KAR Auction Services, Inc. (Form: 10-K, Received: 02/24/2017 06:08:22)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K



ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34568

KAR Auction Services, Inc.

(Exact name of Registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		20-8744739 (I.R.S. Employer Identification No.)

13085 Hamilton Crossing Boulevard, Carmel, Indiana 46032

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (800) 923-3725

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

_______________________________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of the registrant's common stock held by stockholders who were not affiliates (as defined by regulations of the Securities and Exchange Commission) of the registrant was $5,748,110,691 at June 30, 2016.

As of February 15, 2017 , 136,728,422 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

Documents Incorporated by Reference

Certain information required by Part III of this Annual Report on Form 10-K is incorporated by reference herein from the registrant's Definitive Proxy Statement for its 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the registrant's fiscal year ended December 31, 2016 .

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Index



		Page
Defined Terms		3

PART I

Item 1.	Business	4
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	31
Item 2.	Properties	31
Item 3.	Legal Proceedings	31

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6.	Selected Financial Data	36
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	38
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 8.	Financial Statements and Supplementary Data	70
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	112
Item 9A.	Controls and Procedures	112
Item 9B.	Other Information	112

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	113
Item 11.	Executive Compensation	115
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	115
Item 13.	Certain Relationships and Related Transactions, and Director Independence	115
Item 14.	Principal Accounting Fees and Services	115

PART IV

Item 15.	Exhibits, Financial Statement Schedules	116
Signatures		117

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DEFINED TERMS

Unless otherwise indicated or unless the context otherwise requires, the following terms used in this Annual Report on Form 10-K have the following meanings:


•	"we," "us," "our" and "the Company" refer, collectively, to KAR Auction Services, Inc. and all of its subsidiaries;


•	"ADESA" or "ADESA Auctions" refer, collectively, to ADESA, Inc., a wholly-owned subsidiary of KAR Auction Services, and ADESA, Inc.'s subsidiaries, including Openlane, Inc. (together with Openlane, Inc.'s subsidiaries, "Openlane") and ADESA Remarketing Limited (formerly known as GRS Remarketing Limited ("GRS" or "ADESA Remarketing Limited"));


•	"AFC" refers, collectively, to Automotive Finance Corporation, a wholly-owned subsidiary of ADESA, and Automotive Finance Corporation's subsidiaries and other related entities, including PWI Holdings, Inc.;


•	"AutoVIN" refers to AutoVIN, Inc., our wholly-owned subsidiary;


•	"Credit Agreement" refers to the Amended and Restated Credit Agreement, dated March 11, 2014, as amended on March 9, 2016, among KAR Auction Services, as the borrower, the several banks and other financial institutions or entities from time to time parties thereto and the administrative agent;

•

"Credit Facility" refers to the three-year senior secured term loan B-1 facility ("Term Loan B-1"), the seven-year senior secured term loan B-2 facility ("Term Loan B-2"), the seven-year senior secured term loan B-3 facility ("Term Loan B-3"), the $300 million, five-year senior secured revolving credit facility (the "revolving credit facility") and the $250 million, five-year senior secured revolving credit facility (the "old revolving credit facility"), the terms of which are set forth in the Credit Agreement. Term Loan B-1 and the old revolving credit facility were extinguished in March 2016 with proceeds received from Term Loan B-3;


•	"IAA" refers, collectively, to Insurance Auto Auctions, Inc., a wholly-owned subsidiary of KAR Auction Services, and Insurance Auto Auctions, Inc.'s subsidiaries and other related entities, including HBC Vehicle Services Limited ("HBC"); and


•	"KAR Auction Services" refers to KAR Auction Services, Inc., and not to its subsidiaries.

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PART I

Item 1. Business

Overview

We are a leading provider of used car auction services and salvage auction services in North America and the United Kingdom. We facilitate an efficient marketplace by providing auction services for sellers of used, or "whole car," vehicles and salvage vehicles through our 249 North American physical auction locations at December 31, 2016 , and multiple proprietary Internet venues. In 2016 , we facilitated the sale of approximately 5.1 million used and salvage vehicles. Our revenues are generated through auction fees from both vehicle buyers and sellers, as well as by providing value-added ancillary services, including transportation, reconditioning, inspections, marshalling, titling and floorplan financing. We facilitate the transfer of ownership directly from seller to buyer and generally we do not take title to or ownership of vehicles sold through our auctions.

ADESA, our whole car auction services business, is the second largest provider of used vehicle auction services in North America. Vehicles at ADESA's auctions are typically sold by used vehicle dealers, vehicle manufacturers and their captive finance companies, financial institutions, commercial fleet operators and rental car companies to franchised and independent used vehicle dealers. Through ADESA.com, powered by Openlane technology, ADESA provides a comprehensive remarketing solution to automobile manufacturers, captive finance companies, lease and daily rental car companies, financial institutions and wholesale automobile auctions. IAA, our salvage auction services business, is one of the two largest providers of salvage auction services in North America. Vehicles at our salvage auctions are typically damaged or low-value vehicles that are predominantly sold by automobile insurance companies, non-profit organizations, automobile dealers, vehicle leasing companies and rental car companies to licensed dismantlers, rebuilders, scrap dealers or qualified public buyers. An important component of ADESA's and IAA's services to their buyers is providing short-term inventory-secured financing, known as floorplan financing, primarily to independent used vehicle dealers through our wholly-owned subsidiary, AFC.

At December 31, 2016 , we had a North American network of 77 whole car auction locations and 172 salvage vehicle auction sites; in addition, we offer online auctions for both whole car and salvage vehicles. ADESA also includes ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom. IAA also includes HBC Vehicle Services Limited, which operates from 11 locations in the United Kingdom. Our auction locations are primarily standalone facilities dedicated to either whole car or salvage auctions; however, some of our sites are utilized to service both whole car and salvage customers at the same location. We believe our extensive geographic network and diverse product offerings enable us to leverage relationships with providers and buyers of used and salvage vehicles.

Our Corporate History

KAR Auction Services (formerly KAR Holdings, Inc.) was incorporated in 2006 and commenced operations in April 2007. On November 3, 2009, we changed our name from KAR Holdings, Inc. to KAR Auction Services, Inc. ADESA entered the vehicle remarketing industry in 1989 and first became a public company in 1992. In 1994, ADESA acquired AFC. ADESA remained a public company until 1995 when ALLETE, Inc. purchased a majority of its outstanding equity interests. In June 2004, ALLETE, Inc. sold 20% of ADESA to the public and then spun off their remaining 80% interest to shareholders in September 2004. ADESA was acquired by the Company in April 2007. IAA entered the vehicle salvage business in 1982, and first became a public company in 1991. After growing through a series of acquisitions, IAA was acquired by two private equity firms in 2005. The two private equity firms and certain members of IAA management contributed IAA to KAR Auction Services in April 2007. In a series of transactions between December 2012 and November 2013, our former owners (private equity firms) sold all of their common stock in secondary offerings.

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Our Industry

Auctions are the hub of the remarketing system for used and salvage vehicles, bringing professional sellers and buyers together and creating a marketplace for the sale of these vehicles. Whole car auction vehicles include vehicles from dealers turning their inventory, off-lease vehicles, vehicles repossessed by financial institutions and rental and other program fleet vehicles that have reached a predetermined age or mileage. The salvage vehicle auction industry provides a venue for sellers, primarily automobile insurance companies, to dispose or liquidate damaged or low value vehicles to dismantlers, rebuilders, scrap dealers or qualified public buyers. The following are key industry highlights:

Whole Car Auction Industry Volumes

Whole car auction volumes in North America, including online only volumes, were approximately 9.2 million and 9.9 million in 2014 and 2015 , respectively. Data for the whole car auction industry is collected by the National Auto Auction Association ("NAAA") through an annual survey. NAAA industry volumes for 2016 have not yet been released; however, we estimate that used vehicle auction volumes in North America in 2016 will be approximately 10.6 million vehicles (including approximately 0.7 million vehicles sold online by ADESA prior to reaching a physical auction). We expect the industry to experience an increase in whole car auction volumes in 2017 as a result of increasing new vehicle sales and lease originations since 2009, as well as readily available credit, which supports retail used car sales.

Salvage Auction Industry Volumes

We believe that the North American salvage vehicle auction industry volumes are affected primarily by accident rates, the age of the vehicle fleet on the road, miles driven, weather, the complexity of vehicles in operation, repair costs and recycled parts utilization. Vehicles deemed a total loss by automobile insurance companies represent the largest category of vehicles sold in the salvage vehicle auction industry. As vehicle design becomes more complex with additional enhancements, such as airbags and electrical components, vehicles are more costly to repair following an accident and insurance companies are more likely to declare a damaged vehicle a total loss. In addition, the utilization of recycled parts from salvage vehicles by the collision repair industry continues to increase as the quality of these parts gains wider acceptance and insurance companies attempt to reduce their repair claim costs. We believe that salvage volumes will continue to grow for the foreseeable future as the number of total loss vehicles increases.

Consolidated Whole Car and Salvage Auction Markets

The North American used vehicle auction market is largely consolidated. We estimate that Manheim, a subsidiary of Cox Enterprises, and ADESA together represent approximately 70% of the North American whole car auction market. We estimate that ADESA represents approximately 28% of the North American whole car auction market. The North American salvage vehicle auction market is also largely consolidated with the top two competitors, IAA and Copart, Inc., together representing over 80% of the market.

Our Business Strategy

The Company has a comprehensive strategy that leverages KAR’s unique collection of assets, proven track record with commercial sellers, extensive North American physical footprint, global network of customers and unique set of transaction data. The Company’s strategy for the future builds on this base, and we believe it will enable the Company to meet new opportunities emerging in the automotive remarketing industry, which is being impacted by several meaningful trends, including:


•	Remarketing channels and systems that are increasingly becoming more interconnected;


•	An increase in customer demand and dependency on data in buying and selling decisions; and


•	Rapidly advancing technology with opportunity for application in the remarketing industry.

KAR is focused on expanding our end-to-end remarketing platform across the used vehicle industry through innovation, data science, and a strategic physical footprint. We have invested in technology and talent and deployed a suite of complementary online, digital and mobile capabilities that we believe will simplify and streamline the buying and selling experience for our customers. Additionally we believe our unique, integrated platform of whole car, salvage, and finance solutions deliver differentiated value to customers across North America, and positions the Company for further growth around the globe. To execute our strategy of providing the best remarketing venue and analytical evidence for every vehicle, while generating value for our shareholders and customers, we intend to focus on the following strategic initiatives:


•	Extend and integrate our platform


•	Leverage unique data and analytic capabilities


•	Continue to improve operating efficiency

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•	Using excess cash flow to invest in strategic growth initiatives and return capital to shareholders

Extend and Integrate Our Platform

We believe that the Company’s collection of 260 whole car and salvage auction sites, along with their online counterparts, makes us uniquely qualified to provide the best set of remarketing marketplaces for our customers. Additionally, these venues provide the opportunity to anchor further expansion and growth of the catalog of integrated ancillary and related services offered by the Company. We are therefore focused on the following strategies to further extend and integrate our platform.

•

Establishing Physical Auction Presence in Key Automotive Marketplaces : The Company is focused on expanding its physical auction footprint into key markets where there is opportunity for growth and meaningful customer demand for greater choice, technology, and integrated remarketing solutions. These geographies also provide a platform for the regional deployment and expansion of the Company’s other ancillary and related services, as well as enhancing AFC's floorplan financing to independent used vehicle dealers. In 2016, the Company completed acquisitions or opened new physical sites as follows:


◦	Brasher’s Auto Auctions: adding eight auction locations and Brasher’s floorplan financing business to the ADESA and AFC business units and establishing the Company’s physical presence in northern California, Oregon, Washington, Utah and Washington.


◦	Sanford Auto Dealers Exchange: establishing the Company’s presence in the Orlando and central Florida marketplaces.


