel with the North line of said Quarter Section, 150 feet; thence South parallel with the East line of said Quarter Section, 40 feet; thence due East 150 feet to the place of beginning, Shawnee County, Kansas, now being a part of Lot 1, Block A, Mid-America Subdivision, Shawnee County, Kansas.
        Tract 4: A Tract of land in the North Half of the Southeast Quarter of Section 36, Township 12 South, Range 15, East of the 6th P.M., Shawnee County Kansas, described as follows: Beginning at a point on the West line of the Right-of-Way of the Atchison, Topeka and Santa Fe Railway Company which is 800 feet North of the South line of said North Half of the Southeast Quarter; thence West 100 feet; thence North parallel with said Right-of-Way 150 feet; thence East 100 feet to the West line of said Right-of-Way; thence South along said Right-of-Way to the point of beginning, now being a part of Lot 1, Block A, Mid-America Subdivision, Shawnee County, Kansas.
        Tract 6: A parcel of land being all that part of the Atchison, Topeka and Santa Fe Railway Company's property in the Southeast Quarter (S.E. 1 / 4 ) of Section 36, Township 12 South, Range 15 East of the 6th P.M., Shawnee County, Kansas, described as follows: Beginning at the Northwest Corner of said Railway Company's 200.0 foot wide property, said point being also the Northwest Corner of that certain parcel of land described in deed recorded in Book 79 Page 111, records of said County; thence East (at right angles to the West line of said parcel) along the North line of said parcel a distance of 80.00 feet; thence South at right angles to said North line a distance of 100.00 feet; thence West, at right angles, a distance of 80.00 feet to a point on said West line of said parcel; thence North, along said West line a distance of 100.00 feet to the point of beginning.

 
 EXHIBIT B

 
 REAL ESTATE PURCHASE AGREEMENT
         THIS AGREEMENT is made as of the            day of                        ,            , between                                     ("Seller"), whose address is                        and LKQ Corporation, a Delaware corporation, or its nominee ("Purchaser"), whose address is                        . The parties hereto agree as follows:
        1.      Purchase and Sale .
        (a)   Seller agrees to sell and Purchaser agrees to purchase the real property commonly known as                        and more particularly described as follows (the "Real Property"):
        (b)   Seller agrees to sell and Purchaser agrees to purchase the personal property described as follows (the "Personal Property"):
        (The Real Property and the Personal Property shall herein collectively be referred to as the "Property.")
        2.      Purchase Price .    The purchase price shall be                        Dollars ($            ) (the "Purchase Price"). Upon Purchaser's execution of this Agreement, Purchaser shall deposit the sum of                        Dollars ($                        ) (the "Deposit"), which equals five percent (5%) of the Purchase Price, with Chicago Title Insurance Company ("Escrowee") to be held in escrow as earnest money pursuant to the terms of this Agreement and to be credited (together with all earnings thereon) at closing against the Purchase Price.
        3.      Survey .    Within thirty (30) days of the date of this Agreement, Seller, at Seller's sole cost and expense, shall deliver to Purchaser a current survey of the Real Property prepared in accordance with the standards for Land Title Surveys of the American Land Title Association and the American Congress on Surveying and Mapping for a Urban survey and prepared by a surveyor licensed by the State of Kansas and certified to Purchaser, the title insurer, if any, and such other parties as Purchaser shall designate (the "Survey"). The Survey shall show no encroachments onto the Real Property from any adjacent property, no encroachments by or from the Real Property onto any adjacent property and no violation of or encroachments upon any recorded building lines, restrictions or easements affecting the Real Property. If the Survey discloses any such encroachments or violations or any exceptions to title or matters indicating possible rights of third parties, Seller shall have thirty (30) days from the date of delivery thereof to have such encroachments, violations or exceptions removed, waived or released, and provide evidence thereof to Purchaser; or to elect to have the title insurer, if any, issue its endorsement insuring against damage caused by such encroachments, violations or unpermitted exceptions (provided such insurance is satisfactory to Purchaser, in Purchaser's sole discretion). If Seller fails to have the same corrected or insured against, within said 30-day period, Purchaser may elect, on or before the closing date, either (a) to terminate this Agreement (in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser and thereupon, neither party shall have any further rights or obligations under this Agreement), or (b) to close and accept title to the Real Property subject to such encroachments, violations and exceptions with the right to withhold from the Purchase Price such amounts as may be necessary to remove such items as may be removed by the payment of money or posting of a bond, security or indemnity fund. In the event Purchaser terminates this Agreement due to Seller's failure to have any such encroachments, violations or exceptions insured against, or removed, waived or released, then, in addition to returning the Deposit and all earnings thereon, Seller shall pay Purchaser all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement.
        4.      Title .    Within thirty (30) days of the date of this Agreement, Seller, at Seller's sole cost and expense, shall deliver to Purchaser a commitment for an ALTA Form B 1970 Owner's Title Insurance Policy issued by Chicago Title Insurance Company in the full amount of the Purchase Price, covering title to the Real Property on or after the date hereof, showing Seller as owner of the Real Property in
B-1

fee simple, subject only to such exceptions as Purchaser may approve pursuant to clause (b) of this Paragraph 4 and such exceptions as may result from Purchaser's leasing and use of the Real Property, and providing for full extended coverage over all general title exceptions contained in such policy. Seller shall have thirty (30) days from the date Seller receives the title commitment to have all liens, encumbrances or other exceptions to title removed from the title commitment and provide evidence thereof to Purchaser, and if Seller fails to have such exceptions removed, Purchaser may elect, on or before the closing date, either (a) to terminate this Agreement (in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser), or (b) to close and accept title subject to such exceptions with the further right to deduct from the Purchase Price the cost of removing such exceptions, and/or cause the title insurer to issue its endorsement insuring against damage caused by such exceptions and deduct from the Purchase Price the cost of the premiums and security provided for said endorsement, as the case may be (provided such insurance is satisfactory to Purchaser, in Purchaser's sole discretion). Purchaser's exercise of the foregoing rights shall not be deemed a waiver or release of any of its remedies, at law or in equity or pursuant to this Agreement, for default if said exceptions to title were caused or suffered by or through Seller or any party claiming by, through or under Seller. In the event Purchaser terminates this Agreement due to an exception created or suffered by Seller, then, in addition to returning the Deposit and all earnings thereon, Seller shall pay Purchaser all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement. On the closing date, Seller shall cause the title insurer to issue an owner's title insurance policy or prepaid commitment therefor pursuant to and in accordance with the title commitment, insuring fee simple title to the Real Property in the Purchaser as of the closing date, subject only to such exceptions as Purchaser may approve pursuant to clause (b) above.
        5.      Destruction or Damage .    If, subsequent to the date hereof and prior to the closing date, all or any portion of the Property shall be destroyed or damaged by one or more incidents of vandalism, fire and/or other casualty, whether or not covered by insurance, Seller immediately shall give Purchaser notice of such occurrence and Purchaser, within thirty (30) days after receipt of such notice, may elect either (a) to terminate this Agreement, in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser and thereupon, neither party shall have any further rights or obligations under this Agreement, or (b) to close the transaction contemplated hereby as scheduled (except that if the closing date is less than thirty (30) days following Purchaser's receipt of such notice, closing shall be delayed until Purchaser makes such election), in which event Purchaser shall have the right to participate in the adjustment and settlement of any insurance claim relating to said damage, and Seller shall assign and/or pay to Purchaser at closing all insurance proceeds (and other related choices in action, if any) collected or claimed with respect to said loss or damage plus any deductible or self-insured amount.
        6.      Condemnation .    If, subsequent to the date hereof and prior to the closing date, any proceeding, judicial, administrative or otherwise, which shall relate to the proposed taking of all or any substantial portion of the Real Property by condemnation or eminent domain or any action in the nature of eminent domain, or the taking or closing of any right of access to the Real Property, is instituted or commenced, Purchaser shall have the right and option to terminate this Agreement by giving Seller written notice to such effect within thirty (30) days after actual receipt of written notification of any such occurrence or occurrences. If Purchaser does not terminate this Agreement pursuant to this Paragraph 6, Purchaser shall be credited with or be assigned all Seller's right to any proceeds or award therefrom. Seller hereby agrees to furnish Purchaser written notification in respect to any such proceedings within forty-eight (48) hours of Seller's receipt of any such notification or learning of the institution of such proceedings. Should Purchaser elect to terminate this Agreement, the Deposit and all earnings thereon forthwith shall be returned to Purchaser, and thereupon neither party shall have any rights or obligations under this Agreement. If the closing date is less than thirty (30) days following Purchaser's receipt of notice, then the closing shall be delayed until Purchaser makes such election.
B-2

        7.      Representations and Warranties .    To induce Purchaser to execute, deliver and perform this Agreement, Seller hereby represents and warrants to Purchaser on and as of the date hereof and on and as of the date of Closing as follows:
(a)
All representations and warranties of Seller appearing in other Sections of this Agreement are true and correct.

(b)
Landlord represents and warrants that Landlord is duly organized and validly existing under the laws of the State of ; that the execution and delivery of this Lease and the transaction contemplated hereby have been duly authorized by Landlord and that the performance of Landlord's obligations under this Lease will not violate its organizational documents, the provisions of any applicable law or agreement to which it is a party or under which it is bound.
        (c)   Seller has full capacity, right, power and authority to execute, deliver and perform this Agreement and all documents to be executed by Seller pursuant hereto, and all required action and approvals therefor have been duly taken and obtained. The individuals signing this Agreement and all other documents executed or to be executed pursuant hereto on behalf of Seller are and shall be duly authorized to sign the same on Seller's behalf and to bind Seller thereto. This Agreement and all documents to be executed pursuant hereto by Seller are and shall be binding upon and enforceable against Seller in accordance with their respective terms.
        (d)   Except for Seller and Purchaser as tenant under that certain lease between Seller and Purchaser dated February 28, 1999 (the "Lease"), there are no persons in possession or occupancy of the Property or any part thereof, nor are there any persons who have possessory rights in respect to the Property or any part thereof.
        (e)   There are no claims, causes of action or other litigation or proceedings pending or threatened with respect to the ownership or operation of the Property or any part thereof.
        (f)    There is no existing, pending, contemplated, threatened or anticipated (i) condemnation of any part of the Real Property, (ii) widening, change of grade or limitation on use of streets abutting the Real Property, (iii) special tax or assessment to be levied against the Property, (iv) change in the zoning classification of the Real Property, or (v) change in the tax assessment of the Property.
        (g)   That, except as to any matters caused by Purchaser's use of the Property, (i) there has not occurred, nor is there presently occurring, a Release or threatened Release of any Hazardous Substance on, into or beneath the surface of, or adjacent to, any parcel of the Real Property, (ii) it has received no notice of violation of any Environmental Law in regard to its ownership and possession of the Property, (iii) no underground storage tanks or above ground tanks have been located on the Real Property, (iv) the Real Property has never been used as a dump for waste material and (v) the Property complies with any and all Environmental Laws including, without limitation, the Americans with Disabilities Act.
        8.      Closing .    The time of closing shall be on the later of (i)                          ,            , or (ii) ten (10) days after satisfaction or waiver of Seller's obligations, if any, arising pursuant to Paragraphs 3 and 4 of this Agreement. This transaction shall be closed through the offices of Escrowee. On or before the closing date, each party shall deliver to Escrowee such documents, instruments, certifications and confirmations as may reasonably be required and designated by the other party in order to effect and consummate the transaction as contemplated herein and in accordance with applicable law.
        9.      Access and Possession .    If Purchaser is not in possession of any part of the Property as of the date hereof, Seller shall allow Purchaser and its representatives access to the Property prior to closing to conduct inspections and measurement of dimensions. Seller shall deliver exclusive possession of the
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Real Property and the Personal Property to Purchaser on the closing date in substantially the same condition as on the date of Purchaser's execution of this Agreement.
        10.    Deed .    At closing, subject to the terms and conditions set forth in this Agreement, Seller shall deliver to Purchaser a general Warranty Deed conveying marketable title to the Real Property subject only to such exceptions as Purchaser may approve pursuant to the terms of this Agreement.
        11.    Bill of Sale .    At closing, subject to the terms and conditions set forth in this Agreement, Seller shall transfer title to the Personal Property to Purchaser by good and sufficient bill of sale containing full warranties of title and subject only to such exceptions as Purchaser shall approve in writing.
        12.    Seller's Remedy for Purchaser's Default .    If Purchaser defaults hereunder, then the Deposit shall be drawn down and the proceeds thereof shall be paid over to and retained by Seller, as its sole and exclusive remedy, and this Agreement thereupon shall terminate, the parties thereafter being relieved of all obligations hereunder, other than those, if any, which specifically are stated to survive the termination of this Agreement.
        13.    Purchaser's Remedy for Seller's Default .    If any representation or warranty of Seller is not true and correct at and as of the closing date, or if Seller fails to perform its obligations in a timely manner, or otherwise defaults hereunder, notwithstanding anything to the contrary provided in this Agreement, Purchaser shall have the right to elect (i) specific performance of this Agreement, or (ii) to recover from Seller the Deposit and all earnings thereon and all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement, including, but not limited to, reasonable attorneys' fees.
        14.    Prorations .    General and special real estate (at 110% of the most recent ascertainable bill) and other ad valorem taxes and assessments and other state or city taxes, fees, charges and assessments affecting the real property; utility charges and deposits; fuels; and all other items of accrued or prepaid income and expenses customarily prorated on the transfer of industrial properties in the Topeka, Kansas metropolitan area shall be prorated on an accrual basis as of the closing date on the basis of the most recent ascertainable amounts of or other reliable information in respect to each such item of income and expense, and the net credit to Purchaser or Seller shall be paid in cash or as a credit against that portion of the purchase price payable on the closing date; provided that none of the foregoing items shall be prorated if Purchaser is obligated to pay for such items in accordance with the terms of the Lease. Except as otherwise provided herein, all prorations hereunder shall be final. Purchaser shall assume and timely discharge all obligations with respect to accrued expenses and prepaid income for which it receives proration credit and Purchaser shall indemnify, defend and hold harmless Seller against any claims with respect to accrued expenses and prepaid income for which it receives a proration credit. Notwithstanding the foregoing, if at any time within six (6) months following the closing date, either party discovers a mistake in proration or any items which should have been included in the closing statements but were omitted therefrom, then such items shall be adjusted in the same manner as if their existence had been known at the time of the preparation of the closing statements.
        15.    Closing Costs .    Seller shall pay all charges customarily attributable to sellers, including, without limitation, any state and county transfer taxes customarily, or by law or ordinance, an obligation of a seller. Purchaser shall pay all charges customarily, or by law or ordinance, attributable to purchasers, including, without limitation, all recordation charges. The parties shall each be solely responsible for the fees and disbursements of their respective counsel and other professional advisers.
        16.    Brokerage .    Purchaser and Seller each hereby represent and warrant to the other that they have not dealt with any broker, finder or other agent in connection with this Agreement or the transaction contemplated hereby. Each party hereby agrees to indemnify the other party for any claim
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for brokerage commission or finder's fee asserted by a person, firm or corporation claiming to have been engaged by the indemnifying party.
        17.    Assignment .    Seller and Purchaser hereby agree that Purchaser may assign any or all of its rights as Purchaser under this Agreement.
        18.    Entire Agreement .    This Agreement contains the entire agreement between the parties; it may not be modified, amended or discharged nor may any of its terms be waived except by an instrument in writing signed by the party to be bound thereby. Neither party has relied upon any verbal or written representations, agreements or understandings not set forth herein.
        19.    Time of the Essence .    Time is of the essence of this Agreement.
        20.    Governing Law .    This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas.
        21.    Severability .    If any provision of this Agreement is or shall be deemed to be illegal, invalid, or unenforceable, the remaining provisions hereof shall remain in full force and effect and interpreted as if such illegal, invalid or unenforceable provision did not exist herein.
        22.    Notices .    Any notice required hereunder shall be delivered, postage prepaid by registered mail, certified mail or by nationally recognized overnight courier to the addresses noted above. Notices sent by registered or certified mail shall be deemed delivered two (2) days after deposit in the mail. Notices sent by overnight courier shall be deemed delivered on the date following deposit with such courier.
         IN WITNESS WHEREOF , the Purchaser and Seller have executed and delivered this Agreement on the date first set forth above.

 PURCHASER:	 	SELLER:	

By:	

 	
By:	

Name:	

 	
Name:	

Title:	

 	
Title:	

Date:	

 	
Date:	

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Exhibit 10.28
 EXHIBIT B
REAL ESTATE PURCHASE AGREEMENT
 
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 Exhibit 10.29
FIRST AMENDMENT TO LEASE AGREEMENT
        This is the First Amendment (the "First Amendment") to the Lease between Steven Jones Landlord, and Mid-America Auto Parts, Inc. (f/k/a Recyclers Group, Inc.), Tenant, dated February 28, 1999 (the "Lease") for the Premises located at 5725 South Topeka, Topeka, Kansas. Where applicable, the capitalized terms in this First Amendment will have the same meaning as those defined in the Lease.
        Landlord has constructed a new building on the Premises, (the "New Building"), and Tenant desires to occupy the New Building. For these reasons, as of April 17, 2000 (the "Amendment Date"), the Lease shall be amended as follows:
        1.     The parties acknowledge that the name of Recyclers Group, Inc., was changed March 22, 1999 to Mid-America Auto Parts, Inc. and that since the signing of the Lease, the ownership of the property has changed, making Eileen Jones, Mark Fitzgibbons, and Kerry Fitzgibbons additional Landlords.
        2.     Section 2.4 will be amended to replace the words "fifteen (15) days" with the words "seven (7) days."
        3.     A Section 2.6 will be added to state the following, in its entirety:
        2.6   There shall be an additional amount of rent ("Additional Rent") due to Landlord. The Additional Rent shall be paid on a monthly basis, consistent with the terms and conditions for payment of Rent under the Lease, beginning the first day of the month following move-in. The annualized Additional Rent shall be calculated as a percentage of the additional purchase option price ("Additional Purchase Option Price") as established under Section 25.1 as amended. The formula for the calculation shall be as follows:
        Annual Additional Rent = Additional Purchase Option Price × [IBOR + 3%]
During the initial Term, Annual Additional Rent will be separately recalculated (to reflect changes in IBOR) one year after the first Additional Rent payment, and annually thereafter, with the amount reflecting the Additional Purchase Option Price remaining constant. In the first month of any Extension Period, the Additional Purchase Option Price will be adjusted (for purposes of rent calculation for the entire Term) by the same formula as Rent is adjusted under Section 2.1. During such Extension Period, Annual Additional Rent will be recalculated (to reflect changes in IBOR) annually thereafter. For purposes of this First Amendment, IBOR is the Inter-Bank Offered Rate for the highest rated banks as published in the Wall Street Journal for a one-year maturity. For each one year period, the rate will be locked in
        4.     Section 22.2 is amended to replace Landlord's notice address with the following:
Steven H. & Eileen Jones
16235 Sandstone Drive
Morrison, Colorado 80465
Mark & Kerry Fitzgibbons
4520 SW Moundview Drive
Topeka, Kansas 66614
        5.     A Section 25.5 is added, to state, in its entirety:
25.5
The fair market value of the building will be included in any calculation of Fair Market Value required under this Section 25 (but not including any improvements made at Tenant's cost). If the Option is exercised in the third year of the initial Term of this Lease, an amount of three hundred sixty-two thousand, one hundred twenty-one dollars and ninety-nine cents ($362,121.99) (the "Addition Purchase Option Price"), plus a premium of 10%, will be added to the Eight Hundred Thousand Dollar ($800,000) figure in Section 25.1, without other

adjustment. If the Option is exercised during any later exercise period, the Additional Purchase Option Price (and the 10% premium) will be added to the Eight Hundred Thousand Dollar ($800,000) figure in Section 25.1, and will be included in any CPI or other adjustment required under that provision.

LANDLORDS:	 	TENANT:	

Steven Jones
/s/   STEVEN JONES       

Mid-America Auto Parts, Inc.
/s/   THOMAS B. RATERMAN       

Eileen Jones
/s/   EILEEN JONES       

 	

Mark Fitzgibbons
/s/   MARK FITZGIBBONS       

 	

Kerry Fitzgibbons
/s/   KERRY FITZGIBBONS       

 	

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Exhibit 10.29
 
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 Exhibit 10.30
INDUSTRIAL BUILDING LEASE
BETWEEN
Mark Fitzgibbons and Steven Jones,
collectively, Landlord
and
Recyclers Group, Inc.,
Tenant
DATE OF LEASE: February 28, 1999
Premises:
5301 SW Topeka
Topeka, Kansas

 
 TABLE OF CONTENTS

 	 	 	 	Page
	
ARTICLE I	 	GRANT AND TERM	 	1	

ARTICLE II	
 	
RENT	
 	
1	

ARTICLE III	
 	
USE	
 	
2	

ARTICLE IV	
 	
POSSESSION	
 	
2	

ARTICLE V	
 	
TAXES	
 	
2	

ARTICLE VI	
 	
INSURANCE	
 	
3	

ARTICLE VII	
 	
UTILITIES	
 	
4	

ARTICLE VIII	
 	
MAINTENANCE AND ALTERATIONS	
 	
4	

ARTICLE IX	
 	
COMPLIANCE WITH LAWS AND ORDINANCES	
 	
4	

ARTICLE X	
 	
MECHANIC'S LIENS	
 	
5	

ARTICLE XI	
 	
OPTIONS TO EXTEND	
 	
5	

ARTICLE XII	
 	
DEFAULTS OF TENANT	
 	
6	

ARTICLE XIII	
 	
DESTRUCTION AND RESTORATION	
 	
7	

ARTICLE XIV	
 	
CONDEMNATION	
 	
8	

ARTICLE XV	
 	
ASSIGNMENT AND SUBLETTING	
 	
9	

ARTICLE XVI	
 	
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT	
 	
10	

ARTICLE XVII	
 	
SIGNS	
 	
10	

ARTICLE XVIII	
 	
LANDLORD'S ACCESS	
 	
11	

ARTICLE XIX	
 	
SURRENDER AND HOLDING-OVER	
 	
11	

ARTICLE XX	
 	
HAZARDOUS AND TOXIC MATERIALS	
 	
12	

ARTICLE XXI	
 	
RIGHT OF FIRST REFUSAL	
 	
14	

ARTICLE XXII	
 	
MISCELLANEOUS PROVISIONS	
 	
14	

ARTICLE XXIII	
 	
LANDLORD'S REPRESENTATIONS AND WARRANTIES	
 	
18	

ARTICLE XXIV	
 	
LANDLORD DEFAULT	
 	
19	

ARTICLE XXV	
 	
OPTION TO PURCHASE	
 	
19	

ARTICLE XXVI	
 	
FAIRMARKET VALUE	
 	
20	

EXHIBITS	

 	

EXHIBIT A -	
 	
Legal Description	

EXHIBIT B -	
 	
Purchase Agreement	
i

LEASE
         THIS LEASE (this "Lease") is made as of the 28 th day of February, 1999, by and between Mark Fitzgibbons and Steven Jones (collectively, "Landlord"), and Recyclers Group, Inc., a Kansas corporation ("Tenant").
ARTICLE I

 GRANT AND TERM
        1.1   Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, that certain approximately twelve (12) acre parcel of real estate (the "Land") located at 5301 SW Topeka, Topeka, Kansas, as legally described on Exhibit A attached hereto and by this reference made a part hereof, together with all improvements located thereon (the "Improvements"), and all appurtenances belonging to or in any way pertaining to such premises (the Land, Improvements and appurtenances hereinafter collectively referred to as the "Premises").
        1.2   The term hereof (the "Term") shall commence on February 28, 1999 (the "Commencement Date"), and shall terminate on the last day of the eighty-fourth (84 th ) complete calendar month to occur after the Commencement Date (the "Expiration Date") (unless the Term shall be terminated or extended in accordance herewith).
ARTICLE II

 RENT
        2.1   Annual rent ("Rent") throughout the first seven (7) years of the Term shall be Eighty Five Thousand and 00/100 Dollars ($85,000.00). On the seventh anniversary of either (i) the Commencement Date, if the same falls on the first day of a month, or (ii) the first day of the month immediately following the Commencement Date, if the same falls on other than the first day of a month, and on each succeeding fifth anniversary of such date during the Term, including any Extension Period(s), Rent shall increase by a percentage equal to the lesser of (x) the product of Two and One-Half Percent (2.5%) multiplied by the number of years since the last Rent increase, or, at the first Rent adjustment date, since the Commencement Date, or (y) the cumulative percentage increase in the Consumer Price Index since the last Rent increase, or, at the first Rent adjustment date, since the Commencement Date, as calculated using the Consumer Price Index for the month of January in the relevant year. As used herein, "Consumer Price Index" means the Consumer Price Index, for all Urban Consumers—Kansas City, All Items (based index year 1982-84 = 100), as published by the United States Department of Labor, Bureau of Labor Statistics. If the manner in which the Consumer Price Index is determined by the Bureau of Labor Statistics shall be substantially revised, including without limitation, a change in the base index year, an adjustment shall be made by Landlord in such revised index which would produce results equivalent, as nearly as possible, to those which would have been obtained if the Consumer Price Index had not been so revised. If the Consumer Price Index shall become unavailable to the public because publication is discontinued, or otherwise, or if equivalent data is not readily available to enable Landlord to make the adjustment referred to in the preceding sentence, then Landlord will substitute therefor a comparable index based upon changes in the cost of living or purchasing power of the consumer dollar published by any other governmental agency or, if no such index shall be available, then a comparable index published by a major bank or other financial institution or by a university or a recognized financial publication.
        2.2   Tenant shall pay Rent in equal monthly installments ("Monthly Rent") in advance on the first day of each and every calendar month during the Term. Monthly Rent for the first seven (7) years of the Term shall equal Seven Thousand Eighty Three and 33/100 Dollars ($7,083.33).
        2.3   Rent shall be paid to or upon the order of Landlord at Landlord's address set forth herein or as otherwise designated in writing by Landlord. Landlord may change its address by notice to Tenant of such change pursuant to Section 22.2 hereof.