◦	Flint Auto Auction: located in the Detroit metropolitan area serving customers in Michigan, Ohio, Indiana and Illinois.


◦	ADESA Chicago: KAR successfully opened a new used car auction site in Chicago in October 2016. Chicago is one of the largest automotive markets in the U.S. The Company now delivers the full range of whole car, salvage, and financing solutions in the Chicago marketplace.

•

Expanding Opportunities for Customers to Buy and Sell Online : We are focused on enhancing our Internet solutions in all of the key channels in which we operate, and we will continue to invest in technology platforms in order to capitalize on new opportunities and attract new customers. Online vehicle remarketing solutions provide the opportunity to improve the customer experience, expand our volume of transactions and potentially increase proceeds for sellers through greater buyer participation at auctions. Online buying activity continues to accelerate and represents an increasing portion of wholesale transactions across the industry. Providing consistent, accurate and user-friendly online solutions remains a strategic priority. Advancing our online solutions allows us to connect more effectively with our current customers and engage with a broader range of geographically diverse customers.

We acquired Openlane in order to better capitalize on the increasing use of the Internet as a means to purchase wholesale vehicles. Powered by Openlane technology, ADESA offers comprehensive private label remarketing solutions to automobile manufacturers, captive finance companies, lease and daily rental car companies, financial institutions and wholesale automobile auctions throughout the United States and Canada. IAA is the only national salvage auction company that offers buyers both live and Internet purchasing opportunities. ADESA provides online solutions to sell vehicles directly from a dealership or other interim storage location (upstream selling); online solutions to offer vehicles for sale while in transit to auction locations (midstream selling); simultaneously broadcasting video and audio of the physical auctions to online bidders (LiveBlock® ); and bulletin-board or real-time online auctions (DealerBlock® ).

We will continue to make investments in our online technology to enhance the selling and buying experience for our customers. These investments involve creating a more streamlined user experience and embedding additional Company capabilities and offerings within our online tools.

•

Expanding our International Presence : In both our whole car and salvage vehicle businesses, we have experience managing a global buyer base with relationships in over 110 countries. We believe we are well positioned to grow internationally. We continue to identify opportunities to expand certain of our service offerings globally. We expect that our ability to efficiently layer in our product and technology licensing will allow us to enter other mature auction markets.

In 2016, the Company acquired GRS Remarketing Limited, a subsidiary of Greenhous Group Limited. GRS is a U.K.-based remarketing business with robust technology, effective operations and relationships with commercial customers. We believe GRS’ technology platform will complement our physical auction presence to bring U.K. customers

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additional value and choice. The Company has renamed GRS to ADESA Remarketing Limited to help bring additional awareness, brand recognition and interest to the Company’s whole-car auction solution.

Also in 2016, TradeRev U.K. announced a partnership with Arval to provide upstream remarketing services for a luxury segment of the leasing firm’s U.K. portfolio. KAR business unit ADESA holds a 50 percent stake in TradeRev. The Company believes this partnership is strategically complementary to the GRS acquisition and will help build a platform to bring additional KAR services to the U.K. and position ADESA Remarketing Limited in the active European marketplace.


•	Develop alternative marketplaces : The Company is identifying innovative venues for the exchange of used vehicles through internal development, targeted partnerships and acquisitions.

Leverage Unique Data and Analytic Capabilities

The Company has observed increased demand from commercial customers (e.g., OEMs, insurance companies, finance companies, rental companies, large dealer groups, etc.) for more sophisticated, data-driven, end-to-end remarketing solutions. Specifically, customers are seeking tools, technology and information that simplify the auction process and help them make more efficient and better-informed buying and selling decisions. As a result, the Company continues to invest in both its data analytics capabilities and leadership. The Company’s newly-formed data science team aggregates the Company’s broad and unique data set captured through millions of auction transactions and ancillary and related services performed each year. As customer expectations and dependence on data continue to increase and evolve, the Company will further develop its data analytic capabilities.

Continue to Improve Operating Efficiency

We continue to focus on reducing costs by optimizing efficiency at each of our auction locations and consolidating certain management functions. A number of initiatives have been implemented, which have streamlined operations and improved operating efficiencies. As part of these initiatives, we introduced a management operating system to actively monitor and manage staffing levels and, as a result, have realized additional labor efficiency gains.

The Company is highly focused on integrating the newly acquired sites and facilities from its 2016 acquisitions. Since the time of acquisition, work has been underway to evaluate the sites and assess their current levels of performance, resources, and productivity and ensure they are operating as efficiently and effectively as possible. Where practical and beneficial, the Company will implement its data-driven and efficiency-based operating model that has been successful at our existing auction locations. We expect this work to continue through 2017 and into 2018.

The company also introduced two internal technology and communication tools to help connect our 17,400 employees and foster greater collaboration, innovation, and sharing of expertise and best practices across our locations and businesses. By streamlining the employee and manager experience, we believe we will be able to return additional productive hours to employees. Additionally, the Company launched a new internal communications tool that provides communication, information sharing, and virtual collaboration space across our businesses.

Using Excess Cash Flow to Invest in Strategic Growth Initiatives and Return Capital to Shareholders

We generate strong cash flows as a result of our attractive margins, the ability to leverage our corporate infrastructure across our multiple auction locations, relatively low levels of capital expenditures and limited working capital requirements. Management plans to utilize excess cash generated by the business to invest in strategic growth initiatives and return capital to shareholders. We generated $360.8 million and $475.0 million of cash flow from operations for the twelve months ended December 31, 2016 and 2015, respectively. After paying any future dividends to shareholders (subject to prior declaration by our board of directors), we expect that significant cash flow will remain to support growth initiatives or return additional capital to shareholders.

Selective acquisitions and greenfield expansion represent possible growth initiatives. Increased demand for single source solutions by our customers and other factors may increase our opportunities to acquire competitors. Both ADESA and IAA have a strong record of acquiring and integrating independent auction operations and improving profitability. We will continue to evaluate opportunities to open and acquire new sites in selected markets in order to effectively leverage our sales and marketing capabilities and expand our buyer base and geographic presence for both ADESA and IAA. In addition, we may pursue opportunities to acquire additional product offerings in each of our business segments.

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We paid cash dividends to shareholders of $157.1 million and $151.9 million for the years ended December 31, 2016 and 2015, respectively. In addition, we paid $80.4 million and $227.6 million for the years ended December 31, 2016 and 2015, respectively, to repurchase and retire shares of our common stock.

Our Business Segments

We operate as three reportable business segments: ADESA Auctions, IAA and AFC. Our revenues for the year ended December 31, 2016 were distributed as follows: ADESA 56%, IAA 35% and AFC 9%. No single customer accounted for more than 10% of our total revenue, including seller, buyer, ancillary and other related services revenue. Geographic information as well as comparative segment revenues and related financial information pertaining to ADESA, IAA and AFC for the years ended December 31, 2016 , 2015 and 2014 are presented in the tables in Note 18, Segment Information, to the Consolidated Financial Statements for KAR Auction Services, Inc., which are included under Item 8 in this Annual Report on Form 10-K.

ADESA

Overview

We are the second largest provider of whole car auctions and related services to the vehicle remarketing industry in North America. We serve our customer base through online auctions and auction facilities that are developed and strategically located to draw professional sellers and buyers together and allow the buyers to inspect and compare vehicles remotely via ADESA.com or in person. Our online service offerings include ADESA.com, LiveBlock and DealerBlock and allow us to offer vehicles for sale from any location. ADESA also includes ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom.

Vehicles available at our auctions include vehicles from institutional customers such as off-lease vehicles, repossessed vehicles, rental vehicles and other program fleet vehicles that have reached a predetermined age or mileage and have been repurchased by the manufacturers, as well as vehicles from used vehicle dealers turning their inventory. The number of vehicles offered for sale at auction is the key driver of our costs incurred in the whole car auction process, and the number of vehicles sold is the key driver of the related fees generated by the remarketing process.

We offer both online and physical auctions as well as value-enhancing ancillary services in an effective and efficient manner to maximize returns for the sellers of used vehicles. We quickly transfer the vehicles and ownership to the buyer and the net funds to the seller. Vehicles are typically offered for sale at the physical auctions on at least a weekly basis at most locations and the auctions are simulcast over the Internet with streaming audio and video (LiveBlock) so that remote bidders can participate via our online products. Our online auctions (DealerBlock) function 24 hours a day, 7 days a week, providing our customers with maximum exposure for their vehicles and the flexibility to offer vehicles at "buy now" prices or in auctions that last for a few hours, days or even weeks. We also provide customized "private label" selling systems (including "buy now" functionality as well as online auctions) for our customers, primarily utilizing technology acquired with the purchase of Openlane.

We generate revenue primarily from auction fees paid by vehicle buyers and sellers, as well as fees from related services. Generally, we do not take title to or bear the risk of loss for vehicles sold at whole car auctions. Our buyer fees and dealer seller fees are typically based on a tiered structure with fees increasing with the sale price of the vehicle, while institutional seller fees are typically fixed. We add buyer fees to the gross sales price paid by buyers for each vehicle, and generally customers do not receive title or possession of vehicles after purchase until payment is received, proof of floorplan financing is provided or credit is approved. We generally deduct seller fees and other ancillary service fees to sellers from the gross sales price of each vehicle before remitting the net amount to the seller.

Customers

Suppliers of vehicles to our whole car auctions primarily include (i) large institutions, such as vehicle manufacturers and their captive finance arms, vehicle rental companies, financial institutions, and commercial fleets and fleet management companies (collectively "institutional customers"); and (ii) franchised and independent used vehicle dealers (collectively "dealer customers"). Buyers of vehicles at our whole car auctions primarily include franchised and independent used vehicle dealers.

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Services

Our whole car auctions also provide a full range of innovative and value-added services to sellers and buyers that enable us to serve as a "one-stop shop." Many of these services may be provided or purchased independently from the auction process, including:



Services		Description
Auction Related Services		ADESA provides marketing and advertising for the vehicles to be auctioned, dealer registration, storage of consigned and purchased inventory, clearing of funds, arbitration of disputes, auction vehicle registration, condition report processing, photo services, post-sale inspections, security for consigned inventory, title processing, sales results reports, pre-sale lineups and auctioning of vehicles by licensed auctioneers.
Transportation Services		We provide both inbound (pickup) and outbound (delivery) transportation services utilizing our own equipment and personnel as well as licensed and insured third party carriers. Through our subsidiary, CarsArrive and its Internet-based system which provides automated vehicle shipping services, customers can instantly review price quotes and delivery times, and vehicle transporters can check available loads and also receive instant notification of available shipments. The same system is utilized at our whole car auction locations.
Reconditioning Services		Our auctions provide detailing, body work, paintless dent repair ("PDR"), light mechanical work, glass repair, tire and key replacement and upholstery repair. Key replacement services are primarily provided by our subsidiary, HTL.
Inspection Services Provided By AutoVIN		AutoVIN provides vehicle condition reporting, inventory verification auditing, program compliance auditing and facility inspections. Field managers are equipped with handheld computers and digital cameras to record all inspection and audit data on-site. The same technology is utilized at our whole car auction locations and we believe that the expanded utilization of comprehensive vehicle condition reports with pictures facilitates dealers sourcing vehicles via the Internet.
Title and Repossession Administration and Remarketing Services		PAR provides end-to-end management of the remarketing process including titling, repossession administration, inventory management, auction selection, pricing and representation of the vehicles at auction for those customers seeking to outsource all or just a portion of their remarketing needs. Recovery Database Network, Inc. ("RDN") is a specialized provider of B2B software and data solutions for automotive lenders and repossession companies.
Vehicle Research Services Provided by Autoniq		Autoniq provides dealers real-time vehicle information such as pricing, history reports and market guides. Its mobile app allows used car dealers to scan VINs on mobile devices, view auction run lists and access vehicle history reports and market value reports instantly. Autoniq offers access to valued resources such as CARFAX and AutoCheck, as well as Black Book Daily, NADA guides, Kelley Blue Book and Galves pricing guide information. It also includes a comprehensive wholesale and retail market report for all markets in the United States.
ADESA Analytical Services		ADESA Analytical Services provides value-added market analysis to our customers and the media. These services include access to publications and custom analysis of wholesale market trends for ADESA's customers, including peer group and market benchmarking studies, analysis of the benefits of reconditioning, site selection for optimized remarketing of vehicles, portfolio analysis of auction sales and computer-generated mapping and buyer analysis.