        2.4   Rent not paid within fifteen (15) days after the same is due shall bear interest from the date when due and payable under the terms hereof until the same is paid at an annual rate of interest equal to ten percent (10%), unless a lesser rate shall then be the maximum rate permissible by law, in which event said lesser rate shall be charged. The rate of interest determined pursuant to the preceding sentence is sometimes hereinafter referred to as the "Maximum Rate of Interest."
        2.5   If the Commencement Date occurs on other than the first day of the month, or the Term shall end other than on the last day of the month, Tenant shall pay proportionate Rent at the monthly rate set forth herein (in advance) for such partial month, as well as any other charges payable for such partial month.
ARTICLE III

 USE
        The Premises may be used and occupied for any lawful purpose. Tenant shall not use or permit the Premises to be used for any unlawful purpose.
ARTICLE IV

 POSSESSION
        Except as otherwise expressly provided herein, Landlord shall deliver exclusive possession of the Premises to Tenant on or before the Commencement Date.
ARTICLE V

 TAXES
        5.1   "Taxes" shall mean real estate taxes, sewer rents, rates and charges, and any other federal, state or local governmental charge, general, special, ordinary or extraordinary (but not including special or general assessments, which Landlord and Tenant agree to split equally, and income or franchise taxes or any other taxes imposed upon or measured by Landlord's income or profits, except as provided herein), which may now or hereafter be levied or imposed against the Premises or any portion thereof or interest therein. Notwithstanding the year for which any such Taxes are levied, in the case of special taxes which may be payable in installments, the amount of each installment, plus any interest payable thereon, payable during any year shall be considered Taxes assessed and levied for that year. Except as provided in the preceding sentence, all references to Taxes levied, confirmed or imposed during a particular year or Taxes "for" a particular year shall be deemed to refer to Taxes levied or otherwise imposed during such year without regard to when such Taxes are payable; provided, however, that in no event shall such Taxes be charged to or against Tenant or its successors or assigns, more than once. Landlord represents and warrants that it has received no written notice of special assessments affecting the Premises as of the date hereof.
        5.2   Tenant shall pay, before any fine, penalty, interest or cost is incurred, all Taxes which are levied, confirmed, imposed or which become a lien upon the Premises with respect to any period of time within the Term; provided, however, that as to any calendar year not falling entirely within the Term, Tenant shall be obligated to pay only a prorata share of Taxes based upon the number of days of the Term falling within the calendar year. Within ten (10) days after receipt of a copy of a tax bill, Landlord shall forward same to Tenant. Tenant shall not be liable for any costs, penalties or other expenses due to Landlord's failure to provide copies of such tax bills in a timely manner.
        5.3   Tenant shall have the right to contest at its own expense the amount or validity, in whole or in part, of any Taxes by appropriate proceedings diligently conducted in good faith, but only after payment of such Taxes, unless such payment, or a payment thereof under protest, would operate as a bar to such contest or interfere materially with the prosecution thereof, in which event, notwithstanding the provisions of Section 5.2 hereof, Tenant may postpone or defer payment of such Taxes if neither the
2

Premises nor any portion thereof, by reason of such postponement or deferment, would be in danger of being forfeited or lost. Tenant also shall have the right to select the counsel to be retained in connection with the prosecution of any such proceedings. Upon the termination of any such proceedings, Tenant shall pay the amount of such Taxes or part thereof, if any, as finally determined in such proceedings, the payment of which may have been deferred during the prosecution of such proceedings, together with any costs, fees, including attorneys' fees, interest, penalties, fines and other liability in connection therewith. Tenant shall be entitled to the refund of any Taxes, penalty, fine and interest thereon received by Landlord which have been paid by Tenant or which have been paid by Landlord but for which Landlord previously has been reimbursed in full by Tenant. Landlord shall not be required to join in any proceedings referred to in this Section 5.3 unless the provisions of any law, rule or regulation at the time in effect shall require that such proceedings be brought by or in the name of Landlord, in which event Landlord shall join in such proceedings or permit the same to be brought in Landlord's name.
        5.4   Tenant covenants to furnish to Landlord, upon request by Landlord therefor, official receipts of the appropriate taxing authority, or other appropriate proof reasonably satisfactory to Landlord, evidencing the payment of the same.
ARTICLE VI

 INSURANCE
        6.1   Tenant shall procure and maintain policies of insurance, at its own cost and expense, in character and amounts substantially similar to that insurance carried on the Premises by Landlord prior to the date of this Lease, and shall maintain such policies throughout the Term, and any Extension Period(s), in a commensurate ratio of insurance to replacement cost; provided, however, that if the same becomes unreasonably expensive or impracticable to maintain, Tenant shall maintain insurance in accordance with industry standards.
        6.2   Notwithstanding anything herein contained to the contrary, and provided the party providing the self-insurance has a consolidated net worth (computed to include the net worth of any subsidiaries and affiliates) equal to or exceeding $100 million, Tenant shall have the right to self-insure against any and all risks.
        6.3   Notwithstanding any other provision of this Lease to the contrary, and without limitation of the provisions of this Article VI, whenever (a) any loss, cost, damage or expense resulting from fire, explosion or any other casualty or occurrence is incurred by either of the parties hereto, or anyone claiming by, through, or under it in connection with the Premises, and (b) such party then is covered in whole or in part by insurance with respect to such loss, cost, damage or expense or is required under this Lease to be so insured, then the party so insured (or so required) hereby waives any claims against and releases the other party from any liability said other party may have on account of such loss, cost, damage or expense to the extent of any amount recovered by reason of such insurance (or which could have been recovered had such insurance been carried as so required). The parties agree to furnish to each insurance company which has or will issue policies of casualty insurance on the Improvements, written notice of said waivers and to have the insurance policies properly endorsed, if necessary, to acknowledge such subrogation waivers. Such release of liability and waiver of the right of subrogation shall not be operative in any case where the effect thereof is to invalidate such insurance coverage or increase the cost thereof (except that in the case of increased cost, the other party shall have the right, within thirty (30) days following written notice, to pay such increased cost, thereby keeping such release and waiver in full force and effect).
        6.4   Tenant shall, within 30 days of the Commencement Date, provide Landlord with a certificate of insurance demonstrating that Tenant has obtained the required insurance. Thereafter, upon
3

Landlord's written request, Tenant shall provide Landlord with a certificate of insurance evidencing the renewal and continued maintenance of such insurance.
ARTICLE VII

 UTILITIES
        Tenant will pay, when due, all charges of every nature, kind or description for utilities consumed by Tenant at the Premises, including all charges for water, sewage, heat, gas, light, garbage, electricity, telephone, steam, power or other public or private utility services.
ARTICLE VIII

 MAINTENANCE AND ALTERATIONS
        8.1   Tenant shall keep and maintain the exterior and interior of the Premises in good condition and repair. As used herein, each and every obligation of Tenant to keep, maintain and repair shall include, without limitation, all ordinary nonstructural repairs and replacements. To the extent possible, Tenant shall keep the Premises from falling temporarily out of repair or deteriorating. Further, Tenant shall keep and maintain the improvements at any time situated upon the Premises, the parking area and all sidewalks and areas adjacent thereto, safe, secure, clean and sanitary (including, without limitation, snow and ice clearance, planting and replacing flowers and landscaping, and necessary interior painting and carpet cleaning), and in substantial compliance with all zoning, municipal, county and state laws, ordinances and regulations applicable to the Premises. Landlord represents and warrants that the Premises are as of the date of this Lease, in compliance with all applicable zoning, municipal, county and state laws, ordinances and regulations.
        8.2   Tenant shall make all repairs, alterations, additions and improvements (hereinafter, "Alterations") on the Premises, and on and to the Improvements, parking areas, sidewalks, and equipment thereon, which may be made necessary by the act or neglect of Tenant, its employees, agents or contractors, or any persons, firm or corporation, claiming by, through or under Tenant or which are necessary or desirable in Tenant's sole opinion for the safer or more efficient operation of Tenant's business. All Alterations performed by Tenant shall be performed with new materials in a good and workmanlike manner.
        8.3   Notwithstanding anything to the contrary contained in the foregoing, Landlord shall maintain and repair the Premises' structure, foundation and roof, and plumbing, electrical, heating, ventilating, air conditioning and other mechanical systems (the "Systems") in accordance with all Federal, state and local requirements and shall make all necessary maintenance and structural repairs to the Premises and Systems, which under generally accepted accounting principles are properly classified as capital expenses. Tenant shall be responsible, at its sole cost and expense, for routine maintenance of the Systems.
ARTICLE IX

 COMPLIANCE WITH LAWS AND ORDINANCES
        9.1   Except with respect to matters arising prior to Tenant's occupancy of the Premises, and except as expressly provided elsewhere in this Lease, including without limitation Section 20.3, at its sole cost and expense throughout the Term, Tenant shall comply or cause compliance in all material respects with or remove or cure any material violation of any and all present and future laws, ordinances, orders, rules, regulations and requirements of all federal, state, municipal and other governmental bodies having jurisdiction over the Premises and relating solely to Tenant's use of the Premises. Notwithstanding the foregoing, Landlord shall be responsible to cause the Premises to comply with the Americans with Disabilities Act.
4

        9.2   After prior written notice to Landlord, Tenant, at its sole cost and expense, shall have the right to contest the validity or application of any law or ordinance referred to in this Article IX in the name of Tenant or Landlord, or both, by appropriate legal proceedings diligently conducted. If necessary or proper to permit Tenant to so contest the validity or application of any such law or ordinance, Landlord shall execute and deliver any appropriate papers or other documents.
ARTICLE X

 MECHANIC'S LIENS
        Tenant shall not suffer or permit any mechanic's lien or other lien to be filed against the Premises, or any portion thereof, by reason of work, labor, skill, services, equipment or materials supplied or claimed to have been supplied to the Premises at the request of Tenant, or of anyone holding the Premises, or any portion thereof, by through or under Tenant. If any such mechanic's lien or other lien at any time shall be filed against the Premises or any portion thereof, Tenant, within thirty (30) days after the date Tenant first becomes aware of the filing of the same, at Tenant's election, shall cause said lien either to be discharged of record or to be bonded over in a manner which is reasonably acceptable to Landlord. If Tenant shall fail to discharge such mechanic's lien or liens or other lien or to bond over the same within such period, then Landlord may, but shall not be obligated to, discharge the same by paying to the claimant the amount claimed to be due or by procuring the discharge of such lien as to the Premises by deposit of a cash sum or a bond or other security, or in such other manner as is now or may in the future be provided by present or future law for the discharge of such lien as a lien against the Premises. Any amount paid by Landlord, or the value of any deposit so made by Landlord, together with all costs, fees and expenses in connection therewith (including reasonable attorneys' fees), together with interest thereon at the Maximum Rate of Interest, shall be repaid by Tenant to Landlord within thirty (30) days after demand therefor. Tenant shall indemnify, defend and hold harmless Landlord and the Premises from all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorneys' fees, resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanic's lien or other lien.
ARTICLE XI

 OPTIONS TO EXTEND
        11.1 Subject to the provisions hereinafter set forth in this Article XI, Landlord hereby grants Tenant options to extend the Term on the same terms, conditions and provisions as contained in this Lease, except as otherwise expressly provided herein, for three (3) periods of five (5) years each (collectively the "Extension Periods," or individually an "Extension Period," as applicable). If exercised in accordance herewith, the first Extension Period shall commence on the first (1st) day after the Expiration Date and each successive Extension Period shall commence on the day after the expiration of the immediately preceding Extension Period.
        11.2 Said options to extend each shall be exercisable in the following manner:
        (a)   Not less than sixty (60) days prior to the Expiration Date or the last day of the applicable Extension Period, Tenant, by written notice to Landlord ("Extension Notice"), may exercise Tenant's option to extend for the next occurring Extension Period; provided, however, that if Tenant shall fail to give such Extension Notice, Tenant's right to exercise such option nevertheless shall continue until thirty (30) days after Landlord shall have given Tenant written notice of Landlord's election to terminate such option to extend, and Tenant may exercise such option at any time until the expiration of said thirty (30) day period by the giving of an Extension Notice, it being the intention of the parties to avoid forfeiture of Tenant's right to extend the Term through inadvertent failure to deliver an Extension Notice within the time limit prescribed. If an option to extend the Term, as the same may have been previously extended, is not extended in the aforesaid
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manner, the Term and Tenant's rights hereunder and its rights to occupy and possess the Premises shall expire on the Expiration Date, or the last day of the then applicable Extension Period, as the case may be.
        (b)   Subject to Section 11.3 hereof, if Tenant delivers an Extension Notice as aforesaid, the Term shall be extended on the same terms, conditions and provisions as contained herein
        11.3 Rent during the Extension Period(s) shall be determined in accordance with the provisions of Section 2.1.
ARTICLE XII

 DEFAULTS OF TENANT
        12.1 The occurrence of any one or more of the following events shall constitute an "Event of Default":
        (a)   If default shall be made in the due and punctual payment of any Rent or in the payment of any other amount to be paid by Tenant to Landlord, when and as the same shall become due and payable, and such default shall continue for a period of fifteen (15) days after Tenant's receipt of written notice thereof from Landlord; or
        (b)   If default shall be made by Tenant in keeping, observing or performing any of the terms contained in this Lease, other than as referred to in subsection (a) of this Section 12.1, and such default shall continue for a period of thirty (30) days after Tenant's receipt of written notice thereof given by Landlord, or such longer period as is reasonable to cure said default, if said default cannot, with due diligence and in good faith, be cured within said thirty (30) days, provided that Tenant promptly and with due diligence and in good faith fails to commence the cure of the same within the thirty (30) day period and thereafter fails to prosecute the curing of such default with due diligence and in good faith.
        12.2 If an Event of Default occurs, Landlord shall have the rights and remedies hereinafter set forth, which shall be distinct, separate and cumulative.
        (a)   Landlord may terminate this Lease by giving Tenant written notice of its election to do so, in which event the Term shall end and all right, title and interest of Tenant hereunder shall expire on the date stated in such notice;
        (b)   Landlord may terminate Tenant's right to possess the Premises without terminating this Lease by giving written notice to Tenant that Tenant's right of possession shall end on the date stated in such notice, whereupon Tenant's right to possess the Premises or any part thereof shall cease on the date stated in such notice; and
        (c)   Landlord may enforce the provisions of this Lease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, and for the enforcement of any other appropriate legal or equitable remedy, including, without limitation, injunctive relief, and for recovery of all monies due or to become due from Tenant under any of the provisions of this Lease.
        12.3 If Landlord exercises either of the remedies provided for in Sections 12.2(a) and 12.2(b), Tenant shall surrender possession of and vacate the Premises and immediately deliver possession thereof to Landlord, and Landlord may, upon proper process of law, re-enter and take complete and peaceful possession of the Premises.
        12.4 If Landlord terminates Tenant's right to possess the Premises without terminating this Lease, such termination of possession shall not release Tenant, in whole or in part, from Tenant's obligation to pay the Rent hereunder for the full Term, as and when the same becomes due and payable, and
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Landlord shall have the right, from time to time, to recover from Tenant, and Tenant shall remain liable for, all Rent and any other sums due and payable to Landlord during the period from the date of such notice of termination of possession to the stated end of the Term. In any such case, Landlord shall use reasonable efforts to mitigate damages and to re-let the Premises or any part thereof for the account of Tenant for such time (which may be for a term extending beyond the Term) and upon such terms as Landlord reasonably shall determine. Also, in any such case, Tenant shall pay the cost of Landlord's reasonable expenses of re-letting. Landlord shall collect the rents from any such re-letting and apply the same first to the payment of its unreimbursed expenses of re-letting and second to the payment of Rent herein provided to be paid by Tenant, and any excess or residue, until the expiration of the Term, shall operate only as an offsetting credit against the amount of Rent due and owing which thereafter becomes due and payable hereunder, and upon the expiration of the Term, the total aggregate amount of all such excesses which Landlord has then accumulated, if any, shall be paid to Tenant. No such re-entry, repossession or re-letting shall be construed as an eviction or ouster of Tenant or as an election on Landlord's part to terminate this Lease, unless a written notice of such intention is given to Tenant, and Landlord, at any time and from time to time, may sue and seek a judgment for any deficiencies from time to time remaining after the application of the proceeds of any such re-letting. In no event shall Landlord be entitled to collect Rent or other charges from Tenant prior to the date the same is due and payable under the terms of this Lease.
        12.5 If Landlord terminates this Lease pursuant to Section 12.2(a) hereof, Landlord shall be entitled to recover, as and for final damages for Tenant's default, an amount equal to the difference between the present value of the aggregate Rent to be paid by Tenant hereunder for the unexpired portion of the Term, and the then present value of the aggregate reasonable fair market rent for the Premises over the same period. In the computation of present value, a discount rate of six percent (6%) per annum shall be employed.
ARTICLE XIII

 DESTRUCTION AND RESTORATION
        13.1 Tenant covenants and agrees that, subject to the availability of insurance proceeds, in case of damage or destruction of the Improvements after the Commencement Date by fire or otherwise, Tenant shall promptly restore, repair, replace and rebuild the same as nearly as possible to the condition that the same were in immediately prior to such damage or destruction with such changes or alterations (made in conformity with Article VIII hereof) as may be reasonably acceptable to Landlord or required by law. Such restoration, repairs, replacements, rebuilding, changes and alterations, including the cost of temporary repairs for the protection of the Improvements, or any portion thereof, pending completion thereof are sometimes hereinafter referred to as the "Restoration." The Restoration shall be carried on and completed in accordance with the provisions and conditions of this Section and Article VIII hereof. All insurance monies payable on account of such damage or destruction shall be applied to the payment of the costs of the Restoration. Notwithstanding anything to the contrary herein contained, if the insurance monies in the hands of Tenant shall be insufficient to pay the entire costs of the Restoration, Landlord may, but shall not be obligated to, pay any deficiency. If Landlord elects not to pay any such deficiency, Tenant shall have the right to terminate this Lease upon thirty (30) days prior written notice to Landlord. Upon completion of the Restoration, Tenant shall be entitled to any insurance monies then remaining.
        13.2 From and after any destruction of or damage to the Improvements, or any portion thereof, by fire, casualty or otherwise, which, results in the inability of Tenant to conduct its business, in part or in whole, at the Premises, all Rent and all other charges payable by Tenant hereunder shall abate from the date of such suspension of business until the earlier of (a) the date such business is resumed, or (b) the completion of Restoration; and in connection therewith, if the Improvements are damaged in
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part but Tenant elects to continue to conduct its business therein, the Rent shall abate and be diminished in proportion to that part of the Improvements which is rendered unusable.
        13.3 Notwithstanding the foregoing provisions of this Article XIII, in case of damage or destruction of the Improvements which, in Tenant's reasonable judgment cannot be repaired or restored within six (6) months following the date of damage or destruction, Tenant shall have the option of terminating this Lease as of the date of such damage or destruction by notice in writing given to Landlord within thirty (30) days after the occurrence of such damage or destruction. In such event, Landlord shall be entitled to all of the casualty insurance proceeds payable on account of such damage or destruction (excluding any insurance coverage for Tenant's contents, trade fixtures and other personal property), and Tenant shall assign to Landlord, Tenant's rights to such insurance proceeds.
ARTICLE XIV

 CONDEMNATION
        14.1 If, during the Term, the entire Premises shall be taken as the result of the exercise of the power of eminent domain or conveyed under threat thereof (hereinafter referred to as the "Proceedings"), this Lease and all right, title and interest of Tenant hereunder shall terminate on the earlier of taking of possession by the condemning authority or the date of vesting of title pursuant to such Proceedings. Landlord and Tenant each shall be entitled to an allocation of the award to be made in such Proceedings relative to their respective interests in the Premises. For purposes of determining the value of Tenant's interest, it shall be assumed that Tenant would extend the Term for the maximum number of Extension Periods.
        14.2 If, during the Term, less than the entire Premises shall be taken in any such Proceedings, but such taking shall materially effect Tenant's use of the Premises, Tenant may terminate this Lease. Such termination shall be effected by notice in writing given not more than sixty (60) days after the date of vesting of title in such Proceedings, and shall specify a date not more than sixty (60) days after the giving of such notice as the date for such termination. Upon the date specified in such notice, the Term this Lease, and all right, title and interest of Tenant hereunder shall cease and terminate. If this Lease is terminated as provided in this Section 14.2, Landlord and Tenant each shall be entitled to an allocation of the award to be made in such Proceedings relative to their respective interests in the Premises. For purposes of determining the value of Tenant's interest, it shall be assumed that Tenant would extend the Term for the maximum number of Extension Periods.
        14.3 If during the Term, less than the entire Premises shall be taken, but either (i) such taking shall not materially effect Tenant's use of the Premises or (ii) Tenant does not elect to terminate pursuant to Section 14.2, this Lease, upon the earlier of taking of possession by the condemning authority or vesting of title in the Proceedings, shall terminate as to the parts so taken, and the proceeds of the award for such taking shall be delivered to Tenant to the extent necessary to restore that portion of the Improvements on the Premises not so taken to a complete architectural and mechanical unit and otherwise to make the remaining Premises appropriate for the use and occupancy of Tenant. In the event that the net amount of the award (after deduction of all costs and expenses, including attorneys' fees) that may be received in any such Proceedings for physical damage to the Improvements or the Land as a result of such taking is insufficient to pay all costs of such restoration work, Landlord shall deposit with Tenant such additional sum as may be required. The provisions and conditions in Article VIII applicable to changes and alterations shall apply to Tenant's obligations to restore as aforesaid.
        14.4 In the event of any termination of this Lease, or any part thereof, as a result of any such Proceedings, Tenant shall pay to Landlord all Rent and all other charges payable hereunder with respect to that portion of the Premises so taken, apportioned to the date of such termination.
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        14.5 If Tenant either is not entitled, or does not elect, to terminate this Lease in the event of a partial taking of the Premises, the Rent payable hereunder during the period from and after the earlier of the taking of possession by the condemning authority and the date of vesting of title in such Proceedings through to the expiration or termination of this Lease (as the Term may be extended) shall abate and be diminished in proportion to that part of the Improvements and the Land which has been taken.
ARTICLE XV

 ASSIGNMENT AND SUBLETTING
        15.1 Tenant, at any time and from time to time during the Term, upon Landlord's prior written approval, which approval shall not be unreasonably withheld or delayed, may: (a) assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest under it; (b) allow to exist or occur any transfer of or lien upon this Lease or Tenant's interest herein by operation of law; or (c) sublet the Premises or any part thereof; provided, however, that the same shall not relieve Tenant from liability for performance of any covenant or obligation hereunder. Notwithstanding the foregoing, Tenant may assign its rights and interest in this Lease to (i) any party affiliated with Tenant, (ii) any entity resulting from a merger or consolidation of Tenant into or with another entity or (iii) any entity succeeding to the business and assets of Tenant, without Landlord's prior written consent; provided, however, that such assignment shall not relieve Tenant from liability for the performance of any covenant or obligation hereunder, and, provided further, that Tenant shall notify Landlord in writing of such actions.
        15.2 If Tenant shall assign this Lease, the assignee expressly shall assume in writing all of the obligations of Tenant hereunder.
        15.3 Landlord shall have the ability to transfer the Premises and assign its interest in the Lease to an entity affiliated with Landlord, without Tenant's prior consent, provided that Landlord shall give Tenant written notice of any such transfer. The provisions of Article XXI shall not apply to a transfer under this Section 15.3.
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 ARTICLE XVI

 SUBORDINATION, NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT
        16.1    This Lease is and shall be subject and subordinate to the lien of any mortgage, deed of trust, security instrument or other document of like nature, hereinafter referred to as "Mortgage", which now or at any time hereafter may be placed upon the Premises, or any portion thereof or interest therein, and to all present and future ground or underlying leases of the Land, and to any replacements, renewals, amendments, modifications, extensions or refinancing of any of the foregoing, and to each and every advance made under any Mortgage (unless the holder of any Mortgage or the lessor under any such ground or underlying lease [such holder or lessor being hereinafter referred to as a "Mortgagee"] requires in writing that this Lease be superior thereto); provided that the Mortgagee agrees in writing that so long as no Event of Default is continuing, neither Tenant's right to quiet enjoyment under this Lease, nor the right of Tenant to continue to occupy the Premises and all portions thereof, and to conduct its business thereon in accordance with the covenants, conditions, provisions, terms and agreements of this Lease, shall be interfered with or disturbed by Landlord or anyone claiming by, through or under Landlord, including Mortgagee. Tenant agrees at any time hereafter, and from time to time within thirty (30) days after demand of Landlord, to execute and deliver to Landlord any instruments, releases or other documents that reasonably may be required to effect or confirm the subordination or superiority of this Lease to the lien of any such Mortgage or to any such ground or underlying lease. In addition, Landlord shall cause any Mortgagee currently holding a Mortgage, to agree in writing in a manner satisfactory to Tenant not to interfere with or disturb Tenant's rights as aforesaid so long as no Event of Default is continuing said writing to be delivered to Tenant within thirty (30) days of the Commencement Date. The lien of any Mortgage shall not cover Tenant's trade fixtures or other personal property located in or on the Premises.
        16.2    If any Mortgagee shall succeed to the rights of Landlord under this Lease or to ownership of the Premises, whether through foreclosure or the delivery of a deed in lieu thereof, then upon the written request of such Mortgagee, and provided that such Mortgagee agrees in writing to assume and be bound by all of Landlord's obligations hereunder, Tenant shall attorn to and recognize such Mortgagee as Tenant's landlord under this Lease, and shall execute and deliver any instrument that such Mortgagee may reasonably request to evidence such attornment. Subject to the terms of Section 22.7 hereof, in the event of any other transfer of Landlord's interest hereunder, upon the written request of the transferee and Landlord, and provided such transferee agrees in writing to assume and be bound by all of Landlord's obligations hereunder, Tenant shall attorn to and recognize such transferee as Tenant's landlord under this Lease and shall execute and deliver any instrument that such transferee and Landlord reasonably may request to evidence such attornment.
ARTICLE XVII

 SIGNS
        Tenant may erect any signs on the exterior or interior of the Improvements or on the landscaped area adjacent thereto, provided that such sign or signs (i) do not cause any irreparable structural damage or other damage to the Improvements; (ii) do not violate applicable governmental laws, ordinances, rules or regulations; and (iii) do not violate any covenants, conditions or restrictions affecting the Premises.
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ARTICLE XVIII

 LANDLORD'S ACCESS
        18.1    Tenant agrees to permit Landlord and its authorized representatives, at Landlord's sole cost and expense, to enter upon the Premises at all reasonable times during ordinary business hours, upon not less than two (2) business days prior notice, for the purpose of inspecting the same and making any necessary repairs or replacements which are the obligation of Landlord. Landlord may, during the progress of any work required hereunder, keep and store upon the Premises all reasonably necessary materials, tools and equipment.
        18.2    Landlord is hereby also given the right at all reasonable times during ordinary business hours, upon not less than two (2) business days prior notice, to enter upon the Premises and to exhibit the same for the purpose of mortgaging or selling the same or, during the final four (4) months of the Term, leasing the same.
        18.3    In exercising its rights hereunder, Landlord shall refrain from any acts which may interfere with Tenant's use or occupancy of the Premises or access thereto. Without limiting the generality of the foregoing, Landlord acknowledges that it is necessary for Tenant to control access to the Premises in order to avoid unauthorized persons from viewing Tenant's trade secrets, proprietary products, technology and/or processes. Accordingly, while within the Premises, Landlord and its representatives, at Tenant's option, shall be accompanied by a representative of Tenant and shall comply with reasonable directions of such representative relative to safety and to the protection of Tenant's trade secrets and other proprietary information. Landlord also agrees to defend, indemnify and hold Tenant harmless against any and all claims, damages, liability, costs and expenses arising out of or alleged to have arisen out of any entry onto the Premises by Landlord and/or its authorized representatives. Landlord agrees to execute and cause its authorized representatives to execute confidentiality agreements as required by Tenant.
ARTICLE XIX

 SURRENDER AND HOLDING-OVER
        19.1    Upon the termination of this Lease, whether by forfeiture, lapse of time or otherwise, or upon termination of Tenant's right to possession of the Premises, Tenant will at once surrender and deliver up the Premises, together with all improvements thereon, to Landlord, in good condition and repair, reasonable wear and tear and damage by casualty and condemnation excepted. Said improvements shall include all plumbing, lighting, electrical, heating, cooling and ventilating fixtures and equipment, and all alterations. All permanent alterations, additions and improvements made in or upon the Premises by Tenant shall become Landlord's property and shall remain upon the Premises on any such termination without compensation, allowance or credit to Tenant.
        19.2    Upon the termination of this Lease, Tenant shall remove Tenant's personal property, trade fixtures and equipment; provided, however, that Tenant shall repair any injury or damage to the Premises which may result from such removal and shall restore the Premises to the same condition as existed prior to the installation thereof. If Tenant does not remove Tenant's personal property, trade fixtures and equipment from the Premises prior to the expiration or earlier termination of the Term, Landlord, upon thirty (30) days' notice to Tenant, at its option, may remove the same (and repair any damage occasioned thereby) and dispose thereof or deliver the same to any other place of business of Tenant or warehouse the same, and Tenant shall pay the cost of such removal, repair, delivery and warehousing to Landlord within thirty (30) days of demand therefor.
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        19.3    Tenant shall have no right to occupy the Premises or any portion thereof after the expiration of this Lease or after the termination of this Lease or of Tenant's right to possession pursuant to Article XII hereof. In the event Tenant or any party claiming by, through or under Tenant holds over, Landlord may exercise any and all remedies available to it at law or in equity to recover possession of the Premises, and for direct damages; provided, however, that Landlord shall not be entitled to recover, and hereby expressly waives any right to recover, consequential damages. Notwithstanding anything contained herein to the contrary, in the event Tenant or any party claiming by, through or under Tenant holds-over after the expiration of the Term, Landlord may elect, in lieu of any other remedy provided by law or herein, that the same shall constitute a month-to-month tenancy upon the same terms as in this Lease at a rate of rent equal to one hundred twenty five percent (125%) of the Monthly Rent for the month in which the Term expires.
ARTICLE XX

 HAZARDOUS AND TOXIC MATERIALS
        20.1    As used herein:
        (a)   "Claim" shall mean and include any demand, cause of action, proceeding or suit (i) for damages, losses, injuries to person or property, damages to natural resources, fines, penalties, interest, or contribution; (ii) for the costs of site investigations, feasibility studies, information requests, health or risk assessments or Response actions; or (iii) for enforcing this Article XX.
        (b)   "Environmental Law" means federal, state, regional, county and local administrative rules, statutes, codes, ordinances, regulations, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders, judgments, and any similar items, relating to the protection of human health, safety, or the environment including without limitation: (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") (42 U.S.C. §§ 9601 et seq. ; (b) the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. §§ 9601 et seq. ); (c) The Hazardous Materials Transportation Control Act of 1970 (49 U.S.C. §§ 1802 et seq. ; (d) the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Act Amendments ("RCRA") (42 U.S.C. §§ 6901 et seq. ); (e) the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977 (33 U.S.C. §§ 1251 et seq. ) (the "Clean Water Act"); (f) the Safe Drinking Water Act (42 U.S.C. §§ 300h et seq. ); (g) the Clean Air Act, as amended by the Clean Air Act Amendments of 1990 (42 U.S.C. §§ 1857 et seq. ); (h) the Solid Waste Disposal Act, as amended by RCRA (42 U.S.C. § 6901 et seq. ); (i) the Toxic Substances Control Act (15 U.S.C. §§ 2601 et seq. ); (j) the Emergency Planning and Community Right-to-Know Act of 1986 ("EPCRA") (42 U.S.C. §§ 11001 et seq. ); (k) the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA") (7 U.S.C. §§ 136 et seq. ); (l) the National Environmental Policy Act of 1975 (42 U.S.C. §§ 4321 et seq. ); (m) the Radon Gas and Indoor Air Quality Reserve Act (42 U.S.C. §§ 7401 et seq. ); (n) the National Environmental Policy Act of 1975 (42 U.S.C. §§ 4321 et seq. ); (o) the Rivers and Harbors Act of 1899 (33 U.S.C. §§ 401 et seq. ); (p) the Oil Pollution Act of 1990 (33 U.S.C. §§ 1321 et seq. ); (q) the Endangered Species Act of 1973, as amended (16 U.S.C. §§ 1531 et seq. ); (r) the Occupational Safety and Health Act of 1970, as amended, (29 U.S.C. 651 et seq. ); (s) North American Free Trade Act, (t) counterparts of any of the foregoing federal statutes enacted within or outside the United States or by any other nation, any U.S. state, region, county or local government (including any subdivisions thereof); (u) any and all laws, rules, regulations, codes, ordinances, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders and judgments enacted or promulgated under any of the foregoing, all as amended and as may be amended in the future, and (v) common law theories of nuisance, trespass, waste, negligence, and abnormally dangerous activities arising out of or relating to the presence of Hazardous Substances in the environment or work place.
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        (c)   "Hazardous Substance" shall be construed broadly to include any substance, material or waste, including without limitation any constituent, chemical, element, particle, compound, material, substance or waste which is defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous substance," "restricted hazardous waste," "contaminant," "toxic waste," "toxic substance," or "special waste" under any Environmental Law which includes, but is not limited to, petroleum, petroleum by-products (including crude oil and any fraction thereof), waste oils, any hydrocarbon based substance, asbestos, asbestos-containing materials, urea formaldehyde and polychlorinated biphenyls.
        (d)   "Manage" or "Management" means to generate, manufacture, process, treat, store, use, re-use, refine, recycle, reclaim, blend or burn for energy recovery, incinerate, accumulate speculatively, transport, transfer, dispose of or abandon Hazardous Substance.
        (e)   "Release" shall mean releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping into the indoor or outdoor environment, including without limitation the abandonment or discarding of barrels, drums, containers, tanks and other receptacles containing or previously containing any Hazardous Substance.
        (f)    "Response" or "Respond" shall mean action required by any Environmental Law to correct, remove, remediate, cleanup, prevent, mitigate, monitor, evaluate, investigate, assess or abate a Release of a Hazardous Substance.
        20.2    During the Term, Tenant, at its sole cost and expense, shall (a) comply with all Environmental Laws relating solely to its use of the Premises, and permits issued thereunder; (b) conduct any Management of Hazardous Substances by Tenant on the Premises in compliance with Environmental Laws; (c) use commercially reasonable efforts so as to not cause or allow the Release of any Hazardous Substances on, to or from the Premises, except in compliance with Environmental Laws and permits issued thereunder; (d) arrange for the lawful transportation and off-site disposal of all Hazardous Substances that it generates; and (e) secure, maintain, and comply with all permits required by Environmental Laws in connection with Tenant's use of the Premises.
        20.3    During the Term, Landlord, at its sole cost and expense, shall (a) comply with all Environmental Laws other than those relating solely to Tenant's use of the Premises, and permits issued thereunder; (b) secure, maintain and comply with all permits required by Environmental Laws other than those required solely by reason of Tenant's use of the Premises; and (c) cure any violation of any Environmental Laws attributable to the period prior to the Commencement Date.
        20.4    Landlord and Landlord's agents and employees shall have the right to enter upon the Premises to conduct appropriate inspections or tests in order to determine Tenant's compliance with Environmental Laws, provided that (a) such inspections and tests shall be performed at the sole cost and expense of Landlord; (b) Landlord shall provide Tenant with written notice not less than five business (5) days prior to conducting such inspections or tests; (c) such tests shall be performed at reasonable times designated by Tenant, shall be subject to the provisions of Section 18.3 and in all other respects shall not interfere with Tenant's business operations and shall be in compliance with Tenant's security procedures; and (d) Landlord promptly shall communicate and, when appropriate, delivery copies of the results of any investigation and tests, to Tenant.
        20.5    If Tenant's Management of Hazardous Substances at the Premises (a) results in or causes a Release which violates an Environmental Laws or permits issued thereunder; (b) gives rise to liability or a Claim or requires a Response under common law or any Environmental Law or permit issued thereunder; (c) causes a significant public health effect; or (d) creates a nuisance, Tenant, in any and all such occurrences and at its sole cost and expense, promptly shall take all applicable action in Response.
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        20.6    Tenant shall indemnify, defend and hold harmless Landlord, its beneficiary, managing agents and mortgagees from all Claims arising from or attributable to any breach by Tenant of any of its warranties, representations or covenants in this Article XX.
        20.7    Notwithstanding anything in the Article XX to the contrary, Tenant shall not be liable and Landlord shall fully indemnify and hold Tenant harmless from and against any and all liabilities, damages, expenses, costs and losses arising from, or as a result of, any use and occupancy of the Premises prior to the Commencement Date, including any violation of any Environmental Laws attributable to the period prior to the Commencement Date, and from, or as a result of, any breach of Landlord's obligations under this Lease.
ARTICLE XXI

 RIGHT OF FIRST REFUSAL
        If, at any time after the date of this Lease and while this Lease is in full force and effect, Landlord should receive from a third party purchaser a written offer to purchase the Premises (the "Third Party Offer"), and should Landlord desire to accept the Third Party Offer, it shall first make a written offer (the "Tenant Offer") to sell said Premises to Tenant at the price and upon the terms and conditions set forth in the Third Party Offer. The Tenant Offer shall be accompanied by a copy of the Third Party Offer. Tenant may accept the Tenant Offer by service of notice of acceptance on Landlord on or before the thirtieth (30th) day following delivery of the Tenant Offer to Tenant. If the Tenant Offer is accepted, the purchase and sale shall be closed at the principal office of Landlord on the date set forth in the Third Party Offer or at such other place, time and date as Landlord and Tenant may agree upon, by payment of the purchase price against conveyance of the Premises free and clear of liens and encumbrances of every kind and description except as permitted by the Tenant Offer. If Tenant fails to fully and timely accept the Tenant Offer as herein provided, Landlord may make the sale of the Premises to the prospective purchaser making the Third Party Offer in accordance with the terms thereof; provided, however, that if Landlord fails to consummate the sale of the Premises on exactly the same terms and conditions as are set forth in the Third Party Offer, the Premises shall again be subject to Tenant's right of first refusal. Tenant's right of first refusal as set forth in this Article XXI shall be a continuing right and shall survive each sale of the Premises during the term hereof (as it may be extended as provided herein).
ARTICLE XXII

 MISCELLANEOUS PROVISIONS
        22.1    To the fullest extent allowed by law, Tenant, at all times, shall indemnify, defend and hold Landlord, its officers, directors, employees and agents, harmless from and against any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from the conduct or management of or from any work or things whatsoever done in or about, the Premises (except to the extent arising out of Landlord's negligence or other wrongful conduct), and further will indemnify, defend and hold Landlord, its officers, directors, employees and agents, harmless against and from any and all claims arising during the Term and based upon any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or arising from any act or neglect of Tenant, its agents, servants, employees, licensees, or contractors, or arising from any accident, injury or damage whatsoever caused to any person, firm or corporation occurring during the Term in or about the Premises, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or with respect to any such claim or action or proceeding brought thereon. To the fullest extent allowed by law, Landlord, at all times, shall indemnify, defend and hold Tenant, its officers, directors, employees and agents, harmless from and
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against any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from the conduct or management of, or from any work or things whatsoever done in or about, the Premises (except to the extent arising out of Tenant's negligence or other wrongful conduct), and further will indemnify, defend and hold Tenant, its officers, directors, employees and agents harmless against and from any and all claims arising during the Term and based upon any breach or default on the part of Landlord in the performance of any covenant or agreement on the part of Landlord to be performed pursuant to the terms of this Lease, including, without limitation, the breach of any representation or warranty of Landlord contained in this Lease, or arising from any act or neglect of Landlord, its agents, servants, employees, licensees or contractors, whenever and wherever occurring or arising from any accident, injury or damage whatsoever caused to any person, firm or corporation occurring prior to or after the Term in or about the Premises, and from and against all costs, attorneys' fees, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon.
        22.2    All notices, demands and requests which may be or are required to be given, demanded or requested by either party to the other shall be in writing. All notices, demands and requests by Landlord to Tenant shall be sent by United States registered or certified mail, postage prepaid, or by commercial overnight delivery service or other personal service (with evidence of receipt), addressed as follows:
LKQ Corporation
120 N. LaSalle Street
Suite 3300
Chicago, Illinois 60602
Attn: General Counsel
or at such other place as Tenant may from time to time designate by written notice to Landlord. All notices, demands and requests by Tenant to Landlord shall be sent by United States registered or certified mail, postage prepaid, or by commercial overnight delivery service or other personal service (with evidence of receipt), addressed to Landlord as follows:
Mark T. Fitzgibbons
4520 SW Moundview Drive
Topeks, Kansas 66610
or at such other place as Landlord from time to time may designate by written notice to Tenant. Notices, demands and requests which shall be served upon Landlord by Tenant, or upon Tenant by Landlord, by mail in the manner aforesaid, shall be deemed to be sufficiently served or given for all purposes hereunder on the second business day after mailing, and notices served by overnight delivery service shall be deemed served or given on the second (2nd) business day after delivery to such service.
        22.3    Landlord covenants and agrees that Tenant, upon paying the Rent, and upon observing and keeping the covenants, agreements and conditions of this Lease on its part to be kept, observed and performed, shall lawfully and quietly hold, occupy and enjoy the Premises (subject to the provisions of this Lease) during the Term (as it may be extended from time to time as expressly provided herein) without hindrance or molestation by Landlord or by any person or persons claiming under Landlord. In the event of a breach by Landlord of this Section 22.3, or of any other covenant herein, then, anything in this Lease notwithstanding, Tenant shall have the full right to cure such breach at the expense of Landlord, and Landlord shall upon demand pay Tenant's costs, including attorneys' fees and expenses, of curing said breach (or Tenant, at its option, may deduct said costs and fees and expenses from the next accruing installment(s) of Rent or other charges payable by it to Landlord), or Tenant may enforce any and all remedies at law or in equity or under this Lease which may be available to Tenant under the particular circumstances.
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        22.4    Tenant and Landlord, each without charge at any time and from time to time, within thirty (30) days after written request by the other party, shall certify by written instrument, duly executed, acknowledged and delivered to any Mortgagee, assignee of a Mortgagee, proposed Mortgagee, or to any purchaser or proposed purchaser or transferee of the Landlord, Tenant or Premises or any interest therein:
        (a)   That this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect, as modified, and stating the modifications);
        (b)   The dates to which the Rent has been paid in advance;
        (c)   Whether or not there are then existing any breaches or defaults by the certifying party or by the other party and known by the certifying party under any of the covenants, conditions, provisions, terms or agreements of this Lease, and specifying such breach or default, if any, or any set-offs or defenses against the enforcement of any covenant, condition, provision, term or agreement of this Lease upon the part of Landlord or Tenant, as the case may be, to be performed or complied with (and, if so, specifying the same and the steps being taken to remedy the same);
        (d)   That Tenant has made no advancements to or on behalf of Landlord for which it has the right to deduct from, or offset against, future Rent payments;
        (e)   Tenant has accepted the Premises and is in full and complete possession thereof; and
        (f)    Such other statements or certificates as Landlord or Tenant or any Mortgagee may reasonably request.
        22.5    Upon not less than thirty (30) days prior written request by either party, the parties hereto agree to execute and deliver to each other a memorandum of lease, in recordable form, setting forth the following:
        (a)   the date of this Lease;
        (b)   the parties to this Lease;
        (c)   the Term of this Lease;
        (d)   the three (3), five (5) year extension options set forth in Article XI;
        (e)   the right of first refusal set forth in Article XXI;
        (f)    the legal description of the Premises;
        (g)   the option to purchase set forth in Article XXV; and
        (h)   such other matters reasonably requested by Landlord or Tenant to be stated therein.
        22.6    If any covenant, condition, provision, term or agreement of this Lease shall, to any extent, be held invalid or unenforceable, the remaining covenants, conditions, provisions, terms and agreements of this Lease shall not be affected thereby, but each covenant, condition, provision, term or agreement of this Lease shall be valid and in force to the fullest extent permitted by law. This Lease shall be construed and be enforceable in accordance with the laws of the State of Kansas.
        22.7    The covenants and agreements herein contained shall bind and inure to the benefit of Landlord and its successors and assigns, and Tenant and its successors and assigns.
        22.8    The caption of each article of this Lease is for convenience and reference only and in no way defines, limits or describes the scope or intent of such article or of this Lease.
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        22.9    This Lease does not create the relationship of principal and agent, or of partnership, joint venture, or of any association or relationship between Landlord and Tenant, the sole relationship between Landlord and Tenant being that of landlord and tenant.
        22.10    All preliminary and contemporaneous negotiations are merged into and incorporated in this Lease. This Lease contains the entire agreement between the parties and shall not be modified or amended in any manner except by an instrument in writing executed by the parties hereto.
        22.11    There shall be no merger of this Lease or the leasehold estate created by this Lease with any other estate or interest in the Premises by reason of the fact that the same person, firm, corporation or other entity may acquire, hold or own directly or indirectly, (a) this Lease or the leasehold interest created by this Lease or any interest therein, and (b) any other estate or interest in the Premises or any portion thereof. No such merger shall occur unless and until all persons, firms, corporations or other entities having an interest (including a security interest) in (1) this Lease or the leasehold estate created hereby, and (2) any such other estate or interest in the Premises or any portion thereof, shall join in a written instrument expressly effecting such merger and shall duly record the same.
        22.12    All obligations, monetary or otherwise, accruing prior to expiration of the Term (as it may be extended from time to time) shall survive the expiration or other termination of this Lease.
        22.13    Time is of the essence of this Lease, and all provisions herein relating thereto shall be strictly construed.
        22.14    Each party represents and warrants to the other that it has not dealt with any broker in connection with this Lease and agrees to indemnify and hold the other party and its agents, officers, directors and employees harmless from all losses, damages, liabilities, claims, liens, costs and expenses, including, without limitation, attorneys' fees, arising from any claims or demands of any broker or brokers, salespersons or finders for any commission or fee alleged to be due such broker or brokers, salespersons or finders based upon such broker or brokers, salespersons or finders having dealt with the indemnifying party in connection with this Lease.
        22.15    To the extent either party indemnifies and agrees to defend the other under the terms of this Lease, the indemnifying party shall have the right to select counsel to undertake such defense, which counsel shall be reasonably acceptable to the indemnified party.
        22.16    Subject to specific conditions as to consents and approvals provided for in other sections of this Lease, no consent or approval required under this Lease shall be unreasonably withheld or delayed.
        22.17    This Lease may be executed in counterparts, each of which when taken together shall constitute one instrument.
        22.18    This Lease represents the product of the joint negotiation, preparation and agreement of and between the parties hereto and is not to be construed against one party or the other as the principal drafter.
        22.19    In the event of any litigation between the Landlord and the Tenant arising out of an alleged breach of this Lease by either of them and such litigation terminates upon the issuance of a final, unappealable judicial order, the unsuccessful party therein shall pay the successful party's reasonable attorneys' fees and expenses in such litigation. This provision shall inure only to the Landlord and Tenant and their respective successors and permitted assigns, if any.
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 ARTICLE XXIII