Sales and Marketing

Our sales and marketing approach at ADESA is to develop strong relationships and interactive dialogue with our customers. We have relationship managers for the various institutional customers, including vehicle manufacturers, fleet companies, rental car companies, finance companies and others. These relationship managers focus on current trends and customer needs for their respective customers in order to better coordinate our sales effort and service offerings.

Managers of individual auction locations are ultimately responsible for providing services to the institutional customers whose vehicles are directed to the auctions by the corporate sales team. Developing and servicing the largest possible population of buying dealers for the vehicles consigned for sale at each auction is integral to maximizing value for our vehicle suppliers.

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We have local auction sales representatives who have experience in the used vehicle business and an intimate knowledge of local markets. These local representatives focus on the dealer segment and are complemented by local telesales representatives and are managed by a corporate-level team focused on developing and implementing standard best practices and expanding relationships with major dealer groups. We believe this combination of a centralized structure with decentralized resources enhances relationships with the dealer community and may further increase dealer consignment business at our auctions.

Through our ADESA Analytical Services department, we also provide market analysis to our customers, as they use analytical techniques in making their remarketing decisions.

Online Solutions

Our current ADESA online solutions include:



Proprietary ADESA Technology		Description
ADESA.com and ADESA DealerBlock®		This platform provides for either real-time or "bulletin-board" online auctions of consigned inventory at physical auction locations and is powered by Openlane technology. We also utilize this platform to provide upstream and midstream selling capabilities for our consignors, which facilitate the sale of vehicles prior to their arrival at a physical auction site. Auctions can be either closed (restricted to certain eligible dealers) or open (available to all eligible dealers) and inventory feeds of vehicles are automated with many customers' systems as well as third party providers that are integrated with various dealer management systems. Oftentimes, the upstream and midstream closed sales are "private-labeled" for the consignors.
ADESA LiveBlock®		Our live auction Internet bidding solution, ADESA LiveBlock®, operates in concert with our physical auctions and provides registered buyers with the opportunity to participate in live auctions. Potential buyers bid online in real time along with the live local bidders and other Internet bidders via a simple, web-based interface. ADESA LiveBlock® provides real-time streaming audio and video from the live auction and still images of vehicles and other data. Buyers inspect and evaluate the vehicle and listen to the live call of the auctioneer while viewing the physical auction that is underway.
ADESA Run List®		Provides a summary of consigned vehicles offered for auction sale, allowing dealers to preview inventory and vehicle condition reports prior to an auction event.
ADESA Market Guide®		Provides wholesale auction prices, auction sales results, market data and vehicle condition information.
ADESA Virtual Inventory		Subscription-based service to allow dealers to embed ADESA's search technology into a dealer's website to increase the number of vehicles advertised by the dealer.

Competition

In the North American whole car auction industry, we compete with Manheim, a subsidiary of Cox Enterprises, Inc., OVE.com (Manheim's "Online Vehicle Exchange"), RMS Automotive (a subsidiary of Cox Enterprises, Inc.), SmartAuction, as well as several smaller chains of auctions and independent auctions, some of which are affiliated through their membership in industry associations, and auctions held by retail dealers. In the United States, competition is strongest with Manheim for the supply of used vehicles from national institutional customers. In Canada, we are the largest provider of whole car vehicle auction services. The supply of vehicles from dealers is dispersed among all of the auctions in the used vehicle market.

Due to the increased viability of the Internet as a marketing and distribution channel, new competition has arisen from Internet-based companies and our own customers who have historically remarketed vehicles through various channels, including auctions. Direct sales of vehicles by institutional customers and large dealer groups through internally developed or third-party online platforms have largely replaced telephonic and other non-auction methods, becoming a significant portion of overall used vehicle remarketing. The extent of use of direct, online systems varies by customer. In addition, we and some of our competitors offer online auctions in connection with physical auctions, and other online companies now include used vehicles among the products offered at their auctions.

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IAA

Overview

As one of the leading providers of total loss solutions and salvage vehicle auctions, we operate as IAA in the United States and Impact Auto Auctions in Canada and serve our customer base through salvage auction locations throughout North America. We facilitate the remarketing of vehicles for a variety of sellers, including insurance companies, dealerships, rental car companies, fleet lease companies and charitable organizations. Our auctions provide buyers from around the globe with the salvage vehicles they need to fulfill their scrap demand, replacement part inventory or vehicle rebuild requirements. Fees for our services are earned from both sellers and buyers of salvage vehicles.

IAA processes salvage vehicles primarily on a consignment basis. In return for agreed-upon fees, vehicles are sold on behalf of our sellers, which continue to own the vehicle until it is sold to buyers at auction. Other services available to vehicle sellers, for which fees may be charged, include towing, total loss claims solutions (as described below), title processing, inspection services, marketing and other administrative services. Under all methods of sale, we also charge fees to the buyer of each vehicle based on a tiered structure that increases with the sale price of the vehicle as well as fixed fees for other services.

Auctions are typically held weekly at most locations. Vehicles are marketed at each respective auction site to live bidders as well as to online bidders via IAA's dual platform auction model. In addition, auction listings are available online, allowing prospective bidders to preview and bid on vehicles prior to the actual auction event. IAA's Auction Center feature provides Internet buyers with an open, competitive bidding environment that reflects the dynamics of a live salvage auction. The Auction Center includes such services as comprehensive auction lists featuring links to digital images of vehicles available for sale, a "Find a Vehicle" function that promotes the search for specific vehicles within the auction system and special auction notifications such as "Rental," "Classic," or "Motorcycles." Higher prices at auction are generally driven by broader market exposure and increased competitive bidding. Our mobile device applications provide great flexibility for buyers who interact with our auctions. In addition, our mobile applications are designed for the latest handheld devices, including Apple and Android, and are optimized for the most recent operating systems.

Tools and services focused on total loss claims have been developed to assist insurance consignors in improving policy holder satisfaction and more effectively managing costs during the total loss claims process. Further building upon the IAA Total Loss Solutions® suite of products launched with IAA Inspection Services™ and IAA Title Services™ in 2015, IAA launched an additional five product offerings within the suite of products in 2016. The new products and services deliver additional cycle time reduction, further provide transparency for the insured, and greater integrate within IAA’s flagship salvage management tool, CSAToday®. Through IAA's auction model, vehicles are offered simultaneously to live and online buyers in a live auction format utilizing i-Bid LIVE ^SM . We believe the capability of the auction models maximizes auction proceeds and returns to our customers. First, the physical auctions allow buyers to inspect and compare the vehicles, enabling them to make fully-informed bidding decisions. These physical auction abilities are an important part of the bidding process. Second, our Internet auction capabilities allow buyers to participate in a greater number of auctions than if physical attendance was required. Online inventory browsing and digital alerts (via email or through buyer app) reduce the time required to acquire vehicles.

In June 2015, we acquired HBC, a salvage vehicle auction business operating in the United Kingdom. HBC provides salvage collection and disposal services for the U.K.'s top insurance, fleet and accident management companies, and conducts business using a variety of sales channels, including online auctions. HBC's business model differs from that of IAA, as the majority of HBC's vehicles are sold under purchase contracts, rather than under consignment.

Services

IAA offers a comprehensive suite of auction, logistics and vehicle selling services aimed at maximizing the value of vehicles sold at auction, lowering administrative costs, shortening the selling cycle and increasing the predictability of returns to vehicle sellers. This is achieved while expanding IAA's ability to handle an increasing proportion of the vehicle-processing function as a "one-stop shop" for sellers. Some of the services provided by IAA include:

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Services		Description
Live and Live Online Auction Model		Vehicles are offered simultaneously to live and online buyers in a live auction format utilizing i-Bid LIVE ^SM technology. We believe this exposes the vehicles to the maximum number of potential buyers.
Total Loss Solutions ^TM		Provides insurance companies with outsource solutions for the portion of the claims process prior to total loss determination and assignment to a salvage auction. The suite of products includes vehicle inspection and title procurement services that help insurance companies reduce cycle time and cost, while improving employee engagement, ultimately increasing policyholder retention.
Catastrophe (CAT) Services		IAA’s Catastrophe Services is a key offering to our insurance clients. Catastrophic weather events can cause extensive damage, often resulting in thousands of total-loss vehicles. Our CAT services philosophy is built upon a three-tier approach; pre-CAT planning, on-scene response and effective post-CAT management. To provide our insurance carrier partner with the highest level of service, we carefully track storm patterns and have response teams ready when disaster strikes. In the event of a catastrophe, IAA draws from an established network of partners to securing towing services and storage space. A mobile CAT Command Center as well as dedicated IAA staff serve as an on-the-go, centralized point of crisis management. When the vehicles are ready for sale, we promote them to our global buyer base with targeted marketing efforts for efficient sale and file closure.
Vehicle Inspection Centers		We maintain vehicle inspection centers ("VIC") at many of our facilities. A VIC is a temporary storage and inspection facility located at one of our sites that is operated by the insurance company. Some of these sites are formalized through temporary license agreements with the insurance companies that supply the vehicles. Having a VIC minimizes vehicle storage charges incurred by insurance company suppliers at the temporary storage facility or repair shop and also improves service time for the policyholder.
Transportation and Towing		Inbound logistics administration with actual services typically provided by third-party carriers.
Remarketing Market		Focuses on vehicles, rental sellers, fleet and leasing companies, banks and dealer trade-in inventory.
Donation Market		Processes vehicles for a variety of charitable organizations across the United States and Canada, assisting them in turning donated vehicles into cash to support their respective cause.

Customers

We obtain IAA's supply of vehicles from insurance companies, non-profit organizations, automobile dealers and vehicle leasing and rental car companies and the general public. We have established long-term relationships with virtually all of the major automobile insurance companies. The vast majority of the vehicles we process are on a consignment basis. The buyers of salvage vehicles include automotive body shops, rebuilders, used car dealers, automotive wholesalers, exporters, dismantlers, recyclers, brokers, and where allowed, non-licensed (public) buyers.

Sales and Marketing

The IAA sales force solicits prospective vehicle sellers and buyers at the national, regional and local levels. Branch managers address customer needs at the local level. We also participate in a number of local, regional and national trade show events that further promote the benefits of our products and services.

In addition to providing sellers with a means of processing and selling vehicles, IAA offers a comprehensive suite of services to help maximize returns and shorten the selling and processing time. We help establish workflow integration within our sellers' processes, and view such mutually beneficial relationships as an essential component of our effort to attract and retain suppliers.

By analyzing industry data, we provide sellers with a detailed analysis of their current selling prices and returns, and a proposal detailing methods to improve selling prices and returns, reduce administrative costs and provide proprietary turn-key selling and processing services.

We also focus on expanding our seller relationships through recommendations from customers at the local level to other local offices of the same company. Our broad and industry leading geographic coverage allows us to service sellers on a national basis.

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Online Solutions

Our current IAA online solutions include:



Proprietary IAA Technology		Description
i-Bid LIVE ^SM		Our live auction Internet bidding solution, i-Bid LIVE, operates in concert with our physical auctions and provides registered buyers with the opportunity to participate in live auctions. Potential buyers bid online in real time along with the live local bidders and other Internet bidders via a simple, web-based interface. In addition, i-Bid LIVE provides real-time streaming audio from the live auction and images of salvage vehicles and other data. Buyers inspect and evaluate the salvage vehicle and listen to the auction while it is underway.
I-Buy Fast ^SM		I-Buy Fast is an immediate buying option that allows qualified buyers to purchase vehicles between auctions for a fixed price. Each I-Buy Fast vehicle first runs at a previous auction where an established reserve price was not met.
CSAToday®		The process of salvage disposition through our system begins when a vehicle seller first consigns the vehicle to be sold through IAA via a variety of factors including a total loss, a recovered theft, a vehicle donation, a fleet vehicle retired, a vehicle repossessed, etc. A seller representative consigns the vehicle to us, either by phone, facsimile or electronically through CSAToday, our online proprietary salvage inventory management system.
		With CSAToday, vehicle sellers enter vehicle data electronically and then track and manage the progress of vehicles in terms of both time and sales price. With this tool, they have 24-hour access to their vehicles. The information provided through this system ranges from the details associated with a specific vehicle, to comprehensive management reports for an entire area or geographic region. Additional features of this system include inventory management tools and a powerful new IAA Market Value ^TM tool that helps customers determine the approximate value of a potential vehicle. This tool is helpful to adjusters when evaluating the "repair vs. total" decision. The management tools provided by CSAToday enable seller personnel to monitor and manage their vehicles more effectively. For example, insurance company sellers can also use CSAToday to view original garage receipts, verify ignition key availability, view settlement documents and images of the vehicles and receive updates of other current meaningful data.
Automated Salvage Auction Processing (ASAP)		We have developed a proprietary web-based information system, Automated Salvage Auction Processing system, or ASAP, to streamline all aspects of our operations and centralize operational data collection. The system provides sellers with 24-hour online access to powerful tools to manage the salvage disposition process, including inventory management, sales price analysis and electronic data interchange of titling information.
		Our other information systems, including i-Bid LIVE and CSAToday systems, are integrated with our ASAP product, facilitating seamless auction processes and information flow with internal operational systems. Our technology platform is a significant competitive advantage that allows us to efficiently manage our business, improve customer selling prices, shorten customers' selling cycle and lower our customers' administration costs.

Competition

In the salvage sector, the competition includes Copart; Total Resource Auctions, a subsidiary of Cox Enterprises, Inc.; independent auctions, some of which are affiliated through their membership in industry organizations to provide broader coverage through network relationships; and a limited number of used vehicle auctions that regularly remarket salvage vehicles. Additionally, some dismantlers of salvage vehicles such as LKQ Corporation and Internet-based companies have entered the market, thus providing alternate avenues for sellers to remarket vehicles. While most insurance companies have abandoned or reduced efforts to sell salvage vehicles without the use of service providers such as us, they may in the future decide to dispose of their vehicles directly to end users.

In Canada, we are the largest provider of salvage vehicle auction services. Our competitors include Copart, independent vehicle auctions, brokers, online auction companies, and vehicle recyclers and dismantlers.

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AFC

Overview

We are a leading provider of floorplan financing to independent used vehicle dealers. We provide short-term inventory-secured financing, known as floorplan financing, to independent used vehicle dealers through branches throughout North America. In 2016 , AFC serviced over 1.7 million loan transactions, which includes both loans paid off and loans extended, or curtailed. We sell the majority of our U.S. dollar-denominated finance receivables without recourse to a wholly-owned bankruptcy remote special purpose entity, which sells an undivided participation interest in such finance receivables to a group of bank purchasers on a revolving basis. We also securitize the majority of our Canadian dollar denominated finance receivables through a separate third-party facility. We generate a significant portion of our revenues from fees. These fees include origination, floorplan, curtailment and other related program fees. When the loan is extended or paid in full, AFC collects all accrued fees and interest.

In June 2013, we acquired Preferred Warranties, Inc., a vehicle service contract business, as part of our strategy to provide new services to independent used vehicle dealers. We receive advance payments for the vehicle service contracts and unearned revenue is deferred and recognized over the terms of the contracts, which range from 3 months to 7 years, on an individual contract basis. The average term of these contracts originated in 2016 was approximately 1.6 years. We currently purchase program insurance which provides for satisfaction of certain of the Company's vehicle service contracts related liabilities in the event the Company is unable to perform under the terms of specific vehicle service contracts covered by program insurance.

Customers and Locations

Floorplan financing supports independent used vehicle dealers in North America who purchase vehicles from our auctions, other auctions and non-auction purchases. In 2016 , over 83% of the vehicles floorplanned by AFC were vehicles purchased by dealers at auction. Our ability to provide floorplan financing facilitates the growth of vehicle sales at auction. As of December 31, 2016 , we serviced auctions through 126 locations which are conveniently located at or within close proximity of auctions held by ADESA and other auctions, which allows dealers to reduce transaction time by providing immediate payment for vehicles purchased at auction. We provide availability lists on behalf of our customers to auction representatives regarding the financing capacity of our customers, thereby increasing the purchasing potential at auctions. In addition, we have the ability to send finance representatives on-site to most approved independent auctions during auction sale-days, as well as maintaining a presence at the ADESA auctions. Geographic proximity to the customers gives our employees the ability to stay in close contact with outstanding accounts, thereby better enabling them to manage credit risk.

As of December 31, 2016 , AFC had approximately 12,200 active dealers with an average line of credit of approximately $260,000 and no one dealer representing greater than 1.3% of our portfolio. An average of approximately 15 vehicles per active dealer was floorplanned with an approximate average value outstanding of $9,500 per vehicle as of December 31, 2016 .

Sales and Marketing

AFC approaches and seeks to expand its share of the independent dealer floorplan market through a number of methods and channels. We target and solicit new dealers through both direct sales efforts at the dealer's place of business as well as auction-based sales and customer service representatives, who service our dealers at auctions where they replenish and rotate vehicle inventory. These largely local efforts are handled by branch managers, branch personnel and dealer sales managers. AFC's corporate-level team and Business Development Center provide sales and marketing support to AFC field personnel by helping to identify target dealers and coordinating promotional activity with auctions and other vehicle supply sources.

Credit

Our procedures and proprietary computer-based system enable us to manage our credit risk by tracking each vehicle from origination to payoff, while expediting services through our branch network. Typically, we assess a floorplan fee at the inception of a loan and we collect all accrued fees and interest when the loan is extended or repaid in full. In addition, AFC generally holds the title or other evidence of ownership to all vehicles which are floorplanned. Typical loan terms are 30 to 90 days, each with a possible loan extension. For an additional fee, this loan extension allows the dealer to extend the duration of the loan beyond the original term for another 30 to 90 days if the dealer makes payment towards principal and pays accrued fees and interest.

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The extension of a credit line to a dealer starts with the underwriting process. Credit lines up to $500,000 are extended using a proprietary scoring model developed internally by AFC. Credit lines in excess of $500,000 may be extended using underwriting guidelines which generally require dealership and personal financial statements, monthly bank statement, sales reports and tax returns. The underwriting of each line of credit requires an analysis, write-up and recommendation by the credit department and, in case of credit lines in excess of $500,000, final review by a credit committee.

Collateral Management

Collateral management is an integral part of daily operations at each AFC branch and our corporate headquarters. AFC's proprietary computer-based system facilitates this daily collateral management by providing real-time access to dealer information and enables branch and corporate personnel to assess and manage potential collection issues. Restrictions are automatically placed on customer accounts in the event of a delinquency, payments by dealers from bank accounts with insufficient funds or poor audit results. Branch personnel are proactive in managing collateral by monitoring loans and notifying dealers that payments are coming due. In addition, over 81,000 routine audits, or lot checks, are performed annually on the dealers' lots through our AutoVIN subsidiary. Poor results from lot checks typically require branch personnel to take actions to determine the status of missing collateral, including visiting the dealer personally, verifying units held off-site and collecting payments for units sold. Audits also identify troubled accounts, triggering the involvement of AFC's collections department.

AFC operates three divisions which are organized into fourteen regions in North America. Each division and region is monitored by managers who oversee daily operations. At the corporate level, AFC employs full-time collection specialists and collection attorneys who are assigned to specific regions and monitor collection activity for these areas. Collection specialists work closely with the branches to track trends before an account becomes a troubled account and to determine, together with collection attorneys, the best strategy to secure the collateral once a troubled account is identified.

Securitization

AFC sells the majority of its U.S. dollar denominated finance receivables on a revolving basis and without recourse to a wholly-owned, bankruptcy remote, consolidated, special purpose subsidiary ("AFC Funding Corporation"), established for the purpose of purchasing AFC's finance receivables. A securitization agreement allows for the revolving sale by AFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. AFC's securitization facility has been in place since 1996. AFC Funding Corporation had a committed facility of $1.50 billion from a third party facility for U.S. finance receivables at December 31, 2016 . The agreement expires on January 31, 2020 .

We also have an agreement in place for the securitization of Automotive Finance Canada Inc.'s ("AFCI") receivables. This securitization facility provides up to C$125 million in financing for eligible finance receivables through a third party conduit (separate from the U.S. facility). The agreement expires on January 31, 2020 . The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.

Competition

AFC primarily provides short-term dealer floorplan financing of wholesale vehicles to independent vehicle dealers in North America. At the national level, AFC's competition includes NextGear Capital, a subsidiary of Cox Enterprises, Inc., other specialty lenders, banks and financial institutions. At the local level, AFC faces competition from banks, credit unions and independent auctions who may offer floorplan financing to local auction customers. Such entities typically service only one or a small number of auctions.

Some of our industry competitors who operate whole car auctions on a national scale may endeavor to capture a larger portion of the floorplan financing market. AFC competes primarily on the basis of quality of service, convenience of payment, scope of services offered and historical and consistent commitment to the sector. Our long-term relationships with customers have been established over time and act as a competitive strength for us.

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Seasonality

The volume of vehicles sold through our auctions generally fluctuates from quarter to quarter. This seasonality is caused by several factors including weather, the timing of used vehicles available for sale from selling customers, the availability and quality of salvage vehicles, holidays, and the seasonality of the retail market for used vehicles, which affects the demand side of the auction industry. Used vehicle auction volumes tend to decline during prolonged periods of winter weather conditions. In addition, mild weather conditions and decreases in traffic volume can each lead to a decline in the available supply of salvage vehicles because fewer traffic accidents occur, resulting in fewer damaged vehicles overall. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower used vehicle auction volume as well as additional costs associated with the holidays and winter weather.

Vehicle and Lending Regulation

Our operations are subject to regulation, supervision and licensing under various federal, state, provincial and local authorities, agencies, statutes and ordinances, which, among other things, require us to obtain and maintain certain licenses, permits and qualifications, provide certain disclosures and notices and limit interest rates, fees and other charges. Some examples of the regulations and laws that impact our company are included in Item 1A "Risk Factors" under the risk: "We are subject to extensive governmental regulations, including vehicle brokerage and auction laws and currency reporting obligations. Our business is subject to risks related to litigation and regulatory actions."

Environmental Regulation

Our operations are subject to various foreign, federal, state and local environmental, health and safety laws and regulations, including those governing the emission or discharge of pollutants into the air or water, the generation, treatment, storage and release of hazardous materials and wastes and the investigation and remediation of contamination. Our failure to comply with current or future environmental, health or safety laws or to obtain and comply with permits required under such laws, could subject us to significant liability or require costly investigative, remedial or corrective actions.

In the used vehicle remarketing industry, large numbers of vehicles, including wrecked vehicles at salvage auctions, are stored and/or refurbished at auction facilities and during that time minor releases of fuel, motor oil and other materials may occur. We have investigated or remediated, or are currently investigating or remediating, contamination resulting from various sources, including gasoline, fuel additives (such as methyl tertiary butyl ether, or MTBE), motor oil, petroleum products and other hazardous materials released from aboveground or underground storage tanks or in connection with current or former operations conducted at our facilities. We have incurred, and may in the future incur, expenditures relating to releases of hazardous materials, investigative, remedial or corrective actions, claims by third parties and other environmental issues, and such expenditures, individually or in the aggregate, could be significant.