 LANDLORD'S REPRESENTATIONS AND WARRANTIES
        23.1    In addition to the other representations and warranties made herein, Landlord hereby represents and warrants to Tenant that as of the date hereof the following representations and warranties are true, correct and complete and that the same will be true, correct and complete on and as of the Commencement Date:
        (a)   Landlord warrants and represents that the execution and delivery of this Lease by the signatory hereto on behalf of Landlord and the performance of this Lease by Landlord have been duly authorized by Landlord and this Lease is binding upon Landlord and enforceable against Landlord in accordance with its terms.
        (b)   Landlord warrants and represents that it is and shall be the owner of fee simple title to the Land, free and clear of all liens, encumbrances, covenants, conditions, restrictions, rights of way, easements, leases, tenancies, licenses, claims, options, and any other matters which would impair the marketability of title to the Land.
        (c)   Landlord represents and warrants that there are no condemnation or judicial proceedings, administrative actions or examinations, claims or demands of any type which have been instituted or which are pending or threatened against Landlord with respect to the Premises or any part thereof. There are no actions or proceedings pending or to the best of Landlord's knowledge, threatened against Landlord with respect to the Premises before any court or administrative agency which would result in any material adverse change in the condition and operation of the Premises. In the event Landlord receives notification of any of the foregoing prior to Commencement Date, copies of such notice shall be provided to Tenant by Landlord within three (3) days following its receipt thereof, but in no event later than the Commencement Date.
        (d)   Intentionally omitted.
        (e)   Landlord represents and warrants that the Premises will be delivered on the Commencement Date in substantially the same condition as on the date hereof, reasonable wear and tear excepted, and free of any occupants, tenants or rights of first refusal, right of reverter or rights of first offer relating to the Premises, other than as provided in this Lease; any service contracts or management agreements; and any employee, employment agreements or union contract affecting the Premises.
        (f)    Landlord represents and warrants that Landlord has not filed any proceeding or petition in, nor received notice that any proceeding or petition has been filed against Landlord in bankruptcy or insolvency, or for reorganization or for the appointment of a receiver, custodian or trustee, or for the arrangement of debts under any state or federal statute relating to debtor protection or insolvency, and further that Landlord is not insolvent and will not be rendered insolvent by the consummation of the transaction contemplated by this Lease.
        (g)   Landlord represents and warrants that it has received no notice of any violations of building, fire, air pollution, or Environmental Law and that Landlord has no knowledge of any suits or judgments threatened or pending relating to violations at the Premises or any portion of the Premises of any such laws, ordinances and regulations.
        (h)   Landlord represents and warrants that there are no special taxes or assessments pending and/or unpaid with respect to any improvements not yet completed on the Premises;
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        (i)    Landlord represents and warrants that there are no parties that have any rights to possession of any part of the Premises other than Landlord or that have any leases to any portion of the Premises, other than as provided in this Lease.
        (j)    Landlord represents and warrants that there are no written or oral service agreements or other contracts or leases with respect to the Property or any part thereof, except this Lease.
        (k)   Landlord represents and warrants that there are no underground storage tanks on the Premises or any condition on the Premises which materially violates the terms of any applicable environmental law.
        (l)    Intentionally omitted.
        (m)  Landlord represents and warrants that between the date of this Lease and the Commencement Date that it will not enter into any leases, service agreements or other contracts with respect to the Premises, which will be effective beyond the Commencement Date without express written consent of Tenant, which consent shall not be unreasonably withheld; provided, however, the Tenant shall not be required to consent to any agreement which will terminate on or before the Commencement Date.
        (n)   All other representations and warranties of Landlord in this Lease are true, correct and complete.
        All representations made by Landlord in this Article XXIII shall survive the execution of this Lease and, if later, the Commencement Date.
ARTICLE XXIV

 LANDLORD DEFAULT
        In the event Landlord breaches any of the representations and warranties contained in this Lease, or in the event any such representation or warranty is untrue when made, or in the event Landlord breaches any of its obligations under Article XX hereof, and if such breach is curable and is not cured within thirty (30) days after written notice thereof, Tenant shall have the right to terminate this Lease. In addition to Tenant's rights contained herein or available in law or at equity, in the event Landlord neglects or fails to comply with any of Landlord's obligations contained in this Lease, Tenant may, after giving Landlord not less than 30 days prior written notice, (a) cure any such Landlord's default and (b) withhold rent in an amount not to exceed any amount which Tenant spends to cure any such default or otherwise incurs by reason of Landlord's default (including attorneys' fees and expenses).
ARTICLE XXV

 OPTION TO PURCHASE
        25.1    In consideration of the Rent to be paid by Tenant under this Lease and other good and valuable consideration and in addition to the right of first refusal granted to Tenant in Article XXI herein, Landlord hereby irrevocably grants to Tenant the exclusive option (the "Option") to purchase the Premises, including but not limited to all structures and improvements thereon and all appurtenances thereto, on the terms and conditions set forth herein and in accordance with the Real Estate Purchase Agreement attached as Exhibit B hereto and made a part hereof (the "Purchase Agreement") for a purchase price (the "Purchase Option Price") equal to the lesser of (i) the Fair Market Value of the Premises as of the date of Tenant's Option Exercise Notice, as that term is hereinafter defined, determined in accordance with Article XXVI hereof; and (ii) Eight Hundred Seventy Five Thousand and no/100 Dollars ($875,000.00), adjusted on the first day of the second and third Extension Periods, if any, by a percentage equal to the lesser of (x) the product of Two and One-
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Half Percent (2.5%) multiplied by the number of years since the last Rent increase, or (y) the cumulative percentage increase in the Consumer Price Index since the last Rent increase, as calculated using the Consumer Price Index for the month of January in the relevant year.
        25.2    Tenant shall have the right to exercise the Option at any time during the third year of the initial Term of this Lease, and during the period which is ninety (90) days prior to the first day of each Extension Period, by Tenant giving Landlord written notice of Tenant's exercise (the "Option Exercise Notice"), which notice shall be no less than ninety (90) days prior to the proposed closing date set forth in the Option Exercise Notice. The Option Exercise Notice shall be accompanied by four (4) copies of the Purchase Agreement each dated as of the date of Tenant's notice and executed by Tenant, as purchaser. Within three (3) days of Landlord's receipt of Tenant's exercise of the Option, Landlord shall execute and return to Tenant two (2) of the four (4) copies of the Purchase Agreement which Tenant shall have sent to Landlord. In the event that the Option is not exercised by Tenant in the manner provided herein before the end of the Term, as the same may be extended pursuant to the terms hereof, the Option shall be null and void and of no further force or effect.
        25.3    The Option is a continuing option and shall survive any and all sales of the Premises by Landlord.
        25.4    The Purchase Option Price shall be payable, at Tenant's option, (i) in cash, or (ii) if shares of LKQ Corporation, the parent corporation of Tenant ("LKQ"), are publicly traded, shares of LKQ common stock; provided, however, that Tenant shall not be allowed to pay in accordance with clause (ii) if the disposition of such shares is restricted in any way by law or contract.
ARTICLE XXVI

 FAIRMARKET VALUE
        26.1    "Fair Market Value" shall be determined in the manner provided below:
        (a)   Upon Tenant providing Landlord with the Option Exercise Notice (as provided in Article XXV herein), Landlord and Tenant shall meet within ten (10) days to agree upon the Fair Market Value for the Purchase Option Price (as defined in Article XXV herein). If Landlord and Tenant shall so agree on the Fair Market Value for such Purchase Option Price within such time as specified above, they shall forthwith execute the Purchase Agreement as provided in Article XXV herein.
        (b)   If Landlord and Tenant are unable to agree on Fair Market Value within the time provided, Landlord shall appoint a licensed real estate broker within ten (10) days and immediately notify Tenant in writing of said appointment and of the name and address of the licensed real estate broker so appointed. Tenant shall have the right to appoint a licensed real estate broker within such ten (10) days, and shall immediately notify Landlord in writing of said appointment and of the name and address of the licensed real estate broker so appointed. If within ten (10) days after their appointment, the two licensed real estate brokers agree on the Fair Market Value within a five percent (5%) differential, the Fair Market Value shall equal the average of the determination made by each of said two licensed real estate brokers, and shall be binding upon Landlord and Tenant. If the two licensed real estate brokers do not, within ten (10) days after their appointment, agree on the Fair Market Value, within a five percent (5%) differential, the licensed real estate brokers shall then appoint a third licensed real estate broker within ten (10) days thereafter. Such third appraiser shall, within twenty (20) days of such appointment, choose either the Fair Market Value determined by Landlord's broker or the Fair Market Value determined by Tenant's broker as the final Fair Market Value. The third appraiser's choice shall be based upon its determination of which of the two proposed Fair Market Value determinations is more reasonable. The Fair Market Value chosen by the third appraiser shall be
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binding on Landlord and Tenant. The decision shall be made in writing and signed by the licensed real estate brokers in duplicate. One of the writings shall be delivered to Landlord and the other shall be delivered to Tenant. The charges for services of the licensed real estate brokers, if any, shall be borne by the Landlord and Tenant hereto in equal shares.
        (c)   The licensed real estate brokers appointed pursuant to this Section must be licensed real estate brokers specializing in industrial real estate with at least five (5) years' continuous and active experience in the Topeka, Kansas metropolitan area.
        (d)   In the event Tenant or Landlord fails to appoint an appraiser as provided above, the appraiser so appointed shall determine Fair Market Value and such determination shall be binding on the parties, subject to the right of such party failing to appoint an appraiser to have another appraiser appointed jointly by the appraiser so appointed and the party that failed to appoint an appraiser. The appraiser so appointed as provided in this Subsection shall be deemed the "third appraiser" for purposes of this Section.
        (e)   In the event the appraisers selected by Landlord and Tenant are unable to agree on a third appraiser, the matter shall be submitted to the American Arbitration Association for the appointment of a third appraiser in accordance with the requirements of the Lease.
         IN WITNESS WHEREOF , each of the parties has caused this Lease to be duly executed as of the day and year first above written.

TENANT:	 	LANDLORD:	

RECYCLERS GROUP, INC.	

By: /s/   THOMAS B. RATERMAN       

/s/   MARK FITZGIBBONS       

Mark Fitzgibbons	

By: /s/   THOMAS B. RATERMAN       

/s/   STEVEN JONES       

Steven Jones	

Title: Vice President	
 	
Date: February 28, 1999	

Date: 

 	

 	
 	
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EXHIBIT A

LEGAL DESCRIPTION

         EXHIBIT A (All American Auto Parts, Inc.)
        Lot 1, Block "A", Lot 1, Block "B", LAIRD NOLLER SUBDIVISION, Shawnee County, Kansas, commonly known as 5301 SW Topeka Boulevard, Topeka, Kansas.

EXHIBIT B

 REAL ESTATE PURCHASE AGREEMENT
         THIS AGREEMENT is made as of the            day of                        ,            , between                                     ("Seller"), whose address is                        and LKQ Corporation, a Delaware corporation, or its nominee ("Purchaser"), whose address is                        . The parties hereto agree as follows:
1.
Purchase and Sale .
(a)
Seller agrees to sell and Purchaser agrees to purchase the real property commonly known as                        and more particularly described as follows (the "Real Property"):

(b)
Seller agrees to sell and Purchaser agrees to purchase the personal property described as follows (the "Personal Property"):
(The Real Property and the Personal Property shall herein collectively be referred to as the "Property.")
2.
Purchase Price .    The purchase price shall be                        Dollars ($            ) (the "Purchase Price"). Upon Purchaser's execution of this Agreement, Purchaser shall deposit the sum of                        Dollars ($                        ) (the "Deposit"), which equals five percent (5%) of the Purchase Price, with Chicago Title Insurance Company ("Escrowee") to be held in escrow as earnest money pursuant to the terms of this Agreement and to be credited (together with all earnings thereon) at closing against the Purchase Price.

3.
Survey .    Within thirty (30) days of the date of this Agreement, Seller, at Seller's sole cost and expense, shall deliver to Purchaser a current survey of the Real Property prepared in accordance with the standards for Land Title Surveys of the American Land Title Association and the American Congress on Surveying and Mapping for a Urban survey and prepared by a surveyor licensed by the State of Kansas and certified to Purchaser, the title insurer, if any, and such other parties as Purchaser shall designate (the "Survey"). The Survey shall show no encroachments onto the Real Property from any adjacent property, no encroachments by or from the Real Property onto any adjacent property and no violation of or encroachments upon any recorded building lines, restrictions or easements affecting the Real Property. If the Survey discloses any such encroachments or violations or any exceptions to title or matters indicating possible rights of third parties, Seller shall have thirty (30) days from the date of delivery thereof to have such encroachments, violations or exceptions removed, waived or released, and provide evidence thereof to Purchaser; or to elect to have the title insurer, if any, issue its endorsement insuring against damage caused by such encroachments, violations or unpermitted exceptions (provided such insurance is satisfactory to Purchaser, in Purchaser's sole discretion). If Seller fails to have the same corrected or insured against, within said 30-day period, Purchaser may elect, on or before the closing date, either (a) to terminate this Agreement (in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser and thereupon, neither party shall have any further rights or obligations under this Agreement), or (b) to close and accept title to the Real Property subject to such encroachments, violations and exceptions with the right to withhold from the Purchase Price such amounts as may be necessary to remove such items as may be removed by the payment of money or posting of a bond, security or indemnity fund. In the event Purchaser terminates this Agreement due to Seller's failure to have any such encroachments, violations or exceptions insured against, or removed, waived or released, then, in addition to returning the Deposit and all earnings thereon, Seller shall pay Purchaser all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement.

4.
Title .    Within thirty (30) days of the date of this Agreement, Seller, at Seller's sole cost and expense, shall deliver to Purchaser a commitment for an ALTA Form B 1970 Owner's Title Insurance Policy issued by Chicago Title Insurance Company in the full amount of the Purchase
B-1

Price, covering title to the Real Property on or after the date hereof, showing Seller as owner of the Real Property in fee simple, subject only to such exceptions as Purchaser may approve pursuant to clause (b) of this Paragraph 4 and such exceptions as may result from Purchaser's leasing and use of the Real Property, and providing for full extended coverage over all general title exceptions contained in such policy. Seller shall have thirty (30) days from the date Seller receives the title commitment to have all liens, encumbrances or other exceptions to title removed from the title commitment and provide evidence thereof to Purchaser, and if Seller fails to have such exceptions removed, Purchaser may elect, on or before the closing date, either (a) to terminate this Agreement (in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser), or (b) to close and accept title subject to such exceptions with the further right to deduct from the Purchase Price the cost of removing such exceptions, and/or cause the title insurer to issue its endorsement insuring against damage caused by such exceptions and deduct from the Purchase Price the cost of the premiums and security provided for said endorsement, as the case may be (provided such insurance is satisfactory to Purchaser, in Purchaser's sole discretion). Purchaser's exercise of the foregoing rights shall not be deemed a waiver or release of any of its remedies, at law or in equity or pursuant to this Agreement, for default if said exceptions to title were caused or suffered by or through Seller or any party claiming by, through or under Seller. In the event Purchaser terminates this Agreement due to an exception created or suffered by Seller, then, in addition to returning the Deposit and all earnings thereon, Seller shall pay Purchaser all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement. On the closing date, Seller shall cause the title insurer to issue an owner's title insurance policy or prepaid commitment therefor pursuant to and in accordance with the title commitment, insuring fee simple title to the Real Property in the Purchaser as of the closing date, subject only to such exceptions as Purchaser may approve pursuant to clause (b) above.
5.
Destruction or Damage .    If, subsequent to the date hereof and prior to the closing date, all or any portion of the Property shall be destroyed or damaged by one or more incidents of vandalism, fire and/or other casualty, whether or not covered by insurance, Seller immediately shall give Purchaser notice of such occurrence and Purchaser, within thirty (30) days after receipt of such notice, may elect either (a) to terminate this Agreement, in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser and thereupon, neither party shall have any further rights or obligations under this Agreement, or (b) to close the transaction contemplated hereby as scheduled (except that if the closing date is less than thirty (30) days following Purchaser's receipt of such notice, closing shall be delayed until Purchaser makes such election), in which event Purchaser shall have the right to participate in the adjustment and settlement of any insurance claim relating to said damage, and Seller shall assign and/or pay to Purchaser at closing all insurance proceeds (and other related choices in action, if any) collected or claimed with respect to said loss or damage plus any deductible or self-insured amount.

6.
Condemnation .    If, subsequent to the date hereof and prior to the closing date, any proceeding, judicial, administrative or otherwise, which shall relate to the proposed taking of all or any substantial portion of the Real Property by condemnation or eminent domain or any action in the nature of eminent domain, or the taking or closing of any right of access to the Real Property, is instituted or commenced, Purchaser shall have the right and option to terminate this Agreement by giving Seller written notice to such effect within thirty (30) days after actual receipt of written notification of any such occurrence or occurrences. If Purchaser does not terminate this Agreement pursuant to this Paragraph 6, Purchaser shall be credited with or be assigned all Seller's right to any proceeds or award therefrom. Seller hereby agrees to furnish Purchaser written notification in respect to any such proceedings within forty-eight (48) hours of Seller's receipt of any such notification or learning of the institution of such proceedings. Should Purchaser elect to terminate this Agreement, the Deposit and all earnings thereon forthwith shall be returned to Purchaser, and thereupon neither party shall have any rights or obligations under this Agreement.
B-2

If the closing date is less than thirty (30) days following Purchaser's receipt of notice, then the closing shall be delayed until Purchaser makes such election.
7.
Representations and Warranties .    To induce Purchaser to execute, deliver and perform this Agreement, Seller hereby represents and warrants to Purchaser on and as of the date hereof and on and as of the date of Closing as follows:

(a)
All representations and warranties of Seller appearing in other Sections of this Agreement are true and correct.

(b)
Landlord represents and warrants that Landlord is duly organized and validly existing under the laws of the State of                        ; that the execution and delivery of this Lease and the transaction contemplated hereby have been duly authorized by Landlord and that the performance of Landlord's obligations under this Lease will not violate its organizational documents, the provisions of any applicable law or agreement to which it is a party or under which it is bound.

(c)
Seller has full capacity, right, power and authority to execute, deliver and perform this Agreement and all documents to be executed by Seller pursuant hereto, and all required action and approvals therefor have been duly taken and obtained. The individuals signing this Agreement and all other documents executed or to be executed pursuant hereto on behalf of Seller are and shall be duly authorized to sign the same on Seller's behalf and to bind Seller thereto. This Agreement and all documents to be executed pursuant hereto by Seller are and shall be binding upon and enforceable against Seller in accordance with their respective terms.

(d)
Except for Seller and Purchaser as tenant under that certain lease between Seller and Purchaser dated February 28, 1999 (the "Lease"), there are no persons in possession or occupancy of the Property or any part thereof, nor are there any persons who have possessory rights in respect to the Property or any part thereof.

(e)
There are no claims, causes of action or other litigation or proceedings pending or threatened with respect to the ownership or operation of the Property or any part thereof.