Federal and state environmental authorities are currently investigating IAA's role, if any, in contributing to contamination at the Lower Duwamish Waterway Superfund Site in Seattle, Washington. IAA's potential liability, if any, at this site cannot be estimated at this time. See Item 3, "Legal Proceedings" for a further discussion of this matter.

Management considers the likelihood of loss or the incurrence of a liability, as well as the 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 (or range of possible losses) can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. Accruals for contingencies including environmental matters are included in "Other accrued expenses" at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period.

Employees

At December 31, 2016 , we had a total of approximately 17,400 employees, of which approximately 12,900 were located in the U.S. and approximately 4,500 were located in Canada, Mexico and the United Kingdom. Approximately 75% of our workforce consists of full-time employees. Currently, none of our employees participate in collective bargaining agreements.

In addition to the employee workforce, we also utilize temporary labor services to assist in handling the vehicles consigned to us and to provide certain other services. Nearly all of our auctioneers are independent contractors. Some of the services we provide are outsourced to third party providers that perform the services either on-site or off-site. The use of third party providers depends upon the resources available at each auction facility as well as peaks in the volume of vehicles offered at auction.

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Available Information

Our web address is www.karauctionservices.com. Our electronic filings with the Securities and Exchange Commission ("SEC") (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) are available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. In addition, our Corporate Governance Guidelines, Code of Conduct and Ethics, Code of Ethics for Principal Executive and Senior Financial Officers and charters of the audit committee, the nominating and corporate governance committee, the risk committee and the compensation committee of our board of directors are available on our website and available in print to any shareholder who requests it. The information posted on our website is not incorporated into this Annual Report.

Any materials that we file with the SEC may be read and copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.

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Item 1A. Risk Factors

Investing in our Company involves a high degree of risk. You should carefully consider the following risk factors, as well as all of the other information contained in this Annual Report on Form 10-K, before deciding to invest in our Company. The occurrence of any of the following risks could materially and adversely affect our business, financial condition, prospects, results of operations and cash flows. In such case, the trading price of our common stock could decline and you could lose all or part of your investment. These risks are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially affect our business, financial condition, results of operations and prospects.

Risks Related to Our Business

We may not be successful in the implementation of our business strategy or we may improperly align new strategies with the Company’s vision, which could lead to the misapplication of Company resources.

Our strategy is to provide the best remarketing venue and analytical evidence for every vehicle. To execute our strategy, we are pursuing strategic initiatives that management considers critical to our long-term success, including but not limited to developing alternative marketplaces, establishing exceptional analytics capabilities, leveraging the Company's unique remarketing portfolio and data and growing the Company's buyer base. There are significant risks involved with the execution of these initiatives, including significant business, economic and competitive uncertainties, many of which are outside of our control. Accordingly, we cannot predict whether we will succeed in implementing these strategic initiatives. For example, if we are unsuccessful in continuing to generate significant cash provided by operations (we generated $360.8 million and $475.0 million of cash flow from operations for the years ended December 31, 2016 and 2015 , respectively), we may be unable to reinvest in our business, return capital to shareholders or reduce our outstanding indebtedness, which could negatively affect our financial position and results of operations and our ability to execute our other strategies. It could take several years to realize any direct financial benefits from these initiatives, if any direct financial benefits from these initiatives are achieved at all. Additionally, our business strategy may change from time to time, which could delay our ability to implement initiatives that we believe are important to our business.

We may not properly leverage or make the appropriate investment in technology advancements, which could result in the loss of any sustainable competitive advantage in products, services and processes.

Our business is dependent on information technology. Robust information technology systems, platforms and products are critical to our operating environment, digital online products and competitive position. We may not be successful in structuring our information technology or developing, acquiring or implementing information systems which are competitive and responsive to the needs of our customers. We might lack sufficient resources to continue to make the significant investments in information technology to compete with our competitors. Certain information technology initiatives that management considers important to our long-term success will require capital investment, have significant risks associated with their execution, and could take several years to implement. We may not be able to develop/implement these initiatives in a cost-effective, timely manner or at all.

Cyber-security Environment

Information technology risks (including the confidentiality, integrity and availability of digital assets) for companies have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. These threats may derive from fraud or malice on the part of our employees or third parties, or may result from human error or accidental technological failure. Our customers and other parties in the payments value chain rely on our digital online products as well as other information technologies, computers, software and networks to conduct their operations. In addition, to access our online products and services, our customers increasingly use personal smartphones, tablet PCs and other mobile devices that may be beyond our control.

We are subject to cyber-threats and our information technology has been subject to cyber-attacks and we believe we will continue to be a potential target of such threats and attacks. In June 2015, we identified that unauthorized third parties had gained access to legacy servers containing archived data that would likely be considered to be personal information. We immediately investigated, including the engagement of an external expert security firm, and although we had no evidence that any information had been misused, stolen or compromised, we notified all of the individuals whose information may have been accessed and any applicable regulatory agencies. To date, this incident has not been material to our operations or financial results.

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Continuous cyber-attacks or a sustained attack could lead to service interruptions, malfunctions or other failures in the information technology that supports our businesses and customers (such as the lack of availability of our value-added systems), as well as the operations of our customers or other third parties. Continuous cyber-attacks could also lead to damage to our reputation with our customers and other parties and the market, additional costs (such as repairing systems, adding new personnel or protection technologies or compliance costs), regulatory penalties, financial losses to both us and our customers and partners and the loss of customers and business opportunities. If such attacks are not detected in a timely manner, their effect could be compounded.

If our information technology is compromised, becomes inoperable for extended periods of time or ceases to function properly, we may have to make a significant investment to fix or replace the information technology and our ability to provide many of our electronic and online solutions to our customers may be impaired, which would have a material adverse effect on our consolidated operating results and financial position. In addition, as cyber-threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Any of the risks described above could disrupt our business, damage our reputation and materially adversely affect our consolidated financial position and results of operations.

In addition, aspects of our operations and business are subject to privacy regulation in the United States and elsewhere. Many U.S. states have enacted data breach regulations and laws requiring varying levels of consumer notification in the event of a security breach. Increased regulation and enforcement activity throughout the world in the areas of data privacy and data security/breach may materially increase our costs, which could have a material adverse effect on our operating results. Our failure to comply with the privacy and data security/breach laws to which we are subject could also result in fines, sanctions and damage to our reputation and tradenames or the loss of significant customers.

If we are not successful in competing with our known competitors, customers and/or disruptive new entrants, then our market position or competitive advantage could be threatened, as well as our business and results of operations.

We face significant competition for the supply of used and salvage vehicles, the buyers of those vehicles and the floorplan financing of these vehicles. Our principal sources of competition historically have come from: (1) direct competitors (e.g., Manheim, Copart and NextGear Capital), (2) new entrants, including new vehicle remarketing venues and dealer financing services, and (3) existing alternative vehicle remarketing venues. Due to the increasing use of the Internet and other technology as marketing and distribution channels, we also face increasing competition from online wholesale and retail vehicle selling platforms (generally without any meaningful physical presence) and from our own customers when they sell directly to end users through such platforms rather than remarket vehicles through our auctions and other channels. Increased competition could result in price reductions, reduced margins or loss of market share.

Our future success also depends on our ability to respond to evolving industry trends, changes in customer requirements and new technologies. One potentially adverse trend would be a market shift towards the simultaneous listing and selling of vehicles on multiple online sales platforms. Were such a trend to take hold, the vehicle remarketing industry's economics could change. For example, we might need to incur additional costs or otherwise alter our business model to adapt to these changes. In such case, the volume of vehicles supplied to us and our overall revenues and fees per vehicle sold could decrease. Since 2013, many participants in the whole car industry have been discussing the development of a multiple platform bidding system. Any such collaboration may be unsuccessful, unworkable or deemed inadvisable. In such case, we may lose vehicle volume and market share, and our business, revenues and profitability could be negatively impacted.

Some of our competitors may have greater financial and marketing resources than we do, may be able to respond more quickly to evolving industry dynamics and changes in customer requirements, or may be able to devote greater resources to the development, promotion and sale of new or emerging services and technologies. If we are unable to compete successfully or to successfully adapt to industry changes, our business, revenues and profitability could be materially adversely affected.

ADESA currently competes with online wholesale and retail vehicle selling platforms, including OVE.com and RMS Automotive (both affiliated with Cox Enterprises), SmartAuction, eBay Motors and others. With the exception of OVE.com, these online selling platforms generally do not have any meaningful physical presence and may cause the volume of vehicles sold through our online and physical auctions to decrease. If the number of vehicles sold through our auctions decreases due to these competitors or other industry changes, our revenue and profitability may be negatively impacted. In addition, our long-lived assets could also become subject to impairment.

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In our salvage auction business, potential competitors include used vehicle auctions, providers of claims software to insurance companies and certain salvage buyer groups and automobile insurance companies, some of which currently supply salvage vehicles to us. Insurance companies may in the future decide to dispose of their salvage vehicles directly to end users, which would negatively affect our volumes, revenue and profitability.

At the national level, AFC's competition includes NextGear Capital, a subsidiary of Cox Enterprises, Inc., other specialty lenders, banks and financial institutions. At the local level, AFC faces competition from banks, credit unions and independent auctions who may offer floorplan financing to local auction customers. Such entities typically service only one or a small number of auctions. Some of our industry competitors who operate whole car auctions on a national scale may endeavor to capture a larger portion of the floorplan financing market. AFC competes primarily on the basis of quality of service, convenience of payment, scope of services offered and historical and consistent commitment to the sector. If the number of loans originated and serviced decreases due to these competitors, our revenue and profitability may be negatively impacted.

If we fail to attract and retain key personnel, or have inadequate succession planning, we may not be able to execute our business strategies and our financial results could be negatively affected.

Our success depends in large part on the performance of our executive management team and other key employees, including key field and information technology personnel. 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 with us, we may not be able to effectively implement our business strategies, our business could suffer and the value of our common stock could be materially adversely affected. Our auction business is directly impacted by the business relationships our employees have established with customers and suppliers and, as a result, if we lose key personnel, we may have difficulty in retaining and attracting customers, developing new services, negotiating favorable agreements with customers and providing acceptable levels of customer service. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We do not have nor do we currently expect to obtain key person insurance on any of our executive officers.

We may be unable to meet or exceed our customers’ expectations, which could result in poor customer retention and adversely affect our operating results and financial condition.

We believe our future success depends in part on our ability to respond to changes in customer requirements. Our customers include vehicle manufacturers and their captive finance arms, vehicle leasing and rental companies, financial institutions, fleet management companies, franchised and independent used vehicle dealers, insurance companies, non-profit organizations, automotive body shops, rebuilders, automotive wholesalers, exporters, dismantlers, recyclers and brokers. We work to develop strong relationships and interactive dialogue with our customers to better understand current trends and customer needs. If we are not successful in meeting our customers' expectations, our customer relationships could be negatively affected and result in a loss of future business, which would adversely affect our operating results and financial condition.

ADESA and IAA's agreements with its largest institutional suppliers of used and salvage vehicles are generally subject to cancellation by either party upon 30 to 90 days' notice. In addition, it is common that institutional suppliers regularly review their relationships with whole car and salvage auctions through written requests for proposals. Such suppliers may from time to time require us to make changes to the way we do business as part of the request for proposal process. There can be no assurance that our existing agreements will not be canceled or that we will be able to enter into future agreements with these or other suppliers that disrupt our supplier base on similar terms, or at all, and our ability to grow and sustain profitability could be impaired.

If we acquire businesses that: are not aligned with the Company’s strategy; lack the proper research and preparation; create unnecessary risks; improperly value and price a target; have poor integration execution; and/or do not achieve the desired outcomes, then our operating results, financial condition and growth prospects could be adversely affected.

Acquisitions are a significant part of our growth strategy and have enabled us to further broaden and diversify our service offerings. Our strategy generally involves the acquisition and integration of additional physical auction sites, technologies and personnel. Acquisition of businesses requires substantial time and attention of management personnel and may also require additional equity or debt financings. Further, integration of newly established or acquired businesses is often disruptive. Since we have acquired or in the future may acquire one or more businesses, there can be no assurance that we will identify appropriate targets, will acquire such businesses on favorable terms, or will be able to successfully integrate such organizations into our business. Failure to do so could materially adversely affect our business, financial condition and results of operations. In addition, we expect to compete against other auction groups or new industry consolidators for suitable acquisitions. If we are able to consummate acquisitions, such acquisitions could be dilutive to earnings, and we could overpay for such acquisitions.

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In pursuing a strategy of acquiring other businesses, we face other risks including, but not limited to:


•	incurring significantly higher capital expenditures and operating expenses;


•	entering new markets with which we are unfamiliar;


•	incurring potential undiscovered liabilities at acquired businesses;


•	failing to maintain uniform standards, controls and policies;


•	impairing relationships with employees and customers as a result of management changes; and


•	increasing expenses for accounting and computer systems, as well as integration difficulties.

Acquisitions and other strategies to expand our operations beyond North America subject us to significant risks and uncertainties. As a result, we may not be successful in realizing anticipated synergies or we may experience unanticipated integration expenses. As we continue to explore opportunities to expand our business internationally, we will need to develop policies and procedures to manage our business on a global scale. Operationally, acquired businesses typically depend on key relationships and our failure to maintain those relationships could have an adverse affect on our operating results and financial condition.

In addition, we anticipate that our non-U.S. based operations will continue to subject us to risks associated with operating on an international basis, including:


•	exposure to foreign currency exchange rate risk, which may have an adverse impact on our revenues and profitability;


•	restrictions on our ability to repatriate funds, as well as repatriation of funds currently held in foreign jurisdictions to the U.S. may result in higher effective tax rates;


•	tariffs and trade barriers and other regulatory or contractual limitations on our ability to operate in certain foreign markets;


•	compliance with the Foreign Corrupt Practices Act;


•	dealing with unfamiliar regulatory agencies and laws favoring local competitors;


•	dealing with political and/or economic instability;


•	the difficulty of managing and staffing foreign offices, as well as the increased travel, infrastructure, legal and compliance costs associated with international operations;


•	localizing our product offerings; and


•	adapting to different business cultures and market structures.

As we continue to explore opportunities to expand globally, our success will depend on our ability to anticipate and effectively manage these and other risks associated with operating on an international basis. Our failure to manage these risks could have an adverse affect on our operating results and financial condition.

Decreases in the supply of used vehicles coming to auction may impact auction sales volumes, which may adversely affect our revenues and profitability. In addition, a decrease in the number of used vehicles sold at physical auctions could adversely affect our revenue growth, operating results and financial condition.

The number of new and used vehicles that are leased by consumers affects the supply of vehicles coming to auction in future periods as the leases mature. If manufacturers and other lenders decrease the number of new vehicle lease originations and extend the terms of some of the existing leases, the number of off-lease vehicles available at auction for the industry would decline. If the supply of off-lease vehicles coming to auction declines, our revenues and profitability may be adversely affected.

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Volumes of off-lease vehicles in subsequent periods will be affected by total new vehicle sales and the future leasing behavior of manufacturers and lenders; therefore, we may not be able to accurately predict the volume of vehicles coming to auction. The supply of off-lease vehicles coming to auction is also affected by the market value of used vehicles compared to the residual value of those vehicles per the lease terms. In most cases, the lessee and the dealer have the ability to purchase the vehicle at the residual price at the end of the lease term. Generally, as market values of used vehicles rise, the number of vehicles purchased at residual value by the lessees and dealers increases, thus decreasing the number of off-lease vehicles available at auction.

Furthermore, online only auction platforms were utilized for the sale of approximately 26% of vehicles sold by ADESA in 2016, compared with 24% in 2015. If sellers and buyers increase the number of vehicles transacted on online only auction platforms, our revenue per vehicle will likely decline. In connection with online auctions, ADESA offers physical auctions, which allow buyers to physically inspect and compare vehicles. In addition, our cost structure includes a significant fixed cost component, including occupancy costs, that cannot be readily reduced if revenue per vehicle declines. If a shift in the percentage of used vehicles sold on online only auction platforms as compared with used vehicles sold at physical auctions occurs, and we are unable to generate new sources of revenue, our operating results and financial condition could be adversely affected.

Used vehicle prices impact fee revenue per unit and may impact the supply of used vehicles, as well as loan losses at AFC.

The volume of new vehicle production, accuracy of lease residual estimates, interest rate fluctuations, customer demand and changes in regulations, among other things, all potentially affect the pricing of used vehicles. Used vehicle prices may affect the volume of vehicles entered for sale at our auctions and the demand for those used vehicles, the fee revenue per unit, loan losses for our dealer financing business and our ability to retain customers. When used vehicle prices are high, used vehicle dealers may retail more of their trade-in vehicles on their own rather than selling them at auction. In addition, a sustained reduction in used vehicle pricing could result in lower proceeds from the sale of salvage vehicles and a related reduction in revenue per vehicle, a potential loss of consignors, an increase in loan losses at AFC and decreased profitability. Furthermore, when vehicles are purchased, we are subject to changes in vehicle values, such as those caused from changes in commodity prices for steel and platinum. Decreases in commodity prices may negatively affect vehicle values and demand at salvage auctions.

If our facilities lack the capacity to accept additional vehicles, then our relationships with insurance companies or other vehicle suppliers could be adversely affected.

We regularly evaluate our capacity in all our markets and where appropriate, seek to increase capacity through the acquisition of additional land and facilities. Capacity at our facilities varies from period to period and by region as a result of various factors, including natural disasters. We may not be able to reach agreements to purchase or lease storage facilities in markets where we have limited excess capacity, and zoning restrictions or difficulties obtaining use permits may limit our ability to expand our capacity through acquisitions of new land. In addition, we may not be able to renew or enter into new leases at commercially reasonable rates. If we fail to have sufficient capacity at one or more of our facilities, our relationships with insurance companies or other vehicle suppliers could be adversely affected, which could adversely affect our operating results and financial condition.

Fluctuations in the supply of and demand for salvage vehicles impact auction sales volumes, which may adversely affect our revenues and profitability.

We are dependent upon receiving a sufficient number of total loss vehicles to sustain profit margins in our salvage auction business. Factors that can adversely affect the number of vehicles received include, but are not limited to, a decrease in the number of vehicles in operation or miles driven, mild weather conditions that cause fewer traffic accidents, reduction of policy writing by insurance providers that would affect the number of claims over a period of time, changes in vehicle technology and autonomous vehicles, a decrease in the percentage of claims resulting in a total loss or elimination of automotive collision coverage by consumers, delays or changes in state title processing, government regulations on the standards for producing vehicles and changes in direct repair procedures that would reduce the number of newer, less damaged total loss vehicles, which tend to have higher salvage values. In addition, our salvage auction business depends on a limited number of automobile insurance companies to supply the salvage vehicles we sell at auction. Our agreements with these insurance company suppliers are generally subject to cancellation by either party upon 30 to 90 days’ notice. There can be no assurance that our existing agreements will not be canceled or that we will be able to enter into future agreements with these suppliers. Future decreases in the quality and quantity of vehicle inventory, and in particular the availability of newer and less damaged vehicles, could have a material adverse effect on our operating results and financial condition. If the supply or value of salvage vehicles coming to

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auction declines significantly, our revenues and profitability may be adversely affected. In addition, decreases in commodity prices, such as steel and platinum, may negatively affect vehicle values and demand at salvage auctions.

Our business and operating results would be adversely affected if we lose one or more significant customers.

Loss of business from, or changes in the consignment patterns of, our key customers could have a material adverse effect on our business and operating results. Generally, institutional and dealer customers make no binding long-term commitments to us regarding consignment volumes. Any such customer could reduce its overall supply of vehicles for our auctions or otherwise seek to materially change the terms of its business relationship with us at any time. Any such change could harm our business and operating results. While no single customer accounted for 10% or more of our consolidated revenues in 2016, the loss of, or material reduction in business from, our key customers could have a material adverse effect on our business and operating results.

At a segment level, approximately 80% of IAA segment’s revenues derive from insurance company customers and a small number of these customers account for a large share of IAA’s revenues. In 2016, approximately 40% of IAA’s revenues were associated with the fees generated from the auction of salvage vehicles, including buyer fees, from its three largest insurance customers, each of which accounted for over 10%. If one or more of IAA’s large customers were to significantly reduce consignments for any reason or favor competitors or new entrants, IAA may not be successful in replacing such business and IAA’s profitability and operating results would be materially adversely affected.

Adverse economic conditions may negatively affect our business and results of operations.

Future adverse economic conditions could increase our exposure to several risks, including:

•

Fluctuations in the supply of used vehicles. We are dependent on the supply of used vehicles coming to auction, and our financial performance depends, in part, on conditions in the automotive industry. During the past global economic downturn and credit crisis, there was an erosion of retail demand for new and used vehicles that led many lenders to cut back on originations of new loans and leases and led to significant manufacturing capacity reductions by automakers selling vehicles in the United States and Canada. Capacity reductions could depress the number of vehicles received at auction in the future and could lead to reduced vehicles from various suppliers, negatively impacting auction volumes. In addition, weak growth in or declining new vehicle sales negatively impacts used vehicle trade-ins to dealers and auction volumes. These factors could adversely affect our revenues and profitability.

•

Decline in the demand for used vehicles. We may experience a decrease in demand for used vehicles from buyers due to factors including the lack of availability of consumer credit and declines in consumer spending and consumer confidence. Adverse credit conditions also affect the ability of dealers to secure financing to purchase used vehicles at auction, which further negatively affects buyer demand. In addition, a reduction in the number of franchised and independent used car dealers may reduce dealer demand for used vehicles.

•

Decrease in consumer spending. Consumer purchases of new and used vehicles may be adversely affected by economic conditions such as employment levels, wage and salary levels, trends in consumer confidence and spending, reductions in consumer net worth, interest rates, inflation, the availability of consumer credit and taxation policies. Consumer purchases in general may decline during recessions, periods of prolonged declines in the equity markets or housing markets and periods when disposable income and perceptions of consumer wealth are lower. Changes to U.S. federal tax policy may negatively affect consumer spending. In addition, the increased use of vehicle sharing and alternate methods of transportation, including autonomous vehicles, could lead to a decrease in consumer purchases of new and used vehicles and a decrease in vehicle rentals. To the extent retail and rental car company demand for new and used vehicles decreases, negatively impacting our auction volumes, our results of operations and financial position could be materially and adversely affected.


•	Volatility in the asset-backed securities market. Volatility and disruption in the asset-backed commercial paper market could lead to a narrowing of interest rate spreads at AFC in certain periods. In addition, any volatility and disruption has affected, and could affect, AFC’s cost of financing related to its securitization facility.

•

Ability to service and refinance indebtedness. Uncertainty in the financial markets may negatively affect our ability to service our existing debt, access additional financing or to refinance our existing indebtedness on favorable terms or at all. If economic weakness exists, it may affect our cash flow from operations and results of operations, which may affect our ability to service payment obligations on our debt or to comply with our debt covenants.

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•	Increased counterparty credit risk. Any market deterioration could increase the risk of the failure of financial institutions party to our Credit Agreement and other counterparties with which we do business to honor their obligations to us. Our ability to replace any such obligations on the same or similar terms may be limited if challenging credit and general economic conditions exist.

Declining values for salvage vehicles purchased could adversely affect our profitability.

In the United Kingdom, the salvage market typically operates on a principal basis, in which a vehicle is purchased and then resold, rather than on an agent basis, in which the auction acts as a sales agent for the owner of the vehicle. Operating on a principal basis exposes us to inventory risks, including losses from theft, damage and obsolescence. Furthermore, in periods when the supply of vehicles from the insurance sector in North America declines, salvage operators have acquired and in the future may acquire vehicles on their own. If we purchase vehicles, the increased costs associated with acquiring the vehicles could have a material adverse effect on our gross profit and operating results. In addition, when vehicles are purchased, we are subject to changes in vehicle values, such as those caused from changes in commodity prices for steel and platinum. Decreases in commodity prices may negatively affect vehicle values and demand at salvage auctions.