(f)
There is no existing, pending, contemplated, threatened or anticipated (i) condemnation of any part of the Real Property, (ii) widening, change of grade or limitation on use of streets abutting the Real Property, (iii) special tax or assessment to be levied against the Property, (iv) change in the zoning classification of the Real Property, or (v) change in the tax assessment of the Property.

(g)
That, except as to any matters caused by Purchaser's use of the Property, (i) there has not occurred, nor is there presently occurring, a Release or threatened Release of any Hazardous Substance on, into or beneath the surface of, or adjacent to, any parcel of the Real Property, (ii) it has received no notice of violation of any Environmental Law in regard to its ownership and possession of the Property, (iii) no underground storage tanks or above ground tanks have been located on the Real Property, (iv) the Real Property has never been used as a dump for waste material and (v) the Property complies with any and all Environmental Laws including, without limitation, the Americans with Disabilities Act.

8.
Closing .    The time of closing shall be on the later of (i)                          ,            , or (ii) ten (10) days after satisfaction or waiver of Seller's obligations, if any, arising pursuant to Paragraphs 3 and 4 of this Agreement. This transaction shall be closed through the offices of Escrowee. On or before the closing date, each party shall deliver to Escrowee such documents, instruments, certifications and confirmations as may reasonably be required and designated by the other party in order to effect and consummate the transaction as contemplated herein and in accordance with applicable law.
B-3

9.
Access and Possession .    If Purchaser is not in possession of any part of the Property as of the date hereof, Seller shall allow Purchaser and its representatives access to the Property prior to closing to conduct inspections and measurement of dimensions. Seller shall deliver exclusive possession of the Real Property and the Personal Property to Purchaser on the closing date in substantially the same condition as on the date of Purchaser's execution of this Agreement.

10.
Deed .    At closing, subject to the terms and conditions set forth in this Agreement, Seller shall deliver to Purchaser a general Warranty Deed conveying marketable title to the Real Property subject only to such exceptions as Purchaser may approve pursuant to the terms of this Agreement.

11.
Bill of Sale .    At closing, subject to the terms and conditions set forth in this Agreement, Seller shall transfer title to the Personal Property to Purchaser by good and sufficient bill of sale containing full warranties of title and subject only to such exceptions as Purchaser shall approve in writing.

12.
Seller's Remedy for Purchaser's Default .    If Purchaser defaults hereunder, then the Deposit shall be drawn down and the proceeds thereof shall be paid over to and retained by Seller, as its sole and exclusive remedy, and this Agreement thereupon shall terminate, the parties thereafter being relieved of all obligations hereunder, other than those, if any, which specifically are stated to survive the termination of this Agreement.

13.
Purchaser's Remedy for Seller's Default .    If any representation or warranty of Seller is not true and correct at and as of the closing date, or if Seller fails to perform its obligations in a timely manner, or otherwise defaults hereunder, notwithstanding anything to the contrary provided in this Agreement, Purchaser shall have the right to elect (i) specific performance of this Agreement, or (ii) to recover from Seller the Deposit and all earnings thereon and all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement, including, but not limited to, reasonable attorneys' fees.

14.
Prorations .    General and special real estate (at 110% of the most recent ascertainable bill) and other ad valorem taxes and assessments and other state or city taxes, fees, charges and assessments affecting the real property; utility charges and deposits; fuels; and all other items of accrued or prepaid income and expenses customarily prorated on the transfer of industrial properties in the Topeka, Kansas metropolitan area shall be prorated on an accrual basis as of the closing date on the basis of the most recent ascertainable amounts of or other reliable information in respect to each such item of income and expense, and the net credit to Purchaser or Seller shall be paid in cash or as a credit against that portion of the purchase price payable on the closing date; provided that none of the foregoing items shall be prorated if Purchaser is obligated to pay for such items in accordance with the terms of the Lease. Except as otherwise provided herein, all prorations hereunder shall be final. Purchaser shall assume and timely discharge all obligations with respect to accrued expenses and prepaid income for which it receives proration credit and Purchaser shall indemnify, defend and hold harmless Seller against any claims with respect to accrued expenses and prepaid income for which it receives a proration credit. Notwithstanding the foregoing, if at any time within six (6) months following the closing date, either party discovers a mistake in proration or any items which should have been included in the closing statements but were omitted therefrom, then such items shall be adjusted in the same manner as if their existence had been known at the time of the preparation of the closing statements.

15.
Closing Costs .    Seller shall pay all charges customarily attributable to sellers, including, without limitation, any state and county transfer taxes customarily, or by law or ordinance, an obligation of a seller. Purchaser shall pay all charges customarily, or by law or ordinance, attributable to purchasers, including, without limitation, all recordation charges. The parties shall each be solely responsible for the fees and disbursements of their respective counsel and other professional advisers.
B-4

16.
Brokerage .    Purchaser and Seller each hereby represent and warrant to the other that they have not dealt with any broker, finder or other agent in connection with this Agreement or the transaction contemplated hereby. Each party hereby agrees to indemnify the other party for any claim for brokerage commission or finder's fee asserted by a person, firm or corporation claiming to have been engaged by the indemnifying party.

17.
Assignment .    Seller and Purchaser hereby agree that Purchaser may assign any or all of its rights as Purchaser under this Agreement.

18.
Entire Agreement .    This Agreement contains the entire agreement between the parties; it may not be modified, amended or discharged nor may any of its terms be waived except by an instrument in writing signed by the party to be bound thereby. Neither party has relied upon any verbal or written representations, agreements or understandings not set forth herein.

19.
Time of the Essence .    Time is of the essence of this Agreement.

20.
Governing Law .    This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas.

21.
Severability . If any provision of this Agreement is or shall be deemed to be illegal, invalid, or unenforceable, the remaining provisions hereof shall remain in full force and effect and interpreted as if such illegal, invalid or unenforceable provision did not exist herein.

22.
Notices .    Any notice required hereunder shall be delivered, postage prepaid by registered mail, certified mail or by nationally recognized overnight courier to the addresses noted above. Notices sent by registered or certified mail shall be deemed delivered two (2) days after deposit in the mail. Notices sent by overnight courier shall be deemed delivered on the date following deposit with such courier.
         IN WITNESS WHEREOF , the Purchaser and Seller have executed and delivered this Agreement on the date first set forth above.

 PURCHASER:	 	SELLER:	

By:	

 	
By:	

Name:	

 	
Name:	

Title:	

 	
Title:	

Date:	

 	
Date:	

B-5

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Exhibit 10.30
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 Exhibit 10.31
INDUSTRIAL BUILDING LEASE

 BETWEEN

 Mark Fitzgibbons,
Landlord

and

Recyclers Group, Inc.,
Tenant

 DATE OF LEASE :  February 28, 1999

Premises:

2001 East 19th
Lawrence, Kansas

 
 TABLE OF CONTENTS

 	 	 	 	Page
	
ARTICLE I	 	GRANT AND TERM	 	1	

ARTICLE II	
 	
RENT	
 	
1	

ARTICLE III	
 	
USE	
 	
2	

ARTICLE IV	
 	
POSSESSION	
 	
2	

ARTICLE V	
 	
TAXES	
 	
2	

ARTICLE VI	
 	
INSURANCE	
 	
3	

ARTICLE VII	
 	
UTILITIES	
 	
4	

ARTICLE VIII	
 	
MAINTENANCE AND ALTERATIONS	
 	
4	

ARTICLE IX	
 	
COMPLIANCE WITH LAWS AND ORDINANCES	
 	
4	

ARTICLE X	
 	
MECHANIC'S LIENS	
 	
5	

ARTICLE XI	
 	
OPTIONS TO EXTEND	
 	
5	

ARTICLE XII	
 	
DEFAULTS OF TENANT	
 	
6	

ARTICLE XIII	
 	
DESTRUCTION AND RESTORATION	
 	
7	

ARTICLE XIV	
 	
CONDEMNATION	
 	
8	

ARTICLE XV	
 	
ASSIGNMENT AND SUBLETTING	
 	
9	

ARTICLE XVI	
 	
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT	
 	
10	

ARTICLE XVII	
 	
SIGNS	
 	
10	

ARTICLE XVIII	
 	
LANDLORD'S ACCESS	
 	
11	

ARTICLE XIX	
 	
SURRENDER AND HOLDING-OVER	
 	
11	

ARTICLE XX	
 	
HAZARDOUS AND TOXIC MATERIALS	
 	
12	

ARTICLE XXI	
 	
RIGHT OF FIRST REFUSAL	
 	
14	

ARTICLE XXII	
 	
MISCELLANEOUS PROVISIONS	
 	
14	

ARTICLE XXIII	
 	
LANDLORD'S REPRESENTATIONS AND WARRANTIES	
 	
18	

ARTICLE XXIV	
 	
LANDLORD DEFAULT	
 	
19	

ARTICLE XXV	
 	
OPTION TO PURCHASE	
 	
19	

ARTICLE XXVI	
 	
FAIRMARKET VALUE	
 	
20	

EXHIBITS	

 	

EXHIBIT A—	
 	
Legal Description	

EXHIBIT B—	
 	
Purchase Agreement	

i

LEASE
         THIS LEASE (this "Lease") is made as of the 28th day of February, 1999, by and between Mark Fitzgibbons ("Landlord"), and Recyclers Group, Inc., a Kansas corporation ("Tenant").
ARTICLE I

 GRANT AND TERM
        1.1   Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, that certain approximately 8.72 acre parcel of real estate (the "Land") located at 2001 East 19th, Lawrence, Kansas, as legally described on Exhibit A attached hereto and by this reference made a part hereof, together with all improvements located thereon (the "Improvements"), and all appurtenances belonging to or in any way pertaining to such premises (the Land, Improvements and appurtenances hereinafter collectively referred to as the "Premises").
        1.2   The term hereof (the "Term") shall commence on February 28, 1999 (the "Commencement Date"), and shall terminate on the last day of the eighty-fourth (84th) complete calendar month to occur after the Commencement Date (the "Expiration Date") (unless the Term shall be terminated or extended in accordance herewith).
ARTICLE II

 RENT
        2.1   Annual rent ("Rent") throughout the first seven (7) years of the Term shall be Ninety Five Thousand and 00/100 Dollars ($95,000.00). On the seventh anniversary of either (i) the Commencement Date, if the same falls on the first day of a month, or (ii) the first day of the month immediately following the Commencement Date, if the same falls on other than the first day of a month, and on each succeeding fifth anniversary of such date during the Term, including any Extension Period(s), Rent shall increase by a percentage equal to the lesser of (x) the product of Two and One-Half Percent (2.5%) multiplied by the number of years since the last Rent increase, or, at the first Rent adjustment date, since the Commencement Date, or (y) the cumulative percentage increase in the Consumer Price Index since the last Rent increase, or, at the first Rent adjustment date, since the Commencement Date, as calculated using the Consumer Price Index for the month of January in the relevant year. As used herein, "Consumer Price Index" means the Consumer Price Index, for all Urban Consumers—Kansas City, All Items (based index year 1982-84 = 100), as published by the United States Department of Labor, Bureau of Labor Statistics. If the manner in which the Consumer Price Index is determined by the Bureau of Labor Statistics shall be substantially revised, including without limitation, a change in the base index year, an adjustment shall be made by Landlord in such revised index which would produce results equivalent, as nearly as possible, to those which would have been obtained if the Consumer Price Index had not been so revised. If the Consumer Price Index shall become unavailable to the public because publication is discontinued, or otherwise, or if equivalent data is not readily available to enable Landlord to make the adjustment referred to in the preceding sentence, then Landlord will substitute therefor a comparable index based upon changes in the cost of living or purchasing power of the consumer dollar published by any other governmental agency or, if no such index shall be available, then a comparable index published by a major bank or other financial institution or by a university or a recognized financial publication.
        2.2   Tenant shall pay Rent in equal monthly installments ("Monthly Rent") in advance on the first day of each and every calendar month during the Term. Monthly Rent for the first seven (7) years of the Term shall equal Seven Thousand Nine Hundred Sixteen and 67/100 Dollars ($7,916.67)
        2.3   Rent shall be paid to or upon the order of Landlord at Landlord's address set forth herein or as otherwise designated in writing by Landlord. Landlord may change its address by notice to Tenant of such change pursuant to Section 22.2 hereof.

        2.4   Rent not paid within fifteen (15) days after the same is due shall bear interest from the date when due and payable under the terms hereof until the same is paid at an annual rate of interest equal to ten percent (10%), unless a lesser rate shall then be the maximum rate permissible by law, in which event said lesser rate shall be charged. The rate of interest determined pursuant to the preceding sentence is sometimes hereinafter referred to as the "Maximum Rate of Interest."
        2.5   If the Commencement Date occurs on other than the first day of the month, or the Term shall end other than on the last day of the month, Tenant shall pay proportionate Rent at the monthly rate set forth herein (in advance) for such partial month, as well as any other charges payable for such partial month.
ARTICLE III

 USE
        The Premises may be used and occupied for any lawful purpose. Tenant shall not use or permit the Premises to be used for any unlawful purpose.
ARTICLE IV

 POSSESSION
        Except as otherwise expressly provided herein, Landlord shall deliver exclusive possession of the Premises to Tenant on or before the Commencement Date.
ARTICLE V

 TAXES
        5.1   "Taxes" shall mean real estate taxes, sewer rents, rates and charges, and any other federal, state or local governmental charge, general, special, ordinary or extraordinary (but not including special or general assessments, which Landlord and Tenant agree to split equally, and income or franchise taxes or any other taxes imposed upon or measured by Landlord's income or profits, except as provided herein), which may now or hereafter be levied or imposed against the Premises or any portion thereof or interest therein. Notwithstanding the year for which any such Taxes are levied, in the case of special taxes which may be payable in installments, the amount of each installment, plus any interest payable thereon, payable during any year shall be considered Taxes assessed and levied for that year. Except as provided in the preceding sentence, all references to Taxes levied, confirmed or imposed during a particular year or Taxes "for" a particular year shall be deemed to refer to Taxes levied or otherwise imposed during such year without regard to when such Taxes are payable; provided, however, that in no event shall such Taxes be charged to or against Tenant or its successors or assigns, more than once. Landlord represents and warrants that it has received no written notice of special assessments affecting the Premises as of the date hereof.
        5.2   Tenant shall pay, before any fine, penalty, interest or cost is incurred, all Taxes which are levied, confirmed, imposed or which become a lien upon the Premises with respect to any period of time within the Term; provided, however, that as to any calendar year not falling entirely within the Term, Tenant shall be obligated to pay only a prorata share of Taxes based upon the number of days of the Term falling within the calendar year. Within ten (10) days after receipt of a copy of a tax bill, Landlord shall forward same to Tenant. Tenant shall not be liable for any costs, penalties or other expenses due to Landlord's failure to provide copies of such tax bills in a timely manner.
        5.3   Tenant shall have the right to contest at its own expense the amount or validity, in whole or in part, of any Taxes by appropriate proceedings diligently conducted in good faith, but only after payment
2

of such Taxes, unless such payment, or a payment thereof under protest, would operate as a bar to such contest or interfere materially with the prosecution thereof, in which event, notwithstanding the provisions of Section 5.2 hereof, Tenant may postpone or defer payment of such Taxes if neither the Premises nor any portion thereof, by reason of such postponement or deferment, would be in danger of being forfeited or lost. Tenant also shall have the right to select the counsel to be retained in connection with the prosecution of any such proceedings. Upon the termination of any such proceedings, Tenant shall pay the amount of such Taxes or part thereof, if any, as finally determined in such proceedings, the payment of which may have been deferred during the prosecution of such proceedings, together with any costs, fees, including attorneys' fees, interest, penalties, fines and other liability in connection therewith. Tenant shall be entitled to the refund of any Taxes, penalty, fine and interest thereon received by Landlord which have been paid by Tenant or which have been paid by Landlord but for which Landlord previously has been reimbursed in full by Tenant. Landlord shall not be required to join in any proceedings referred to in this Section 5.3 unless the provisions of any law, rule or regulation at the time in effect shall require that such proceedings be brought by or in the name of Landlord, in which event Landlord shall join in such proceedings or permit the same to be brought in Landlord's name.
        5.4   Tenant covenants to furnish to Landlord, upon request by Landlord therefor, official receipts of the appropriate taxing authority, or other appropriate proof reasonably satisfactory to Landlord, evidencing the payment of the same.
ARTICLE VI

 INSURANCE
        6.1   Tenant shall procure and maintain policies of insurance, at its own cost and expense, in character and amounts substantially similar to that insurance carried on the Premises by Landlord prior to the date of this Lease, and shall maintain such policies throughout the Term, and any Extension Period(s), in a commensurate ratio of insurance to replacement cost; provided, however, that if the same becomes unreasonably expensive or impracticable to maintain, Tenant shall maintain insurance in accordance with industry standards.
        6.2   Notwithstanding anything herein contained to the contrary, and provided the party providing the self-insurance has a consolidated net worth (computed to include the net worth of any subsidiaries and affiliates) equal to or exceeding $100 million, Tenant shall have the right to self-insure against any and all risks.
        6.3   Notwithstanding any other provision of this Lease to the contrary, and without limitation of the provisions of this Article VI, whenever (a) any loss, cost, damage or expense resulting from fire, explosion or any other casualty or occurrence is incurred by either of the parties hereto, or anyone claiming by, through, or under it in connection with the Premises, and (b) such party then is covered in whole or in part by insurance with respect to such loss, cost, damage or expense or is required under this Lease to be so insured, then the party so insured (or so required) hereby waives any claims against and releases the other party from any liability said other party may have on account of such loss, cost, damage or expense to the extent of any amount recovered by reason of such insurance (or which could have been recovered had such insurance been carried as so required). The parties agree to furnish to each insurance company which has or will issue policies of casualty insurance on the Improvements, written notice of said waivers and to have the insurance policies properly endorsed, if necessary, to acknowledge such subrogation waivers. Such release of liability and waiver of the right of subrogation shall not be operative in any case where the effect thereof is to invalidate such insurance coverage or increase the cost thereof (except that in the case of increased cost, the other party shall have the right, within thirty (30) days following written notice, to pay such increased cost, thereby keeping such release and waiver in full force and effect).
3

        6.4   Tenant shall, within 30 days of the Commencement Date, provide Landlord with a certificate of insurance demonstrating that Tenant has obtained the required insurance. Thereafter, upon Landlord's written request, Tenant shall provide Landlord with a certificate of insurance evidencing the renewal and continued maintenance of such insurance.
ARTICLE VII

 UTILITIES
        Tenant will pay, when due, all charges of every nature, kind or description for utilities consumed by Tenant at the Premises, including all charges for water, sewage, heat, gas, light, garbage, electricity, telephone, steam, power or other public or private utility services.
ARTICLE VIII

MAINTENANCE AND ALTERATIONS
        8.1   Tenant shall keep and maintain the exterior and interior of the Premises in good condition and repair. As used herein, each and every obligation of Tenant to keep, maintain and repair shall include, without limitation, all ordinary nonstructural repairs and replacements. To the extent possible, Tenant shall keep the Premises from falling temporarily out of repair or deteriorating. Further, Tenant shall keep and maintain the improvements at any time situated upon the Premises, the parking area and all sidewalks and areas adjacent thereto, safe, secure, clean and sanitary (including, without limitation, snow and ice clearance, planting and replacing flowers and landscaping, and necessary interior painting and carpet cleaning), and in substantial compliance with all zoning, municipal, county and state laws, ordinances and regulations applicable to the Premises. Landlord represents and warrants that the Premises are as of the date of this Lease, in compliance with all applicable zoning, municipal, county and state laws, ordinances and regulations.
        8.2   Tenant shall make all repairs, alterations, additions and improvements (hereinafter, "Alterations") on the Premises, and on and to the Improvements, parking areas, sidewalks, and equipment thereon, which may be made necessary by the act or neglect of Tenant, its employees, agents or contractors, or any persons, firm or corporation, claiming by, through or under Tenant or which are necessary or desirable in Tenant's sole opinion for the safer or more efficient operation of Tenant's business. All Alterations performed by Tenant shall be performed with new materials in a good and workmanlike manner.
        8.3   Notwithstanding anything to the contrary contained in the foregoing, Landlord shall maintain and repair the Premises' structure, foundation and roof, and plumbing, electrical, heating, ventilating, air conditioning and other mechanical systems (the "Systems") in accordance with all Federal, state and local requirements and shall make all necessary maintenance and structural repairs to the Premises and Systems, which under generally accepted accounting principles are properly classified as capital expenses. Tenant shall be responsible, at its sole cost and expense, for routine maintenance of the Systems.
ARTICLE IX

 COMPLIANCE WITH LAWS AND ORDINANCES
        9.1   Except with respect to matters arising prior to Tenant's occupancy of the Premises, and except as expressly provided elsewhere in this Lease, including without limitation Section 20.3, at its sole cost and expense throughout the Term, Tenant shall comply or cause compliance in all material respects with or remove or cure any material violation of any and all present and future laws, ordinances,
4

orders, rules, regulations and requirements of all federal, state, municipal and other governmental bodies having jurisdiction over the Premises and relating solely to Tenant's use of the Premises. Notwithstanding the foregoing, Landlord shall be responsible to cause the Premises to comply with the Americans with Disabilities Act.
        9.2   After prior written notice to Landlord, Tenant, at its sole cost and expense, shall have the right to contest the validity or application of any law or ordinance referred to in this Article IX in the name of Tenant or Landlord, or both, by appropriate legal proceedings diligently conducted. If necessary or proper to permit Tenant to so contest the validity or application of any such law or ordinance, Landlord shall execute and deliver any appropriate papers or other documents.
ARTICLE X

 MECHANIC'S LIENS
        Tenant shall not suffer or permit any mechanic's lien or other lien to be filed against the Premises, or any portion thereof, by reason of work, labor, skill, services, equipment or materials supplied or claimed to have been supplied to the Premises at the request of Tenant, or of anyone holding the Premises, or any portion thereof, by through or under Tenant. If any such mechanic's lien or other lien at any time shall be filed against the Premises or any portion thereof, Tenant, within thirty (30) days after the date Tenant first becomes aware of the filing of the same, at Tenant's election, shall cause said lien either to be discharged of record or to be bonded over in a manner which is reasonably acceptable to Landlord. If Tenant shall fail to discharge such mechanic's lien or liens or other lien or to bond over the same within such period, then Landlord may, but shall not be obligated to, discharge the same by paying to the claimant the amount claimed to be due or by procuring the discharge of such lien as to the Premises by deposit of a cash sum or a bond or other security, or in such other manner as is now or may in the future be provided by present or future law for the discharge of such lien as a lien against the Premises. Any amount paid by Landlord, or the value of any deposit so made by Landlord, together with all costs, fees and expenses in connection therewith (including reasonable attorneys' fees), together with interest thereon at the Maximum Rate of Interest, shall be repaid by Tenant to Landlord within thirty (30) days after demand therefor. Tenant shall indemnify, defend and hold harmless Landlord and the Premises from all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorneys' fees, resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanic's lien or other lien.
ARTICLE XI