AFC is exposed to credit risk with our dealer borrowers, which could adversely affect our profitability and financial condition.

AFC is subject to credit risk resulting from defaults in payment by our dealer customers on our floorplan loans. Furthermore, a weak economic environment, decreased demand for used vehicles, disruptions in pricing of used vehicle inventory or consumers’ lack of access to financing could exert pressure on our dealer customers resulting in higher delinquencies, bankruptcies, repossessions and credit losses. There can be no assurances that our monitoring of our credit risk as it affects the collectability of these loans and our efforts to mitigate credit risk through appropriate underwriting policies and loss-mitigation strategies are, or will be, sufficient to prevent an adverse impact in our profitability and financial condition.

If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.

We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect our proprietary rights. In the United States and internationally, we have filed various applications for protection of certain aspects of our intellectual property, and we currently hold issued patents in the United States. However, third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights. Although we have taken measures to protect our proprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to ours and compete with our business. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our service and methods of operations. Any of these events could have an adverse effect on our business and financial results.

We may be subject to patent or other intellectual property infringement claims, which could have an impact on our business or operating results due to a disruption in our business operations, the incurrence of significant costs and other factors.

From time to time, we may receive notices from others claiming that we infringed or otherwise violated their patent or intellectual property rights, and the number of these claims could increase in the future. Claims of intellectual property infringement or other intellectual property violations could require us to enter into licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question, which could require us to change business practices and limit our ability to compete effectively. Even if we believe that the claims are without merit, the claims can be time-consuming and costly to defend and may divert management’s attention and resources away from our businesses. If we are required to take any of these actions, it could have an adverse impact on our business and operating results.

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Weather-related and other events beyond our control may adversely impact operations.

Extreme weather or other events, such as hurricanes, tornadoes, earthquakes, forest fires, floods, terrorist attacks or war, may adversely affect the overall economic environment, the markets in which we compete, our operations and profitability. These events may impact our physical auction facilities, causing a material increase in costs, or delays or cancellation of auction sales, which could have a material adverse impact on our revenues and profitability. In some instances, for example with the severe storm in October 2012, known as “Superstorm Sandy,” these events may result in a sharp influx in the available supply of salvage vehicles and there can be no assurance that our salvage auction business will have sufficient resources to handle such extreme increases in supply. Our failure to meet our customers’ demands in such situations could negatively affect our relationships with such customers and result in a loss of future business, which would adversely affect our operating results and financial condition. In addition, salvage revenues generated as a result of the total loss of vehicles associated with such a catastrophe are typically recognized subsequent to the incurrence of incremental costs and such revenues may not be sufficient to offset the costs incurred.

Mild weather conditions tend to result in a decrease in the available supply of salvage vehicles because traffic accidents decrease and fewer vehicles are damaged. Accordingly, mild weather can have an adverse effect on our salvage vehicle inventories, which would be expected to have an adverse effect on our revenue and operating results and related growth rates.

A portion of our net income is derived from our international operations, primarily Canada, which exposes us to foreign exchange risks that may impact our financial statements. In addition, increases in the value of the U.S. dollar relative to certain foreign currencies may negatively impact foreign buyer participation at our auctions.

Fluctuations between U.S. and foreign currency values may adversely affect our results of operations and financial position, particularly fluctuations with Canadian currency values. In addition, there may be tax inefficiencies in repatriating cash from Canada. Approximately 11% of our revenues were attributable to our Canadian operations for the year ended December 31, 2016 . A decrease in the value of the Canadian currency relative to the U.S. dollar would reduce our profits from Canadian operations and the value of the net assets of our Canadian operations when reported in U.S. dollars in our financial statements. This could have a material adverse effect on our business, financial condition or results of operations as reported in U.S. dollars. A 1% change in the average Canadian exchange rate for the year ended December 31, 2016 would have impacted net income by approximately $0.9 million.

In addition, fluctuations in exchange rates may make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting, the assets and liabilities of our Canadian operations are translated using period-end exchange rates; such translation gains and losses are reported in “Accumulated other comprehensive income/loss” as a component of stockholders’ equity. The revenues and expenses of our Canadian operations are translated using average exchange rates during each period.

Likewise, we have a significant number of non-U.S. based buyers who participate in our auctions. Increases in the value of the U.S. dollar relative to these buyers’ local currencies may reduce the prices they are willing to pay at auction, which may negatively affect our revenues.

Increases in fuel prices could lead to a reduction in miles driven and may have an adverse effect on our revenues and operating results, as well as our earnings growth rates.

Increased fuel prices could lead to a reduction in the miles driven per vehicle, which may reduce accident rates. Increases in fuel prices may also disproportionately affect the demand for sports cars, luxury vehicles, sport utility and full-sized vehicles which are generally not as fuel-efficient as smaller vehicles. Retail sales and accident rates are factors that affect the number of used and salvage vehicles sold at auction, wholesale prices of those vehicles and the conversion rates at used vehicle auctions. Additionally, higher fuel costs increase the cost of transportation and towing of vehicles and we may not be able to pass on such higher costs to our customers.

Environmental, health and safety risks could adversely affect our operating results and financial condition.

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In the used vehicle remarketing industry, large numbers of vehicles, including wrecked vehicles at salvage auctions, are stored and/or refurbished at auction facilities and during that time minor releases of fuel, motor oil and other materials may occur. We have investigated or remediated, or are currently investigating or remediating, contamination resulting from various sources, including gasoline, fuel additives (such as methyl tertiary butyl ether, or MTBE), motor oil, petroleum products and other hazardous materials released from aboveground or underground storage tanks or in connection with current or former operations conducted at our facilities. We have incurred and may in the future incur expenditures relating to releases of hazardous materials, investigative, remedial or corrective actions, claims by third parties and other environmental issues, and such expenditures, individually or in the aggregate, could be significant.

Federal and state environmental authorities are currently investigating IAA’s role in contributing to contamination at the Lower Duwamish Waterway Superfund Site in Seattle, Washington. IAA’s potential liability at this site cannot be estimated at this time. See Item 3, “Legal Proceedings” for a further discussion of this matter.

We have a substantial amount of debt, which could impair our financial condition and adversely affect our ability to react to changes in our business.

As of December 31, 2016 , our total corporate debt was approximately $2.5 billion , exclusive of liabilities related to our securitization facilities which are not secured by the general assets of KAR, and we had $219.5 million of borrowing capacity under our senior secured credit facilities. In addition, we had related outstanding letters of credit in the aggregate amount of $29.7 million at December 31, 2016 , which would reduce the $219.5 million available for borrowings under the credit facilities.

Our indebtedness could have important consequences including:


•	limiting our ability to borrow additional amounts to fund working capital, capital expenditures, debt service requirements, execution of our business strategy, acquisitions and other purposes;


•	requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on debt, which would reduce the funds available for other purposes, including funding future expansion;


•	making us more vulnerable to adverse changes in general economic, industry and competitive conditions, in government regulation and in our business by limiting our flexibility in planning for, and making it more difficult to react quickly to, changing conditions; and


•	exposing us to risks inherent in interest rate fluctuations because the majority of our indebtedness is at variable rates of interest, which could result in higher interest expenses in the event of increases in interest rates.

In addition, if we are unable to generate sufficient cash from operations to service our debt and meet other cash needs, we may be forced to reduce or delay capital expenditures, suspend or eliminate dividends, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, particularly because of our high levels of debt and the restrictions imposed by the agreement governing our Credit Facility on our ability to incur additional debt and use the proceeds from asset sales. If we must sell certain of our assets, it may negatively affect our ability to generate revenue. The inability to obtain additional financing could have a material adverse effect on our financial condition.

If we cannot make scheduled payments on our debt, we would be in default and, as a result:


•	our debt holders could declare all outstanding principal and interest to be due and payable;


•	the lenders under our senior secured credit facilities could terminate their commitments to lend us money and foreclose against the assets securing their borrowings; and


•	we could be forced into bankruptcy or liquidation.

Furthermore, the agreement governing our Credit Facility includes, and future debt instruments may include, certain restrictive covenants which could limit our ability to enter into certain transactions in the future and may adversely affect our ability to operate our business.

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Changes in interest rates or market conditions could adversely impact the profitability and business of AFC.

Rising interest rates may have the effect of depressing the sales of used vehicles because many consumers finance their vehicle purchases. In addition, AFC securitizes a majority of its finance receivables on a revolving basis. Volatility and/or market disruption in the asset-backed securities market in the United States or Canada can impact AFC’s cost of financing related to, or its ability to arrange financing on acceptable terms through, its securitization facility, which could negatively affect AFC’s business and our financial condition and operations.

We assume the settlement risk for all vehicles sold through our auctions.

We do not have recourse against sellers for any buyer’s failure to satisfy its payment obligations. Since revenue for most vehicles does not include the gross sales proceeds, failure to collect the receivables in full may result in a net loss up to the gross sales proceeds on a per vehicle basis in addition to any expenses incurred to collect the receivables and to provide the services associated with the vehicle. If we are unable to collect payments on a large number of vehicles, the resulting payment obligations to the seller and decreased fee revenues may have a material adverse effect on our results of operations and financial condition.

Changes in laws affecting the importation of salvage vehicles may have an adverse effect on our business and financial condition.

Our Internet-based auction services have allowed us to offer our products and services to international markets and has increased our international buyer base. As a result, foreign buyers of salvage vehicles now represent a significant part of our total buyer base. Changes in laws and regulations that restrict the importation of salvage vehicles into foreign countries may reduce the demand for salvage vehicles and impact our ability to maintain or increase our international buyer base. For example, a decree issued by the president of Mexico has placed restrictions on the types of vehicles that can be imported into Mexico from the United States. The adoption of similar laws or regulations in other jurisdictions that have the effect of reducing or curtailing our activities abroad could have a material adverse effect on our results of operations and financial condition by reducing the demand for our products and services.

We are subject to extensive governmental regulations, including vehicle brokerage and auction laws and currency reporting obligations. Our business is subject to risks related to litigation and regulatory actions.


•	The acquisition and sale of used, leased, totaled and recovered theft vehicles are regulated by state or other local motor vehicle departments in each of the locations in which we operate.


•	Some of the transport vehicles used at our auctions are regulated by the U.S. Department of Transportation or similar regulatory agencies in the other countries in which we operate.


•	In many states and provinces, regulations require that a salvage vehicle be forever “branded” with a salvage notice in order to notify prospective purchasers of the vehicle’s previous salvage status.


•	Some state, provincial and local regulations limit who can purchase salvage vehicles, as well as determine whether a salvage vehicle can be sold as rebuildable or must be sold for parts or scrap only.


•	AFC is subject to laws in certain states and in Canada which regulate commercial lending activities and interest rates and, in certain jurisdictions, require AFC or one of its subsidiaries to be licensed.


•	PWI is subject to laws, regulations and insurance licensing requirements in certain states which are applicable to the sale of vehicle service contracts.


•	We are subject to various local zoning requirements with regard to the location of our auction and storage facilities, which requirements vary from location to location.

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•	Certain of the Company's subsidiaries are indirectly subject to the regulations of the Consumer Financial Protection Act of 2010, or the CFPA, due to their vendor relationships with financial institutions.


•	PAR is subject to laws in certain states which regulate repossession administration activities and, in certain jurisdictions, require PAR to be licensed.


•	We deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations.

Changes in law or governmental regulations or interpretations of existing law or regulations could result in increased costs, reduced vehicle prices and decreased profitability for us. In addition, failure to comply with present or future laws and regulations or changes in existing laws or regulations or in their interpretation could have a material adverse effect on our operating results and financial condition.

We are also subject from time to time to a variety of legal actions relating to our current and past business operations, including litigation relating to employment-related issues, the environment and personal injury claims. There is no guarantee that we will be successful in defending ourselves in legal and administrative actions or in asserting our rights under various laws. In addition, we could incur substantial costs in defending ourselves or in asserting our rights in such actions. The costs and other effects of pending litigation and administrative actions against us cannot be determined with certainty. Although we currently believe that no such proceedings will have a material adverse effect, there can be no assurance that the outcome of such proceedings will be as expected.

We are partially self-insured for certain losses.

We self-insure a portion of employee medical benefits under the terms of our employee health insurance program, as well as a portion of our automobile, general liability and workers’ compensation claims. 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 trends, including the severity of claims and medical cost inflation above expectations were to occur, our self-insured costs would increase, which could have an adverse impact on the operating results in that period.

We are dependent on the continued and uninterrupted service from our workforce.

Currently, none of our employees are covered by collective bargaining agreements. If we negotiate a first-time collective bargaining agreement, we could be subject to a substantial increase in labor and benefits expenses that we may be unable to pass through to customers for some period of time, if at all.

We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our net income.

Goodwill represents the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets acquired. Current accounting standards require that goodwill no longer be amortized but instead be periodically evaluated for impairment based on the fair value of the reporting unit. A significant percentage of our total assets represents goodwill. Declines in our profitability or the value of comparable companies may impact the fair value of our reporting units, which could result in a write-down of goodwill and a reduction in net income.

New accounting pronouncements or new interpretations of existing standards could require us to make adjustments to accounting policies that could adversely affect the financial statements.

The Financial Accounting Standards Board, or the FASB, the Public Company Accounting Oversight Board, the SEC, and other accounting organizations or governmental entities from time to time issue new pronouncements or new interpretations of existing accounting and auditing standards that require changes to our accounting policies and procedures and could cause us to incur additional costs. To date, we do not believe any new pronouncements or interpretations have had a material adverse effect on our financial condition or results of operations, but future pronouncements or interpretations could require the change of policies or procedures.

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Risks Related to Ownership of Our Common Stock

The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.

You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Many factors could cause the market price of our common stock to rise and fall, including the following:


•	our announcements or our competitors’ announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;


•	changes in earnings estimates or recommendations by securities analysts, if any, who cover our common stock;


•	results of operations that are below our announced guidance or below securities analysts’ or consensus estimates or expectations;


•	fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;


•	changes in our capital structure, such as future issuances of securities, sales of large blocks of common stock by our stockholders or our incurrence of additional debt;


•	repurchases of our common stock pursuant to our share repurchase program;


•	investors’ general perception of us and our industry;


•	changes in general economic and market conditions;


•	changes in industry conditions; and


•	changes in regulatory and other dynamics.

In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management.

Future offerings of debt or equity securities, which would rank senior to our common stock, may adversely affect the market price of our common stock.

If, in the future, we decide to issue debt or equity securities that rank senior to our common stock, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in us.

The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public market.

Future sales by us or by our existing stockholders of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline. These sales also could impede our ability to raise future capital. Under our amended and restated certificate of incorporation, we are authorized to issue up to 400,000,000 shares of common stock, of which 136,639,217 shares of common stock were outstanding as of December 31, 2016 . In addition, pursuant to a registration statement under the Securities Act, we have registered shares of common stock reserved for issuance in respect of stock options and other incentive awards granted to our officers and certain of

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our employees. If any of these holders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. We cannot predict the size of future sales of shares of our common stock or the effect, if any, that future sales, or the perception that such sales may occur, would have on the market price of our common stock.

Provisions in our amended and restated certificate of incorporation and by-laws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation and by-laws contain provisions that may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a stockholder might consider to be in its best interest, including those transactions that might result in a premium over the market price for our shares.

These provisions include:


•	rules regarding how our stockholders may present proposals or nominate directors for election at stockholder meetings;


•	permitting our board of directors to issue preferred stock without stockholder approval;


•	granting to the board of directors, and not the stockholders, the sole power to set the number of directors;


•	authorizing vacancies on our board of directors to be filled only by a vote of the majority of the directors then in office and specifically denying our stockholders the right to fill vacancies in the board;


•	authorizing the removal of directors only upon the affirmative vote of holders of a majority of the outstanding shares of our common stock entitled to vote for the election of directors; and


•	prohibiting stockholder action by written consent.

These provisions apply even if an offer may be considered beneficial by some stockholders.

You may not receive any future dividends on our common stock.

On November 30, 2012, we announced that our board of directors approved the initiation of a quarterly cash dividend on our common stock. Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. We are not required to declare cash dividends on our common stock. Future dividend decisions will be based on and affected by a variety of factors, including our financial condition and results of operations, contractual restrictions, including restrictive covenants contained in our Credit Agreement and AFC’s securitization facilities, capital requirements and other factors that our board of directors deems relevant. Therefore, no assurance can be given as to whether any future dividends may be declared by our board of directors or the amount thereof.

Our share repurchase program could affect the price of our common stock and increase volatility. In addition, it may be suspended or discontinued at any time, which could result in a decrease in the trading price of our common stock.

Repurchases of our common stock pursuant to our share repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. There can be no assurance that any share repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased the shares of common stock. Although our share repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program's effectiveness. Furthermore, the program does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and may be suspended or discontinued at any time, which could cause the market price of our stock to decline.

In October 2014, our board of directors authorized a repurchase of up to $300 million of the Company’s outstanding

common stock through October 28, 2016. Approximately $227.6 million of the Company's common stock was repurchased under the October 2014 authorization. In October 2016, our board of directors authorized a repurchase of up to $500 million of the Company’s outstanding common stock through October 26, 2019. As of December 31, 2016, approximately $80.4 million of the Company's common stock had been repurchased under the October 2016 authorization. No assurance can be given as to whether the board of directors will authorize additional shares for repurchase, which could cause the market value of our stock to decline.

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Item 1b. Unresolved Staff Comments

None.

Item 2. Properties

The corporate headquarters of KAR Auction Services, ADESA and AFC are located in Carmel, Indiana. The facilities are leased properties, with office space being leased in each case through 2019. At December 31, 2016 , properties utilized by the ADESA business segment include 77 used vehicle auction facilities in North America, which are either owned or leased. Each auction is generally a multi-lane, drive-through facility, and may have additional buildings for reconditioning, registration, maintenance, bodywork, and other ancillary and administrative services. Each auction also has secure parking areas to store vehicles. The ADESA facilities in North America consist on average of approximately 65 acres of land per site.

IAA is headquartered in Westchester, Illinois, with office space being leased through 2027. At December 31, 2016 , properties utilized by the IAA business segment include 172 salvage vehicle auction facilities in the United States and Canada, most of which are leased. IAA also includes HBC, which operates from 11 locations in the United Kingdom. Salvage auctions are generally smaller than used vehicle auctions in terms of acreage and building size and some locations share facilities with ADESA. The IAA North American properties are used primarily for auction and storage purposes consisting on average of approximately 30 acres of land per site.

Of AFC's 126 locations in North America at December 31, 2016 , 91 are physically located at auction facilities (including 60 at ADESA and 14 at IAA). Each of the remaining AFC offices is strategically located in close proximity to at least one of the auctions that it serves. AFC generally leases its branches.

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Item 3. Legal Proceedings

IAA—Lower Duwamish Waterway

Since June 2004, IAA has operated a branch on property it leases in Tukwila, Washington just south of Seattle. The property is located adjacent to a Superfund site known as the Lower Duwamish Waterway Superfund Site ("LDW Site"). The LDW Site had been designated a Superfund site in 2001, three years prior to IAA’s tenancy. On March 25, 2008, the United States Environmental Protection Agency, or the "EPA," issued IAA a General Notice of Potential Liability, or "General Notice," pursuant to Section 107(a), and a Request for Information pursuant to Section 104(e) of the Comprehensive Environmental Response, Compensation, and Liability Act, or "CERCLA," related to the LDW Site. On November 7, 2012, the EPA issued IAA a Second General Notice of Potential Liability, or "Second General Notice," for the LDW Site. The EPA's website indicates that the EPA has issued general notice letters to approximately 116 entities, and has issued Section 104(e) Requests to more than 300 entities related to the LDW Site. In the General Notice and Second General Notice, the EPA informed IAA that the EPA believes IAA may be a Potentially Responsible Party, or "PRP," but the EPA did not specify the factual basis for this assertion. At this time, the EPA still has not specified the factual basis for this assertion and has not demanded that IAA pay any funds or take any action apart from responding to the Section 104(e) Information Request. Four PRPs, The Boeing Company, the City of Seattle, the Port of Seattle and King County - the Lower Duwamish Waterway Group ("LDWG"), have funded a remedial investigation and feasibility study related to the cleanup of the LDW Site. In December 2014, the EPA issued a Record of Decision (ROD), detailing the final cleanup plan for the LDW Site. The ROD estimates the cost of cleanup to be $342 million, with the plan involving dredging of 105 acres, capping 24 acres, and enhanced natural recovery of 48 acres. The estimated length of the cleanup is 17 years, including 7 years of active remediation, and 10 years of monitored natural recovery. IAA is aware that certain authorities may bring natural resource damage claims against PRPs. On February 11, 2016, IAA received a Notice of Intent letter from the United States National Oceanic and Atmospheric Administration informing IAA that the Elliott Bay Trustee Council are beginning to conduct an injury assessment for natural resource damages in the LDW. The Notice of Intent indicates that the decision of the trustees to proceed with this natural resources injury assessment followed a pre-assessment screen performed by the trustees. More recently, in a letter dated August 16, 2016, EPA issued a status update to the PRPs at the LDW Site. The letter stated that EPA expects the bulk of the pre-remedial design work currently being performed by the LDWG to be completed by the beginning of 2018, with the Remedial Design/Remedial Action ("RD/RA")phase to follow. EPA expects to initiate RD/RA negotiations with all PRPs beginning in early 2018. At this time, however, the Company does not have adequate information to determine IAA's responsibility, if any, for contamination at this site, or to estimate IAA's loss as a result of this potential liability.

In addition, the Washington State Department of Ecology ("Ecology") is working with the EPA in relation to the LDW Site, primarily to investigate and address sources of potential contamination contributing to the LDW Site. In 2007, IAA installed a stormwater capture and filtration system designed to treat sources of potential contamination before discharge to the LDW site. The immediate-past property owner, the former property owner and IAA have had discussions with Ecology concerning possible source control measures, including an investigation of the water and soils entering the stormwater system, an analysis of the source of contamination identified within the system, if any, and possible repairs and upgrades to the stormwater system if required. Additional source control measures, if any, are not expected to have a material adverse effect on future recurring operating costs.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders of Record

KAR Auction Services' common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "KAR" and has been traded on the NYSE since December 11, 2009. As of February 15, 2017 , there was one stockholder of record. Because many shares of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by this holder of record.

The following table sets forth the range of high and low intraday sales prices per share of common stock for each quarter during fiscal years 2016 and 2015 :



	2016				2015
	High		Low		High		Low
4th Quarter (October 1 - December 31)	$	44.10	$	38.16	$	38.98	$	35.26
3rd Quarter (July 1 - September 30)	$	43.91	$	40.23	$	39.87	$	34.70
2nd Quarter (April 1 - June 30)	$	41.76	$	35.68	$	38.77	$	35.87
1st Quarter (January 1 - March 31)	$	38.44	$	31.54	$	39.52	$	33.25

Dividend Policy

The following table presents the dividends declared per share of common stock for each quarter during fiscal years 2016 and 2015 :



	2016		2015
4th Quarter (October 1 - December 31)	$	0.32	$	0.27
3rd Quarter (July 1 - September 30)	$	0.29	$	0.27
2nd Quarter (April 1 - June 30)	$	0.29	$	0.27
1st Quarter (January 1 - March 31)	$	0.29	$	0.27

Future dividend decisions will