 OPTIONS TO EXTEND
        11.1 Subject to the provisions hereinafter set forth in this Article XI, Landlord hereby grants Tenant options to extend the Term on the same terms, conditions and provisions as contained in this Lease, except as otherwise expressly provided herein, for three (3) periods of five (5) years each (collectively the "Extension Periods," or individually an "Extension Period," as applicable). If exercised in accordance herewith, the first Extension Period shall commence on the first (1st) day after the Expiration Date and each successive Extension Period shall commence on the day after the expiration of the immediately preceding Extension Period.
        11.2 Said options to extend each shall be exercisable in the following manner:
(a)
Not less than sixty (60) days prior to the Expiration Date or the last day of the applicable Extension Period, Tenant, by written notice to Landlord ("Extension Notice"), may exercise Tenant's option to extend for the next occurring Extension Period; provided, however, that if
5

Tenant shall fail to give such Extension Notice, Tenant's right to exercise such option nevertheless shall continue until thirty (30) days after Landlord shall have given Tenant written notice of Landlord's election to terminate such option to extend, and Tenant may exercise such option at any time until the expiration of said thirty (30) day period by the giving of an Extension Notice, it being the intention of the parties to avoid forfeiture of Tenant's right to extend the Term through inadvertent failure to deliver an Extension Notice within the time limit prescribed. If an option to extend the Term, as the same may have been previously extended, is not extended in the aforesaid manner, the Term and Tenant's rights hereunder and its rights to occupy and possess the Premises shall expire on the Expiration Date, or the last day of the then applicable Extension Period, as the case may be.
(b)
Subject to Section 11.3 hereof, if Tenant delivers an Extension Notice as aforesaid, the Term shall be extended on the same terms, conditions and provisions as contained herein
        11.3 Rent during the Extension Period(s) shall be determined in accordance with the provisions of Section 2.1.
ARTICLE XII

 DEFAULTS OF TENANT
        12.1 The occurrence of any one or more of the following events shall constitute an "Event of Default":
(a)
If default shall be made in the due and punctual payment of any Rent or in the payment of any other amount to be paid by Tenant to Landlord, when and as the same shall become due and payable, and such default shall continue for a period of fifteen (15) days after Tenant's receipt of written notice thereof from Landlord; or

(b)
If default shall be made by Tenant in keeping, observing or performing any of the terms contained in this Lease, other than as referred to in subsection (a) of this Section 12.1, and such default shall continue for a period of thirty (30) days after Tenant's receipt of written notice thereof given by Landlord, or such longer period as is reasonable to cure said default, if said default cannot, with due diligence and in good faith, be cured within said thirty (30) days, provided that Tenant promptly and with due diligence and in good faith fails to commence the cure of the same within the thirty (30) day period and thereafter fails to prosecute the curing of such default with due diligence and in good faith.
        12.2 If an Event of Default occurs, Landlord shall have the rights and remedies hereinafter set forth, which shall be distinct, separate and cumulative.
(a)
Landlord may terminate this Lease by giving Tenant written notice of its election to do so, in which event the Term shall end and all right, title and interest of Tenant hereunder shall expire on the date stated in such notice;

(b)
Landlord may terminate Tenant's right to possess the Premises without terminating this Lease by giving written notice to Tenant that Tenant's right of possession shall end on the date stated in such notice, whereupon Tenant's right to possess the Premises or any part thereof shall cease on the date stated in such notice; and

(c)
Landlord may enforce the provisions of this Lease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, and for the enforcement of any other appropriate legal or equitable remedy, including, without limitation, injunctive relief, and for recovery of all monies due or to become due from Tenant under any of the provisions of this Lease.
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        12.3 If Landlord exercises either of the remedies provided for in Sections 12.2(a) and 12.2(b), Tenant shall surrender possession of and vacate the Premises and immediately deliver possession thereof to Landlord, and Landlord may, upon proper process of law, re-enter and take complete and peaceful possession of the Premises.
        12.4 If Landlord terminates Tenant's right to possess the Premises without terminating this Lease, such termination of possession shall not release Tenant, in whole or in part, from Tenant's obligation to pay the Rent hereunder for the full Term, as and when the same becomes due and payable, and Landlord shall have the right, from time to time, to recover from Tenant, and Tenant shall remain liable for, all Rent and any other sums due and payable to Landlord during the period from the date of such notice of termination of possession to the stated end of the Term. In any such case, Landlord shall use reasonable efforts to mitigate damages and to re-let the Premises or any part thereof for the account of Tenant for such time (which may be for a term extending beyond the Term) and upon such terms as Landlord reasonably shall determine. Also, in any such case, Tenant shall pay the cost of Landlord's reasonable expenses of re-letting. Landlord shall collect the rents from any such re-letting and apply the same first to the payment of its unreimbursed expenses of re-letting and second to the payment of Rent herein provided to be paid by Tenant, and any excess or residue, until the expiration of the Term, shall operate only as an offsetting credit against the amount of Rent due and owing which thereafter becomes due and payable hereunder, and upon the expiration of the Term, the total aggregate amount of all such excesses which Landlord has then accumulated, if any, shall be paid to Tenant. No such re-entry, repossession or re-letting shall be construed as an eviction or ouster of Tenant or as an election on Landlord's part to terminate this Lease, unless a written notice of such intention is given to Tenant, and Landlord, at any time and from time to time, may sue and seek a judgment for any deficiencies from time to time remaining after the application of the proceeds of any such re-letting. In no event shall Landlord be entitled to collect Rent or other charges from Tenant prior to the date the same is due and payable under the terms of this Lease.
        12.5 If Landlord terminates this Lease pursuant to Section 12.2(a) hereof, Landlord shall be entitled to recover, as and for final damages for Tenant's default, an amount equal to the difference between the present value of the aggregate Rent to be paid by Tenant hereunder for the unexpired portion of the Term, and the then present value of the aggregate reasonable fair market rent for the Premises over the same period. In the computation of present value, a discount rate of six percent (6%) per annum shall be employed.
ARTICLE XIII

 DESTRUCTION AND RESTORATION
        13.1 Tenant covenants and agrees that, subject to the availability of insurance proceeds, in case of damage or destruction of the Improvements after the Commencement Date by fire or otherwise, Tenant shall promptly restore, repair, replace and rebuild the same as nearly as possible to the condition that the same were in immediately prior to such damage or destruction with such changes or alterations (made in conformity with Article VIII hereof) as may be reasonably acceptable to Landlord or required by law. Such restoration, repairs, replacements, rebuilding, changes and alterations, including the cost of temporary repairs for the protection of the Improvements, or any portion thereof, pending completion thereof are sometimes hereinafter referred to as the "Restoration." The Restoration shall be carried on and completed in accordance with the provisions and conditions of this Section and Article VIII hereof. All insurance monies payable on account of such damage or destruction shall be applied to the payment of the costs of the Restoration. Notwithstanding anything to the contrary herein contained, if the insurance monies in the hands of Tenant shall be insufficient to pay the entire costs of the Restoration, Landlord may, but shall not be obligated to, pay any deficiency. If Landlord elects not to pay any such deficiency, Tenant shall have the right to terminate this Lease
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upon thirty (30) days prior written notice to Landlord. Upon completion of the Restoration, Tenant shall be entitled to any insurance monies then remaining.
        13.2 From and after any destruction of or damage to the Improvements, or any portion thereof, by fire, casualty or otherwise, which, results in the inability of Tenant to conduct its business, in part or in whole, at the Premises, all Rent and all other charges payable by Tenant hereunder shall abate from the date of such suspension of business until the earlier of (a) the date such business is resumed, or (b) the completion of Restoration; and in connection therewith, if the Improvements are damaged in part but Tenant elects to continue to conduct its business therein, the Rent shall abate and be diminished in proportion to that part of the Improvements which is rendered unusable.
        13.3 Notwithstanding the foregoing provisions of this Article XIII, in case of damage or destruction of the Improvements which, in Tenant's reasonable judgment cannot be repaired or restored within six (6) months following the date of damage or destruction, Tenant shall have the option of terminating this Lease as of the date of such damage or destruction by notice in writing given to Landlord within thirty (30) days after the occurrence of such damage or destruction. In such event, Landlord shall be entitled to all of the casualty insurance proceeds payable on account of such damage or destruction (excluding any insurance coverage for Tenant's contents, trade fixtures and other personal property), and Tenant shall assign to Landlord, Tenant's rights to such insurance proceeds.
ARTICLE XIV

 CONDEMNATION
        14.1 If, during the Term, the entire Premises shall be taken as the result of the exercise of the power of eminent domain or conveyed under threat thereof (hereinafter referred to as the "Proceedings"), this Lease and all right, title and interest of Tenant hereunder shall terminate on the earlier of taking of possession by the condemning authority or the date of vesting of title pursuant to such Proceedings. Landlord and Tenant each shall be entitled to an allocation of the award to be made in such Proceedings relative to their respective interests in the Premises. For purposes of determining the value of Tenant's interest, it shall be assumed that Tenant would extend the Term for the maximum number of Extension Periods.
        14.2 If, during the Term, less than the entire Premises shall be taken in any such Proceedings, but such taking shall materially effect Tenant's use of the Premises, Tenant may terminate this Lease. Such termination shall be effected by notice in writing given not more than sixty (60) days after the date of vesting of title in such Proceedings, and shall specify a date not more than sixty (60) days after the giving of such notice as the date for such termination. Upon the date specified in such notice, the Term this Lease, and all right, title and interest of Tenant hereunder shall cease and terminate. If this Lease is terminated as provided in this Section 14.2, Landlord and Tenant each shall be entitled to an allocation of the award to be made in such Proceedings relative to their respective interests in the Premises. For purposes of determining the value of Tenant's interest, it shall be assumed that Tenant would extend the Term for the maximum number of Extension Periods.
        14.3 If during the Term, less than the entire Premises shall be taken, but either (i) such taking shall not materially effect Tenant's use of the Premises or (ii) Tenant does not elect to terminate pursuant to Section 14.2, this Lease, upon the earlier of taking of possession by the condemning authority or vesting of title in the Proceedings, shall terminate as to the parts so taken, and the proceeds of the award for such taking shall be delivered to Tenant to the extent necessary to restore that portion of the Improvements on the Premises not so taken to a complete architectural and mechanical unit and otherwise to make the remaining Premises appropriate for the use and occupancy of Tenant. In the event that the net amount of the award (after deduction of all costs and expenses, including attorneys' fees) that may be received in any such Proceedings for physical damage to the Improvements or the
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Land as a result of such taking is insufficient to pay all costs of such restoration work, Landlord shall deposit with Tenant such additional sum as may be required. The provisions and conditions in Article VIII applicable to changes and alterations shall apply to Tenant's obligations to restore as aforesaid.
        14.4 In the event of any termination of this Lease, or any part thereof, as a result of any such Proceedings, Tenant shall pay to Landlord all Rent and all other charges payable hereunder with respect to that portion of the Premises so taken, apportioned to the date of such termination.
        14.5 If Tenant either is not entitled, or does not elect, to terminate this Lease in the event of a partial taking of the Premises, the Rent payable hereunder during the period from and after the earlier of the taking of possession by the condemning authority and the date of vesting of title in such Proceedings through to the expiration or termination of this Lease (as the Term may be extended) shall abate and be diminished in proportion to that part of the Improvements and the Land which has been taken.
ARTICLE XV

 ASSIGNMENT AND SUBLETTING
        15.1 Tenant, at any time and from time to time during the Term, upon Landlord's prior written approval, which approval shall not be unreasonably withheld or delayed, may: (a) assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest under it; (b) allow to exist or occur any transfer of or lien upon this Lease or Tenant's interest herein by operation of law; or (c) sublet the Premises or any part thereof; provided, however, that the same shall not relieve Tenant from liability for performance of any covenant or obligation hereunder. Notwithstanding the foregoing, Tenant may assign its rights and interest in this Lease to (i) any party affiliated with Tenant, (ii) any entity resulting from a merger or consolidation of Tenant into or with another entity or (iii) any entity succeeding to the business and assets of Tenant, without Landlord's prior written consent; provided, however, that such assignment shall not relieve Tenant from liability for the performance of any covenant or obligation hereunder, and, provided further, that Tenant shall notify Landlord in writing of such actions.
        15.2 If Tenant shall assign this Lease, the assignee expressly shall assume in writing all of the obligations of Tenant hereunder.
        15.3 Landlord shall have the ability to transfer the Premises and assign its interest in the Lease to an entity affiliated with Landlord, without Tenant's prior consent, provided that Landlord shall give Tenant written notice of any such transfer. The provisions of Article XXI shall not apply to a transfer under this Section 15.3.
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 ARTICLE XVI

 SUBORDINATION, NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT
        16.1 This Lease is and shall be subject and subordinate to the lien of any mortgage, deed of trust, security instrument or other document of like nature, hereinafter referred to as "Mortgage", which now or at any time hereafter may be placed upon the Premises, or any portion thereof or interest therein, and to all present and future ground or underlying leases of the Land, and to any replacements, renewals, amendments, modifications, extensions or refinancing of any of the foregoing, and to each and every advance made under any Mortgage (unless the holder of any Mortgage or the lessor under any such ground or underlying lease [such holder or lessor being hereinafter referred to as a "Mortgagee"] requires in writing that this Lease be superior thereto); provided that the Mortgagee agrees in writing that so long as no Event of Default is continuing, neither Tenant's right to quiet enjoyment under this Lease, nor the right of Tenant to continue to occupy the Premises and all portions thereof, and to conduct its business thereon in accordance with the covenants, conditions, provisions, terms and agreements of this Lease, shall be interfered with or disturbed by Landlord or anyone claiming by, through or under Landlord, including Mortgagee. Tenant agrees at any time hereafter, and from time to time within thirty (30) days after demand of Landlord, to execute and deliver to Landlord any instruments, releases or other documents that reasonably may be required to effect or confirm the subordination or superiority of this Lease to the lien of any such Mortgage or to any such ground or underlying lease. In addition, Landlord shall cause any Mortgagee currently holding a Mortgage, to agree in writing in a manner satisfactory to Tenant not to interfere with or disturb Tenant's rights as aforesaid so long as no Event of Default is continuing said writing to be delivered to Tenant within thirty (30) days of the Commencement Date. The lien of any Mortgage shall not cover Tenant's trade fixtures or other personal property located in or on the Premises.
        16.2 If any Mortgagee shall succeed to the rights of Landlord under this Lease or to ownership of the Premises, whether through foreclosure or the delivery of a deed in lieu thereof, then upon the written request of such Mortgagee, and provided that such Mortgagee agrees in writing to assume and be bound by all of Landlord's obligations hereunder, Tenant shall attorn to and recognize such Mortgagee as Tenant's landlord under this Lease, and shall execute and deliver any instrument that such Mortgagee may reasonably request to evidence such attornment. Subject to the terms of Section 22.7 hereof, in the event of any other transfer of Landlord's interest hereunder, upon the written request of the transferee and Landlord, and provided such transferee agrees in writing to assume and be bound by all of Landlord's obligations hereunder, Tenant shall attorn to and recognize such transferee as Tenant's landlord under this Lease and shall execute and deliver any instrument that such transferee and Landlord reasonably may request to evidence such attornment.
ARTICLE XVII

 SIGNS
        Tenant may erect any signs on the exterior or interior of the Improvements or on the landscaped area adjacent thereto, provided that such sign or signs (i) do not cause any irreparable structural damage or other damage to the Improvements; (ii) do not violate applicable governmental laws, ordinances, rules or regulations; and (iii) do not violate any covenants, conditions or restrictions affecting the Premises.
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ARTICLE XVIII

 LANDLORD'S ACCESS
        18.1 Tenant agrees to permit Landlord and its authorized representatives, at Landlord's sole cost and expense, to enter upon the Premises at all reasonable times during ordinary business hours, upon not less than two (2) business days prior notice, for the purpose of inspecting the same and making any necessary repairs or replacements which are the obligation of Landlord. Landlord may, during the progress of any work required hereunder, keep and store upon the Premises all reasonably necessary materials, tools and equipment.
        18.2 Landlord is hereby also given the right at all reasonable times during ordinary business hours, upon not less than two (2) business days prior notice, to enter upon the Premises and to exhibit the same for the purpose of mortgaging or selling the same or, during the final four (4) months of the Term, leasing the same.
        18.3 In exercising its rights hereunder, Landlord shall refrain from any acts which may interfere with Tenant's use or occupancy of the Premises or access thereto. Without limiting the generality of the foregoing, Landlord acknowledges that it is necessary for Tenant to control access to the Premises in order to avoid unauthorized persons from viewing Tenant's trade secrets, proprietary products, technology and/or processes. Accordingly, while within the Premises, Landlord and its representatives, at Tenant's option, shall be accompanied by a representative of Tenant and shall comply with reasonable directions of such representative relative to safety and to the protection of Tenant's trade secrets and other proprietary information. Landlord also agrees to defend, indemnify and hold Tenant harmless against any and all claims, damages, liability, costs and expenses arising out of or alleged to have arisen out of any entry onto the Premises by Landlord and/or its authorized representatives. Landlord agrees to execute and cause its authorized representatives to execute confidentiality agreements as required by Tenant.
ARTICLE XIX

 SURRENDER AND HOLDING-OVER
        19.1 Upon the termination of this Lease, whether by forfeiture, lapse of time or otherwise, or upon termination of Tenant's right to possession of the Premises, Tenant will at once surrender and deliver up the Premises, together with all improvements thereon, to Landlord, in good condition and repair, reasonable wear and tear and damage by casualty and condemnation excepted. Said improvements shall include all plumbing, lighting, electrical, heating, cooling and ventilating fixtures and equipment, and all alterations. All permanent alterations, additions and improvements made in or upon the Premises by Tenant shall become Landlord's property and shall remain upon the Premises on any such termination without compensation, allowance or credit to Tenant.
        19.2 Upon the termination of this Lease, Tenant shall remove Tenant's personal property, trade fixtures and equipment; provided, however, that Tenant shall repair any injury or damage to the Premises which may result from such removal and shall restore the Premises to the same condition as existed prior to the installation thereof. If Tenant does not remove Tenant's personal property, trade fixtures and equipment from the Premises prior to the expiration or earlier termination of the Term, Landlord, upon thirty (30) days' notice to Tenant, at its option, may remove the same (and repair any damage occasioned thereby) and dispose thereof or deliver the same to any other place of business of Tenant or warehouse the same, and Tenant shall pay the cost of such removal, repair, delivery and warehousing to Landlord within thirty (30) days of demand therefor.
        19.3 Tenant shall have no right to occupy the Premises or any portion thereof after the expiration of this Lease or after the termination of this Lease or of Tenant's right to possession pursuant to
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Article XII hereof. In the event Tenant or any party claiming by, through or under Tenant holds over, Landlord may exercise any and all remedies available to it at law or in equity to recover possession of the Premises, and for direct damages; provided, however, that Landlord shall not be entitled to recover, and hereby expressly waives any right to recover, consequential damages. Notwithstanding anything contained herein to the contrary, in the event Tenant or any party claiming by, through or under Tenant holds-over after the expiration of the Term, Landlord may elect, in lieu of any other remedy provided by law or herein, that the same shall constitute a month-to-month tenancy upon the same terms as in this Lease at a rate of rent equal to one hundred twenty five percent (125%) of the Monthly Rent for the month in which the Term expires.
ARTICLE XX

 HAZARDOUS AND TOXIC MATERIALS
        20.1 As used herein:
(a)
"Claim" shall mean and include any demand, cause of action, proceeding or suit (i) for damages, losses, injuries to person or property, damages to natural resources, fines, penalties, interest, or contribution; (ii) for the costs of site investigations, feasibility studies, information requests, health or risk assessments or Response actions; or (iii) for enforcing this Article XX.

(b)
"Environmental Law" means federal, state, regional, county and local administrative rules, statutes, codes, ordinances, regulations, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders, judgments, and any similar items, relating to the protection of human health, safety, or the environment including without limitation: (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") (42 U.S.C. §§ 9601 et seq .; (b) the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. §§ 9601 et seq .); (c) The Hazardous Materials Transportation Control Act of 1970 (49 U.S.C. §§ 1802 et seq .; (d) the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Act Amendments ("RCRA") (42 U.S.C. §§ 6901 et seq .); (e) the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977 (33 U.S.C. §§ 1251 et seq .) (the "Clean Water Act"); (f) the Safe Drinking Water Act (42 U.S.C. §§ 300h et seq .); (g) the Clean Air Act, as amended by the Clean Air Act Amendments of 1990 (42 U.S.C. §§ 1857 et seq .); (h) the Solid Waste Disposal Act, as amended by RCRA (42 U.S.C. § 6901 et seq .); (i) the Toxic Substances Control Act (15 U.S.C. §§ 2601 et seq .); (j) the Emergency Planning and Community Right-to-Know Act of 1986 ("EPCRA") (42 U.S.C. §§ 11001 et seq .); (k) the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA") (7 U.S.C. §§ 136 et seq .); (l) the National Environmental Policy Act of 1975 (42 U.S.C. §§ 4321 et seq .); (m) the Radon Gas and Indoor Air Quality Reserve Act (42 U.S.C. §§ 7401 et seq .); (n) the National Environmental Policy Act of 1975 (42 U.S.C. §§ 4321 et seq .); (o) the Rivers and Harbors Act of 1899 (33 U.S.C. §§ 401 et seq .); (p) the Oil Pollution Act of 1990 (33 U.S.C. §§ 1321 et seq .); (q) the Endangered Species Act of 1973, as amended (16 U.S.C. §§ 1531 et seq .); (r) the Occupational Safety and Health Act of 1970, as amended, (29 U.S.C. §§ 651 et seq .); (s) North American Free Trade Act, (t) counterparts of any of the foregoing federal statutes enacted within or outside the United States or by any other nation, any U.S. state, region, county or local government (including any subdivisions thereof); (u) any and all laws, rules, regulations, codes, ordinances, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders and judgments enacted or promulgated under any of the foregoing, all as amended and as may be amended in the future, and (v) common law theories of nuisance, trespass, waste, negligence, and abnormally dangerous activities arising out of or relating to the presence of Hazardous Substances in the environment or work place.
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(c)
"Hazardous Substance" shall be construed broadly to include any substance, material or waste, including without limitation any constituent, chemical, element, particle, compound, material, substance or waste which is defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous substance," "restricted hazardous waste," "contaminant," "toxic waste," "toxic substance," or "special waste" under any Environmental Law which includes, but is not limited to, petroleum, petroleum by-products (including crude oil and any fraction thereof), waste oils, any hydrocarbon based substance, asbestos, asbestos-containing materials, urea formaldehyde and polychlorinated biphenyls.

(d)
"Manage" or "Management" means to generate, manufacture, process, treat, store, use, re-use, refine, recycle, reclaim, blend or burn for energy recovery, incinerate, accumulate speculatively, transport, transfer, dispose of or abandon Hazardous Substance.

(e)
"Release" shall mean releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping into the indoor or outdoor environment, including without limitation the abandonment or discarding of barrels, drums, containers, tanks and other receptacles containing or previously containing any Hazardous Substance.

(f)
"Response" or "Respond" shall mean action required by any Environmental Law to correct, remove, remediate, cleanup, prevent, mitigate, monitor, evaluate, investigate, assess or abate a Release of a Hazardous Substance.
        20.2 During the Term, Tenant, at its sole cost and expense, shall (a) comply with all Environmental Laws relating solely to its use of the Premises, and permits issued thereunder; (b) conduct any Management of Hazardous Substances by Tenant on the Premises in compliance with Environmental Laws; (c) use commercially reasonable efforts so as to not cause or allow the Release of any Hazardous Substances on, to or from the Premises, except in compliance with Environmental Laws and permits issued thereunder; (d) arrange for the lawful transportation and off-site disposal of all Hazardous Substances that it generates; and (e) secure, maintain, and comply with all permits required by Environmental Laws in connection with Tenant's use of the Premises.
        20.3 During the Term, Landlord, at its sole cost and expense, shall (a) comply with all Environmental Laws other than those relating solely to Tenant's use of the Premises, and permits issued thereunder; (b) secure, maintain and comply with all permits required by Environmental Laws other than those required solely by reason of Tenant's use of the Premises; and (c) cure any violation of any Environmental Laws attributable to the period prior to the Commencement Date.
        20.4 Landlord and Landlord's agents and employees shall have the right to enter upon the Premises to conduct appropriate inspections or tests in order to determine Tenant's compliance with Environmental Laws, provided that (a) such inspections and tests shall be performed at the sole cost and expense of Landlord; (b) Landlord shall provide Tenant with written notice not less than five business (5) days prior to conducting such inspections or tests; (c) such tests shall be performed at reasonable times designated by Tenant, shall be subject to the provisions of Section 18.3 and in all other respects shall not interfere with Tenant's business operations and shall be in compliance with Tenant's security procedures; and (d) Landlord promptly shall communicate and, when appropriate, delivery copies of the results of any investigation and tests, to Tenant.
        20.5 If Tenant's Management of Hazardous Substances at the Premises (a) results in or causes a Release which violates an Environmental Laws or permits issued thereunder; (b) gives rise to liability or a Claim or requires a Response under common law or any Environmental Law or permit issued thereunder; (c) causes a significant public health effect; or (d) creates a nuisance, Tenant, in any and all such occurrences and at its sole cost and expense, promptly shall take all applicable action in Response.
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        20.6 Tenant shall indemnify, defend and hold harmless Landlord, its beneficiary, managing agents and mortgagees from all Claims arising from or attributable to any breach by Tenant of any of its warranties, representations or covenants in this Article XX.
        20.7 Notwithstanding anything in the Article XX to the contrary, Tenant shall not be liable and Landlord shall fully indemnify and hold Tenant harmless from and against any and all liabilities, damages, expenses, costs and losses arising from, or as a result of, any use and occupancy of the Premises prior to the Commencement Date, including any violation of any Environmental Laws attributable to the period prior to the Commencement Date, and from, or as a result of, any breach of Landlord's obligations under this Lease.
ARTICLE XXI

 RIGHT OF FIRST REFUSAL
        If, at any time after the date of this Lease and while this Lease is in full force and effect, Landlord should receive from a third party purchaser a written offer to purchase the Premises (the "Third Party Offer"), and should Landlord desire to accept the Third Party Offer, it shall first make a written offer (the "Tenant Offer") to sell said Premises to Tenant at the price and upon the terms and conditions set forth in the Third Party Offer. The Tenant Offer shall be accompanied by a copy of the Third Party Offer. Tenant may accept the Tenant Offer by service of notice of acceptance on Landlord on or before the thirtieth (30th) day following delivery of the Tenant Offer to Tenant. If the Tenant Offer is accepted, the purchase and sale shall be closed at the principal office of Landlord on the date set forth in the Third Party Offer or at such other place, time and date as Landlord and Tenant may agree upon, by payment of the purchase price against conveyance of the Premises free and clear of liens and encumbrances of every kind and description except as permitted by the Tenant Offer. If Tenant fails to fully and timely accept the Tenant Offer as herein provided, Landlord may make the sale of the Premises to the prospective purchaser making the Third Party Offer in accordance with the terms thereof; provided, however, that if Landlord fails to consummate the sale of the Premises on exactly the same terms and conditions as are set forth in the Third Party Offer, the Premises shall again be subject to Tenant's right of first refusal. Tenant's right of first refusal as set forth in this Article XXI shall be a continuing right and shall survive each sale of the Premises during the term hereof (as it may be extended as provided herein).
ARTICLE XXII

 MISCELLANEOUS PROVISIONS
        22.1 To the fullest extent allowed by law, Tenant, at all times, shall indemnify, defend and hold Landlord, its officers, directors, employees and agents, harmless from and against any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from the conduct or management of or from any work or things whatsoever done in or about, the Premises (except to the extent arising out of Landlord's negligence or other wrongful conduct), and further will indemnify, defend and hold Landlord, its officers, directors, employees and agents, harmless against and from any and all claims arising during the Term and based upon any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or arising from any act or neglect of Tenant, its agents, servants, employees, licensees, or contractors, or arising from any accident, injury or damage whatsoever caused to any person, firm or corporation occurring during the Term in or about the Premises, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or with respect to any such claim or action or proceeding brought thereon. To the fullest extent allowed by law, Landlord, at all times, shall indemnify, defend and hold Tenant, its officers, directors, employees and agents, harmless from and
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against any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from the conduct or management of, or from any work or things whatsoever done in or about, the Premises (except to the extent arising out of Tenant's negligence or other wrongful conduct), and further will indemnify, defend and hold Tenant, its officers, directors, employees and agents harmless against and from any and all claims arising during the Term and based upon any breach or default on the part of Landlord in the performance of any covenant or agreement on the part of Landlord to be performed pursuant to the terms of this Lease, including, without limitation, the breach of any representation or warranty of Landlord contained in this Lease, or arising from any act or neglect of Landlord, its agents, servants, employees, licensees or contractors, whenever and wherever occurring or arising from any accident, injury or damage whatsoever caused to any person, firm or corporation occurring prior to or after the Term in or about the Premises, and from and against all costs, attorneys' fees, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon.
        22.2 All notices, demands and requests which may be or are required to be given, demanded or requested by either party to the other shall be in writing. All notices, demands and requests by Landlord to Tenant shall be sent by United States registered or certified mail, postage prepaid, or by commercial overnight delivery service or other personal service (with evidence of receipt), addressed as follows:
LKQ Corporation
120 N. LaSalle Street
Suite 3300
Chicago, Illinois 60602
Attn: General Counsel
or at such other place as Tenant may from time to time designate by written notice to Landlord. All notices, demands and requests by Tenant to Landlord shall be sent by United States registered or certified mail, postage prepaid, or by commercial overnight delivery service or other personal service (with evidence of receipt), addressed to Landlord as follows:
Mark T. Fitzgibbons
4520 SW Moundview Drive
Topeka, Kansas 66610
or at such other place as Landlord from time to time may designate by written notice to Tenant. Notices, demands and requests which shall be served upon Landlord by Tenant, or upon Tenant by Landlord, by mail in the manner aforesaid, shall be deemed to be sufficiently served or given for all purposes hereunder on the second business day after mailing, and notices served by overnight delivery service shall be deemed served or given on the second (2nd) business day after delivery to such service.
        22.3 Landlord covenants and agrees that Tenant, upon paying the Rent, and upon observing and keeping the covenants, agreements and conditions of this Lease on its part to be kept, observed and performed, shall lawfully and quietly hold, occupy and enjoy the Premises (subject to the provisions of this Lease) during the Term (as it may be extended from time to time as expressly provided herein) without hindrance or molestation by Landlord or by any person or persons claiming under Landlord. In the event of a breach by Landlord of this Section 22.3, or of any other covenant herein, then, anything in this Lease notwithstanding, Tenant shall have the full right to cure such breach at the expense of Landlord, and Landlord shall upon demand pay Tenant's costs, including attorneys' fees and expenses, of curing said breach (or Tenant, at its option, may deduct said costs and fees and expenses from the next accruing installment(s) of Rent or other charges payable by it to Landlord), or Tenant may enforce any and all remedies at law or in equity or under this Lease which may be available to Tenant under the particular circumstances.
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        22.4 Tenant and Landlord, each without charge at any time and from time to time, within thirty (30) days after written request by the other party, shall certify by written instrument, duly executed, acknowledged and delivered to any Mortgagee, assignee of a Mortgagee, proposed Mortgagee, or to any purchaser or proposed purchaser or transferee of the Landlord, Tenant or Premises or any interest therein:
(a)
That this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect, as modified, and stating the modifications);

(b)
The dates to which the Rent has been paid in advance;

(c)
Whether or not there are then existing any breaches or defaults by the certifying party or by the other party and known by the certifying party under any of the covenants, conditions, provisions, terms or agreements of this Lease, and specifying such breach or default, if any, or any set-offs or defenses against the enforcement of any covenant, condition, provision, term or agreement of this Lease upon the part of Landlord or Tenant, as the case may be, to be performed or complied with (and, if so, specifying the same and the steps being taken to remedy the same);

(d)
That Tenant has made no advancements to or on behalf of Landlord for which it has the right to deduct from, or offset against, future Rent payments;

(e)
Tenant has accepted the Premises and is in full and complete possession thereof; and

(f)
Such other statements or certificates as Landlord or Tenant or any Mortgagee may reasonably request.
        22.5 Upon not less than thirty (30) days prior written request by either party, the parties hereto agree to execute and deliver to each other a memorandum of lease, in recordable form, setting forth the following:
(a)
the date of this Lease;

(b)
the parties to this Lease;

(c)
the Term of this Lease;

(d)
the three (3), five (5) year extension options set forth in Article XI;

(e)
the right of first refusal set forth in Article XXI;

(f)
the legal description of the Premises;

(g)
the option to purchase set forth in Article XXV; and

(h)
such other matters reasonably requested by Landlord or Tenant to be stated therein.
        22.6 If any covenant, condition, provision, term or agreement of this Lease shall, to any extent, be held invalid or unenforceable, the remaining covenants, conditions, provisions, terms and agreements of this Lease shall not be affected thereby, but each covenant, condition, provision, term or agreement of this Lease shall be valid and in force to the fullest extent permitted by law. This Lease shall be construed and be enforceable in accordance with the laws of the State of Kansas.
        22.7 The covenants and agreements herein contained shall bind and inure to the benefit of Landlord and its successors and assigns, and Tenant and its successors and assigns.
        22.8 The caption of each article of this Lease is for convenience and reference only and in no way defines, limits or describes the scope or intent of such article or of this Lease.
16

        22.9 This Lease does not create the relationship of principal and agent, or of partnership, joint venture, or of any association or relationship between Landlord and Tenant, the sole relationship between Landlord and Tenant being that of landlord and tenant.
        22.10 All preliminary and contemporaneous negotiations are merged into and incorporated in this Lease. This Lease contains the entire agreement between the parties and shall not be modified or amended in any manner except by an instrument in writing executed by the parties hereto.
        22.11 There shall be no merger of this Lease or the leasehold estate created by this Lease with any other estate or interest in the Premises by reason of the fact that the same person, firm, corporation or other entity may acquire, hold or own directly or indirectly, (a) this Lease or the leasehold interest created by this Lease or any interest therein, and (b) any other estate or interest in the Premises or any portion thereof. No such merger shall occur unless and until all persons, firms, corporations or other entities having an interest (including a security interest) in (1) this Lease or the leasehold estate created hereby, and (2) any such other estate or interest in the Premises or any portion thereof, shall join in a written instrument expressly effecting such merger and shall duly record the same.
        22.12 All obligations, monetary or otherwise, accruing prior to expiration of the Term (as it may be extended from time to time) shall survive the expiration or other termination of this Lease.
        22.13 Time is of the essence of this Lease, and all provisions herein relating thereto shall be strictly construed.
        22.14 Each party represents and warrants to the other that it has not dealt with any broker in connection with this Lease and agrees to indemnify and hold the other party and its agents, officers, directors and employees harmless from all losses, damages, liabilities, claims, liens, costs and expenses, including, without limitation, attorneys' fees, arising from any claims or demands of any broker or brokers, salespersons or finders for any commission or fee alleged to be due such broker or brokers, salespersons or finders based upon such broker or brokers, salespersons or finders having dealt with the indemnifying party in connection with this Lease.
        22.15 To the extent either party indemnifies and agrees to defend the other under the terms of this Lease, the indemnifying party shall have the right to select counsel to undertake such defense, which counsel shall be reasonably acceptable to the indemnified party.
        22.16 Subject to specific conditions as to consents and approvals provided for in other sections of this Lease, no consent or approval required under this Lease shall be unreasonably withheld or delayed.
        22.17 This Lease may be executed in counterparts, each of which when taken together shall constitute one instrument.
        22.18 This Lease represents the product of the joint negotiation, preparation and agreement of and between the parties hereto and is not to be construed against one party or the other as the principal drafter.
        22.19 In the event of any litigation between the Landlord and the Tenant arising out of an alleged breach of this Lease by either of them and such litigation terminates upon the issuance of a final, unappealable judicial order, the unsuccessful party therein shall pay the successful party's reasonable attorneys' fees and expenses in such litigation. This provision shall inure only to the Landlord and Tenant and their respective successors and permitted assigns, if any.
17

 ARTICLE XXIII

 LANDLORD'S REPRESENTATIONS AND WARRANTIES
23.1
In addition to the other representations and warranties made herein, Landlord hereby represents and warrants to Tenant that as of the date hereof the following representations and warranties are true, correct and complete and that the same will be true, correct and complete on and as of the Commencement Date:

(a)
Landlord warrants and represents that the execution and delivery of this Lease by the signatory hereto on behalf of Landlord and the performance of this Lease by Landlord have been duly authorized by Landlord and this Lease is binding upon Landlord and enforceable against Landlord in accordance with its terms.

(b)
Landlord warrants and represents that it is and shall be the owner of fee simple title to the Land, free and clear of all liens, encumbrances, covenants, conditions, restrictions, rights of way, easements, leases, tenancies, licenses, claims, options, and any other matters which would impair the marketability of title to the Land, except the mortgage held by Capital City Bank, securing a loan of approximately $251,000.00, which mortgage shall be released within one (1) week of the date of this Lease.

(c)
Landlord represents and warrants that there are no condemnation or judicial proceedings, administrative actions or examinations, claims or demands of any type which have been instituted or which are pending or threatened against Landlord with respect to the Premises or any part thereof. There are no actions or proceedings pending or to the best of Landlord's knowledge, threatened against Landlord with respect to the Premises before any court or administrative agency which would result in any material adverse change in the condition and operation of the Premises. In the event Landlord receives notification of any of the foregoing prior to Commencement Date, copies of such notice shall be provided to Tenant by Landlord within three (3) days following its receipt thereof, but in no event later than the Commencement Date.

(d)
Intentionally omitted.

(e)
Landlord represents and warrants that the Premises will be delivered on the Commencement Date in substantially the same condition as on the date hereof, reasonable wear and tear excepted, and free of any occupants, tenants or rights of first refusal, right of reverter or rights of first offer relating to the Premises, other than as provided in this Lease; any service contracts or management agreements; and any employee, employment agreements or union contract affecting the Premises.

(f)
Landlord represents and warrants that Landlord has not filed any proceeding or petition in, nor received notice that any proceeding or petition has been filed against Landlord in bankruptcy or insolvency, or for reorganization or for the appointment of a receiver, custodian or trustee, or for the arrangement of debts under any state or federal statute relating to debtor protection or insolvency, and further that Landlord is not insolvent and will not be rendered insolvent by the consummation of the transaction contemplated by this Lease.

(g)
Landlord represents and warrants that it has received no notice of any violations of building, fire, air pollution, or Environmental Law and that Landlord has no knowledge of any suits or judgments threatened or pending relating to violations at the Premises or any portion of the Premises of any such laws, ordinances and regulations.

(h)
Landlord represents and warrants that there are no special taxes or assessments pending and/or unpaid with respect to any improvements not yet completed on the Premises;
18

(i)
Landlord represents and warrants that there are no parties that have any rights to possession of any part of the Premises other than Landlord or that have any leases to any portion of the Premises, other than as provided in this Lease.

(j)
Landlord represents and warrants that there are no written or oral service agreements or other contracts or leases with respect to the Property or any part thereof, except this Lease.

(k)
Landlord represents and warrants that there are no underground storage tanks on the Premises or any condition on the Premises which materially violates the terms of any applicable environmental law.

(l)
Intentionally omitted.

(m)
Landlord represents and warrants that between the date of this Lease and the Commencement Date that it will not enter into any leases, service agreements or other contracts with respect to the Premises, which will be effective beyond the Commencement Date without express written consent of Tenant, which consent shall not be unreasonably withheld; provided, however, the Tenant shall not be required to consent to any agreement which will terminate on or before the Commencement Date.

(n)
All other representations and warranties of Landlord in this Lease are true, correct and complete.
        All representations made by Landlord in this Article XXIII shall survive the execution of this Lease and, if later, the Commencement Date.
ARTICLE XXIV

 LANDLORD DEFAULT
        In the event Landlord breaches any of the representations and warranties contained in this Lease, or in the event any such representation or warranty is untrue when made, or in the event Landlord breaches any of its obligations under Article XX hereof, and if such breach is curable and is not cured within thirty (30) days after written notice thereof, Tenant shall have the right to terminate this Lease. In addition to Tenant's rights contained herein or available in law or at equity, in the event Landlord neglects or fails to comply with any of Landlord's obligations contained in this Lease, Tenant may, after giving Landlord not less than 30 days prior written notice, (a) cure any such Landlord's default and (b) withhold rent in an amount not to exceed any amount which Tenant spends to cure any such default or otherwise incurs by reason of Landlord's default (including attorneys' fees and expenses).
ARTICLE XXV

 OPTION TO PURCHASE
25.1
In consideration of the Rent to be paid by Tenant under this Lease and other good and valuable consideration and in addition to the right of first refusal granted to Tenant in Article XXI herein, Landlord hereby irrevocably grants to Tenant the exclusive option (the "Option") to purchase the Premises, including but not limited to all structures and improvements thereon and all appurtenances thereto, on the terms and conditions set forth herein and in accordance with the Real Estate Purchase Agreement attached as Exhibit B hereto and made a part hereof (the "Purchase Agreement") for a purchase price (the "Purchase Option Price") equal to the lesser of (i) the Fair Market Value of the Premises as of the date of Tenant's Option Exercise Notice, as that term is hereinafter defined, determined in accordance with Article XXVI hereof; and (ii) Nine Hundred Fifty Thousand and no/100 Dollars ($950,000.00), adjusted on the first day of the second and third Extension Periods, if any, by a percentage equal to the lesser of (x) the
19

product of Two and One-Half Percent (2.5%) multiplied by the number of years since the last Rent increase, or (y) the cumulative percentage increase in the Consumer Price Index since the last Rent increase, as calculated using the Consumer Price Index for the month of January in the relevant year.
25.2
Tenant shall have the right to exercise the Option at any time during the third year of the initial Term of this Lease, and during the period which is ninety (90) days prior to the first day of each Extension Period, by Tenant giving Landlord written notice of Tenant's exercise (the "Option Exercise Notice"), which notice shall be no less than ninety (90) days prior to the proposed closing date set forth in the Option Exercise Notice. The Option Exercise Notice shall be accompanied by four (4) copies of the Purchase Agreement each dated as of the date of Tenant's notice and executed by Tenant, as purchaser. Within three (3) days of Landlord's receipt of Tenant's exercise of the Option, Landlord shall execute and return to Tenant two (2) of the four (4) copies of the Purchase Agreement which Tenant shall have sent to Landlord. In the event that the Option is not exercised by Tenant in the manner provided herein before the end of the Term, as the same may be extended pursuant to the terms hereof, the Option shall be null and void and of no further force or effect.

25.3
The Option is a continuing option and shall survive any and all sales of the Premises by Landlord.

25.4
The Purchase Option Price shall be payable, at Tenant's option, (i) in cash, or (ii) if shares of LKQ Corporation, the parent corporation of Tenant ("LKQ"), are publicly traded, shares of LKQ common stock; provided, however, that Tenant shall not be allowed to pay in accordance with clause (ii) if the disposition of such shares is restricted in any way by law or contract.
ARTICLE XXVI

 FAIRMARKET VALUE
26.1
"Fair Market Value" shall be determined in the manner provided below:

(a)
Upon Tenant providing Landlord with the Option Exercise Notice (as provided in Article XXV herein), Landlord and Tenant shall meet within ten (10) days to agree upon the Fair Market Value for the Purchase Option Price (as defined in Article XXV herein). If Landlord and Tenant shall so agree on the Fair Market Value for such Purchase Option Price within such time as specified above, they shall forthwith execute the Purchase Agreement as provided in Article XXV herein.

(b)
If Landlord and Tenant are unable to agree on Fair Market Value within the time provided, Landlord shall appoint a licensed real estate broker within ten (10) days and immediately notify Tenant in writing of said appointment and of the name and address of the licensed real estate broker so appointed. Tenant shall have the right to appoint a licensed real estate broker within such ten (10) days, and shall immediately notify Landlord in writing of said appointment and of the name and address of the licensed real estate broker so appointed. If within ten (10) days after their appointment, the two licensed real estate brokers agree on the Fair Market Value within a five percent (5%) differential, the Fair Market Value shall equal the average of the determination made by each of said two licensed real estate brokers, and shall be binding upon Landlord and Tenant. If the two licensed real estate brokers do not, within ten (10) days after their appointment, agree on the Fair Market Value, within a five percent (5%) differential, the licensed real estate brokers shall then appoint a third licensed real estate broker within ten (10) days thereafter. Such third appraiser shall, within twenty (20) days of such appointment, choose either the Fair Market Value determined by Landlord's broker or the Fair Market Value determined by Tenant's broker as the final Fair Market Value. The third appraiser's choice shall be based upon its determination of which of the two
20

proposed Fair Market Value determinations is more reasonable. The Fair Market Value chosen by the third appraiser shall be binding on Landlord and Tenant. The decision shall be made in writing and signed by the licensed real estate brokers in duplicate. One of the writings shall be delivered to Landlord and the other shall be delivered to Tenant. The charges for services of the licensed real estate brokers, if any, shall be borne by the Landlord and Tenant hereto in equal shares.
(c)
The licensed real estate brokers appointed pursuant to this Section must be licensed real estate brokers specializing in industrial real estate with at least five (5) years' continuous and active experience in the Lawrence, Kansas metropolitan area.

(d)
In the event Tenant or Landlord fails to appoint an appraiser as provided above, the appraiser so appointed shall determine Fair Market Value and such determination shall be binding on the parties, subject to the right of such party failing to appoint an appraiser to have another appraiser appointed jointly by the appraiser so appointed and the party that failed to appoint an appraiser. The appraiser so appointed as provided in this Subsection shall be deemed the "third appraiser" for purposes of this Section.

(e)
In the event the appraisers selected by Landlord and Tenant are unable to agree on a third appraiser, the matter shall be submitted to the American Arbitration Association for the appointment of a third appraiser in accordance with the requirements of the Lease.

         IN WITNESS WHEREOF , each of the parties has caused this Lease to be duly executed as of the day and year first above written.

TENANT:	 	LANDLORD:	

RECYCLERS GROUP, INC.	

By:	
 	
/s/   THOMAS B. RATERMAN       

/s/   MARK FITZGIBBONS       

Mark Fitzgibbons	

Name:	
 	
Thomas B. Raterman

February 28, 1999

Date	

Title:	
 	
Vice President

 	

Date:	

 	
 	
21

EXHIBIT A

LEGAL DESCRIPTION

EXHIBIT A (Mid-America Auto Parts, Inc.)
A portion of Lot 1 of Mills Subdivision, found in the Southeast Quarter (SE 1 / 4 ) of Section Five (5), Township Thirteen (13) South, Range Twenty (20) East of the Sixth Principal Meridian, more specifically described as follows:
Lot 1, Mills Subdivision, less the East 598.64 feet thereof; containing 8.72 acres, all in the City of Lawrence, Douglas County, Kansas, and commonly known as 2001 East 19th Street, Lawrence, Kansas.

EXHIBIT B

 REAL ESTATE PURCHASE AGREEMENT
         THIS AGREEMENT is made as of the            day of                        ,            , between                                     ("Seller"), whose address is                        and LKQ Corporation, a Delaware corporation, or its nominee ("Purchaser"), whose address is                        . The parties hereto agree as follows:
1.
Purchase and Sale .
(a)
Seller agrees to sell and Purchaser agrees to purchase the real property commonly known as                        and more particularly described as follows (the "Real Property"):

(b)
Seller agrees to sell and Purchaser agrees to purchase the personal property described as follows (the "Personal Property"):
        (The Real Property and the Personal Property shall herein collectively be referred to as the "Property.")
2.
Purchase Price .    The purchase price shall be                        Dollars ($            ) (the "Purchase Price"). Upon Purchaser's execution of this Agreement, Purchaser shall deposit the sum of                        Dollars ($                        ) (the "Deposit"), which equals five percent (5%) of the Purchase Price, with Chicago Title Insurance Company ("Escrowee") to be held in escrow as earnest money pursuant to the terms of this Agreement and to be credited (together with all earnings thereon) at closing against the Purchase Price.

3.
Survey .    Within thirty (30) days of the date of this Agreement, Seller, at Seller's sole cost and expense, shall deliver to Purchaser a current survey of the Real Property prepared in accordance with the standards for Land Title Surveys of the American Land Title Association and the American Congress on Surveying and Mapping for a Urban survey and prepared by a surveyor licensed by the State of Kansas and certified to Purchaser, the title insurer, if any, and such other parties as Purchaser shall designate (the "Survey"). The Survey shall show no encroachments onto the Real Property from any adjacent property, no encroachments by or from the Real Property onto any adjacent property and no violation of or encroachments upon any recorded building lines, restrictions or easements affecting the Real Property. If the Survey discloses any such encroachments or violations or any exceptions to title or matters indicating possible rights of third parties, Seller shall have thirty (30) days from the date of delivery thereof to have such encroachments, violations or exceptions removed, waived or released, and provide evidence thereof to Purchaser; or to elect to have the title insurer, if any, issue its endorsement insuring against damage caused by such encroachments, violations or unpermitted exceptions (provided such insurance is satisfactory to Purchaser, in Purchaser's sole discretion). If Seller fails to have the same corrected or insured against, within said 30-day period, Purchaser may elect, on or before the closing date, either (a) to terminate this Agreement (in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser and thereupon, neither party shall have any further rights or obligations under this Agreement), or (b) to close and accept title to the Real Property subject to such encroachments, violations and exceptions with the right to withhold from the Purchase Price such amounts as may be necessary to remove such items as may be removed by the payment of money or posting of a bond, security or indemnity fund. In the event Purchaser terminates this Agreement due to Seller's failure to have any such encroachments, violations or exceptions insured against, or removed, waived or released, then, in addition to returning the Deposit and all earnings thereon, Seller shall pay Purchaser all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement.

4.
Title .    Within thirty (30) days of the date of this Agreement, Seller, at Seller's sole cost and expense, shall deliver to Purchaser a commitment for an ALTA Form B 1970 Owner's Title Insurance Policy issued by Chicago Title Insurance Company in the full amount of the Purchase Price, covering title to the Real Property on or after the date hereof, showing Seller as owner of
B-1

the Real Property in fee simple, subject only to such exceptions as Purchaser may approve pursuant to clause (b) of this Paragraph 4 and such exceptions as may result from Purchaser's leasing and use of the Real Property, and providing for full extended coverage over all general title exceptions contained in such policy. Seller shall have thirty (30) days from the date Seller receives the title commitment to have all liens, encumbrances or other exceptions to title removed from the title commitment and provide evidence thereof to Purchaser, and if Seller fails to have such exceptions removed, Purchaser may elect, on or before the closing date, either (a) to terminate this Agreement (in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser), or (b) to close and accept title subject to such exceptions with the further right to deduct from the Purchase Price the cost of removing such exceptions, and/or cause the title insurer to issue its endorsement insuring against damage caused by such exceptions and deduct from the Purchase Price the cost of the premiums and security provided for said endorsement, as the case may be (provided such insurance is satisfactory to Purchaser, in Purchaser's sole discretion). Purchaser's exercise of the foregoing rights shall not be deemed a waiver or release of any of its remedies, at law or in equity or pursuant to this Agreement, for default if said exceptions to title were caused or suffered by or through Seller or any party claiming by, through or under Seller. In the event Purchaser terminates this Agreement due to an exception created or suffered by Seller, then, in addition to returning the Deposit and all earnings thereon, Seller shall pay Purchaser all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement. On the closing date, Seller shall cause the title insurer to issue an owner's title insurance policy or prepaid commitment therefor pursuant to and in accordance with the title commitment, insuring fee simple title to the Real Property in the Purchaser as of the closing date, subject only to such exceptions as Purchaser may approve pursuant to clause (b) above.
5.
Destruction or Damage .    If, subsequent to the date hereof and prior to the closing date, all or any portion of the Property shall be destroyed or damaged by one or more incidents of vandalism, fire and/or other casualty, whether or not covered by insurance, Seller immediately shall give Purchaser notice of such occurrence and Purchaser, within thirty (30) days after receipt of such notice, may elect either (a) to terminate this Agreement, in which event the Deposit and all earnings thereon forthwith shall be returned to Purchaser and thereupon, neither party shall have any further rights or obligations under this Agreement, or (b) to close the transaction contemplated hereby as scheduled (except that if the closing date is less than thirty (30) days following Purchaser's receipt of such notice, closing shall be delayed until Purchaser makes such election), in which event Purchaser shall have the right to participate in the adjustment and settlement of any insurance claim relating to said damage, and Seller shall assign and/or pay to Purchaser at closing all insurance proceeds (and other related choices in action, if any) collected or claimed with respect to said loss or damage plus any deductible or self-insured amount.

6.
Condemnation .    If, subsequent to the date hereof and prior to the closing date, any proceeding, judicial, administrative or otherwise, which shall relate to the proposed taking of all or any substantial portion of the Real Property by condemnation or eminent domain or any action in the nature of eminent domain, or the taking or closing of any right of access to the Real Property, is instituted or commenced, Purchaser shall have the right and option to terminate this Agreement by giving Seller written notice to such effect within thirty (30) days after actual receipt of written notification of any such occurrence or occurrences. If Purchaser does not terminate this Agreement pursuant to this Paragraph 6, Purchaser shall be credited with or be assigned all Seller's right to any proceeds or award therefrom. Seller hereby agrees to furnish Purchaser written notification in respect to any such proceedings within forty-eight (48) hours of Seller's receipt of any such notification or learning of the institution of such proceedings. Should Purchaser elect to terminate this Agreement, the Deposit and all earnings thereon forthwith shall be returned to Purchaser, and thereupon neither party shall have any rights or obligations under this Agreement.
B-2

If the closing date is less than thirty (30) days following Purchaser's receipt of notice, then the closing shall be delayed until Purchaser makes such election.
7.
Representations and Warranties .    To induce Purchaser to execute, deliver and perform this Agreement, Seller hereby represents and warrants to Purchaser on and as of the date hereof and on and as of the date of Closing as follows:

(a)
All representations and warranties of Seller appearing in other Sections of this Agreement are true and correct.

(b)
Landlord represents and warrants that Landlord is duly organized and validly existing under the laws of the State of                        ; that the execution and delivery of this Lease and the transaction contemplated hereby have been duly authorized by Landlord and that the performance of Landlord's obligations under this Lease will not violate its organizational documents, the provisions of any applicable law or agreement to which it is a party or under which it is bound.

(c)
Seller has full capacity, right, power and authority to execute, deliver and perform this Agreement and all documents to be executed by Seller pursuant hereto, and all required action and approvals therefor have been duly taken and obtained. The individuals signing this Agreement and all other documents executed or to be executed pursuant hereto on behalf of Seller are and shall be duly authorized to sign the same on Seller's behalf and to bind Seller thereto. This Agreement and all documents to be executed pursuant hereto by Seller are and shall be binding upon and enforceable against Seller in accordance with their respective terms.

(d)
Except for Seller and Purchaser as tenant under that certain lease between Seller and Purchaser dated February 28, 1999 (the "Lease"), there are no persons in possession or occupancy of the Property or any part thereof, nor are there any persons who have possessory rights in respect to the Property or any part thereof.

(e)
There are no claims, causes of action or other litigation or proceedings pending or threatened with respect to the ownership or operation of the Property or any part thereof.

(f)
There is no existing, pending, contemplated, threatened or anticipated (i) condemnation of any part of the Real Property, (ii) widening, change of grade or limitation on use of streets abutting the Real Property, (iii) special tax or assessment to be levied against the Property, (iv) change in the zoning classification of the Real Property, or (v) change in the tax assessment of the Property.

(g)
That, except as to any matters caused by Purchaser's use of the Property, (i) there has not occurred, nor is there presently occurring, a Release or threatened Release of any Hazardous Substance on, into or beneath the surface of, or adjacent to, any parcel of the Real Property, (ii) it has received no notice of violation of any Environmental Law in regard to its ownership and possession of the Property, (iii) no underground storage tanks or above ground tanks have been located on the Real Property, (iv) the Real Property has never been used as a dump for waste material and (v) the Property complies with any and all Environmental Laws including, without limitation, the Americans with Disabilities Act.

8.
Closing .    The time of closing shall be on the later of (i)                          ,            , or (ii) ten (10) days after satisfaction or waiver of Seller's obligations, if any, arising pursuant to Paragraphs 3 and 4 of this Agreement. This transaction shall be closed through the offices of Escrowee. On or before the closing date, each party shall deliver to Escrowee such documents, instruments, certifications and confirmations as may reasonably be required and designated by the other party in order to effect and consummate the transaction as contemplated herein and in accordance with applicable law.
B-3

9.
Access and Possession .    If Purchaser is not in possession of any part of the Property as of the date hereof, Seller shall allow Purchaser and its representatives access to the Property prior to closing to conduct inspections and measurement of dimensions. Seller shall deliver exclusive possession of the Real Property and the Personal Property to Purchaser on the closing date in substantially the same condition as on the date of Purchaser's execution of this Agreement.

10.
Deed .    At closing, subject to the terms and conditions set forth in this Agreement, Seller shall deliver to Purchaser a general Warranty Deed conveying marketable title to the Real Property subject only to such exceptions as Purchaser may approve pursuant to the terms of this Agreement.

11.
Bill of Sale .    At closing, subject to the terms and conditions set forth in this Agreement, Seller shall transfer title to the Personal Property to Purchaser by good and sufficient bill of sale containing full warranties of title and subject only to such exceptions as Purchaser shall approve in writing.

12.
Seller's Remedy for Purchaser's Default .    If Purchaser defaults hereunder, then the Deposit shall be drawn down and the proceeds thereof shall be paid over to and retained by Seller, as its sole and exclusive remedy, and this Agreement thereupon shall terminate, the parties thereafter being relieved of all obligations hereunder, other than those, if any, which specifically are stated to survive the termination of this Agreement.

13.
Purchaser's Remedy for Seller's Default .    If any representation or warranty of Seller is not true and correct at and as of the closing date, or if Seller fails to perform its obligations in a timely manner, or otherwise defaults hereunder, notwithstanding anything to the contrary provided in this Agreement, Purchaser shall have the right to elect (i) specific performance of this Agreement, or (ii) to recover from Seller the Deposit and all earnings thereon and all costs incurred by Purchaser in connection with the transaction contemplated by this Agreement, including, but not limited to, reasonable attorneys' fees.

14.
Prorations .    General and special real estate (at 110% of the most recent ascertainable bill) and other ad valorem taxes and assessments and other state or city taxes, fees, charges and assessments affecting the real property; utility charges and deposits; fuels; and all other items of accrued or prepaid income and expenses customarily prorated on the transfer of industrial properties in the Lawrence, Kansas metropolitan area shall be prorated on an accrual basis as of the closing date on the basis of the most recent ascertainable amounts of or other reliable information in respect to each such item of income and expense, and the net credit to Purchaser or Seller shall be paid in cash or as a credit against that portion of the purchase price payable on the closing date; provided that none of the foregoing items shall be prorated if Purchaser is obligated to pay for such items in accordance with the terms of the Lease. Except as otherwise provided herein, all prorations hereunder shall be final. Purchaser shall assume and timely discharge all obligations with respect to accrued expenses and prepaid income for which it receives proration credit and Purchaser shall indemnify, defend and hold harmless Seller against any claims with respect to accrued expenses and prepaid income for which it receives a proration credit. Notwithstanding the foregoing, if at any time within six (6) months following the closing date, either party discovers a mistake in proration or any items which should have been included in the closing statements but were omitted therefrom, then such items shall be adjusted in the same manner as if their existence had been known at the time of the preparation of the closing statements.

15.
Closing Costs .    Seller shall pay all charges customarily attributable to sellers, including, without limitation, any state and county transfer taxes customarily, or by law or ordinance, an obligation of a seller. Purchaser shall pay all charges customarily, or by law or ordinance, attributable to purchasers, including, without limitation, all recordation charges. The parties shall each be solely responsible for the fees and disbursements of their respective counsel and other professional advisers.
B-4

16.
Brokerage .    Purchaser and Seller each hereby represent and warrant to the other that they have not dealt with any broker, finder or other agent in connection with this Agreement or the transaction contemplated hereby. Each party hereby agrees to indemnify the other party for any claim for brokerage commission or finder's fee asserted by a person, firm or corporation claiming to have been engaged by the indemnifying party.

17.
Assignment .    Seller and Purchaser hereby agree that Purchaser may assign any or all of its rights as Purchaser under this Agreement.

18.
Entire Agreement .    This Agreement contains the entire agreement between the parties; it may not be modified, amended or discharged nor may any of its terms be waived except by an instrument in writing signed by the party to be bound thereby. Neither party has relied upon any verbal or written representations, agreements or understandings not set forth herein.

19.
Time of the Essence .    Time is of the essence of this Agreement.

20.
Governing Law .    This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas.

21.
Severability . If any provision of this Agreement is or shall be deemed to be illegal, invalid, or unenforceable, the remaining provisions hereof shall remain in full force and effect and interpreted as if such illegal, invalid or unenforceable provision did not exist herein.

22.
Notices .    Any notice required hereunder shall be delivered, postage prepaid by registered mail, certified mail or by nationally recognized overnight courier to the addresses noted above. Notices sent by registered or certified mail shall be deemed delivered two (2) days after deposit in the mail. Notices sent by overnight courier shall be deemed delivered on the date following deposit with such courier.
         IN WITNESS WHEREOF , the Purchaser and Seller have executed and delivered this Agreement on the date first set forth above.

 PURCHASER:	 	SELLER:	

By:	

 	
By:	

Name:	

 	
Name:	

Title:	

 	
Title:	

Date:	

 	
Date:	

B-5

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Exhibit 10.31
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 EXHIBIT 21.1
LKQ CORPORATION AND ITS SUBSIDIARIES

 	 	 	 	Jurisdiction
	 	Assumed Names
	
1.	 	Akron Airport Properties, Inc.	 	Ohio	 	 	
2.	 	Black Horse Auto Parts, Inc.	 	Florida	 	Lents Auto Parts; LKQ Auto Parts of Orlando	
3.	 	Bodymaster Auto Parts, Inc.	 	New Jersey	 	 	
4.	 	Bodymaster Auto Parts Supply, Inc.	 	Maryland	 	 	
5.	 	Damron Holding Company, LLC	 	Delaware	 	LKQ North Florida; LKQ Melbourne; LKQ Service Center Crystal River; LKQ Fort Myers	
6.	 	DAP Trucking, Inc.	 	Florida	 	 	
7.	 	DAP Trucking, LLC	 	Florida	 	 	
8.	 	Distribuidora Hermanos Copher Internacional, SA	 	Costa Rica	 	 	
9.	 	Double R Auto Sales, Inc.	 	Florida	 	 	
10.	 	Foster Auto Parts Beaverton, LLC	 	Oregon	 	 	
11.	 	Foster Auto Parts Longview, Inc.	 	Washington	 	 	
12.	 	Global Trade Alliance, Inc.	 	Ohio	 	 	
13.	 	Hermanos Copher Internacional, SA.	 	Guatemala	 	 	
14.	 	LKQ 250 Auto, Inc.	 	Ohio	 	 	
15.	 	LKQ A&R Auto Parts, Inc.	 	South Carolina	 	 	
16.	 	LKQ All Models Corp.	 	Arizona	 	Wholesale Auto Recyclers; Cars `n More	
17.	 	LKQ Atlanta, L.P.	 	Delaware	 	LKQ Carolina	
18.	 	LKQ Auto Parts of Central California, Inc.	 	California	 	 	
19.	 	LKQ Auto Parts of Memphis, Inc.	 	Arkansas	 	LKQ of Tennessee	
20.	 	LKQ Auto Parts of North Texas, Inc.	 	Delaware	 	 	
21.	 	LKQ Auto Parts of North Texas, L.P.	 	Delaware	 	LKQ Auto Parts of Central Texas	
22.	 	LKQ Auto Parts of Orlando, LLC	 	Florida	 	LKQ Self Service Auto Parts-Orlando	
23.	 	LKQ Auto Parts of Utah, LLC	 	Utah	 	 	
24.	 	LKQ Best Automotive Corp.	 	Delaware	 	 	
25.	 	LKQ Best Automotive, L.P.	 	Delaware	 	LKQ Auto Parts of South Texas; A-1 Auto Salvage Pick & Pull; The Engine & Transmission Store	
26.	 	LKQ Birmingham, Inc.	 	Alabama	 	LKQ Gulf Coast	
27.	 	LKQ Brad's Auto & Truck Parts, Inc.	 	Oregon	 	 	
28.	 	LKQ Broadway Auto Parts, Inc.	 	New York	 	 	
29.	 	LKQ Copher Self Service Auto Parts-Bradenton, Inc.	 	Florida	 	 	
30.	 	LKQ Copher Self Service Auto Parts-Clearwater, Inc.	 	Florida	 	 	
31.	 	LKQ Copher Self Service Auto Parts-St. Petersburg, Inc.	 	Florida	 	 	
32.	 	LKQ Copher Self Service Auto Parts-Tampa, Inc.	 	Florida	 	 	
33.	 	LKQ Crystal River, Inc.	 	Florida	 	LKQ Fort Myers	
34.	 	LKQ Foster Auto Parts, Inc.	 	Oregon	 	LKQ U-Pull-It Auto Wrecking; LKQ Foster Auto Parts Vancouver	

35.	 	LKQ Foster Auto Parts Westside LLC	 	Oregon	 	Northwest Cylinder Heads	
36	 	LKQ Foster Auto Parts Salem, Inc.	 	Oregon	 	 	
37.	 	LKQ Gorham Auto Parts Corp.	 	Maine	 	 	
38.	 	LKQ Great Lakes Corp.	 	Indiana	 	 	
39.	 	LKQ Holding Co.	 	Delaware	 	 	
40.	 	LKQ Hunts Point Auto Parts Corp.	 	New York	 	Partsland USA; LKQ Auto Parts of Eastern Pennsylvania; LKQ Auto Parts	
41.	 	LKQ Lakenor Auto & Truck Salvage, Inc.	 	California	 	LKQ of Southern California; LKQ of Las Vegas	
42.	 	LKQ Management Company	 	Delaware	 	 	
43.	 	LKQ Metro, Inc.	 	Illinois	 	 	
44.	 	LKQ Mid-America Auto Parts, Inc.	 	Kansas	 	Mabry Auto Salvage	
45.	 	LKQ Midwest Auto Parts Corp.	 	Nebraska	 	Midwest Foreign Auto; LKQ Midwest Auto	
46.	 	LKQ Minnesota, Inc.	 	Minnesota	 	LKQ Albert Lea	
47.	 	LKQ of Indiana, Inc.	 	Indiana	 	 	
48.	 	LKQ of Michigan Inc.	 	Michigan	 	 	
49.	 	LKQ of Nevada, Inc.	 	Nevada	 	 	
50.	 	LKQ of Stockton, Inc.	 	California	 	 	
51.	 	LKQ of Tennessee, Inc.	 	Tennessee	 	 	
52.	 	LKQ Online Corp.	 	Delaware	 	 	
53.	 	LKQ Penn-Mar, Inc.	 	Pennsylvania	 	 	
54.	 	LKQ Raleigh Auto Parts Corp.	 	North Carolina	 	 	
55.	 	LKQ Route 16 Used Auto Parts, Inc.	 	Massachusetts	 	 	
56.	 	LKQ Salisbury, Inc.	 	North Carolina	 	LKQ of Carolina	
57.	 	LKQ Savannah, Inc.	 	Georgia	 	 	
58.	 	LKQ Self-Service Auto Parts - Memphis LLC	 	Tennessee	 	 	
59.	 	LKQ Smart Parts, Inc.	 	Delaware	 	 	
60.	 	LKQ Smart Parts, L.P.	 	Delaware	 	 	
61.	 	LKQ Star Auto Parts, Inc.	 	Delaware	 	 	
62.	 	LKQ Star Auto Parts, L.P.	 	Delaware	 	 	
63.	 	LKQ TriplettASAP, Inc.	 	Ohio	 	 	
64.	 	LKQ U-Pull-It Auto Damascus, Inc.	 	Oregon	 	 	
65.	 	LKQ U-Pull-It Tigard, Inc.	 	Oregon	 	 	
66.	 	Mid-State Aftermarket Parts, Inc.	 	Arkansas	 	 	
67.	 	Mid-State Accessory Center, Inc.	 	Arkansas	 	 	
68.	 	Redding Auto Center, Inc.	 	California	 	LKQ Auto Parts of Northern California	
69.	 	Supreme Auto Parts, Inc.	 	Pennsylvania	 	 	

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EXHIBIT 21.1
 
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 Exhibit 23.1
 
 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        We consent to the use in this Registration Statement on Form S-1 of our report dated March 8, 2005 relating to the financial statements of LKQ Corporation (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" as of January 1, 2002) appearing in the Prospectus, which is part of this Registration Statement, and of our report dated March 8, 2005 relating to the financial statement schedule appearing elsewhere in this Registration Statement.
        We also consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
September 2, 2005

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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM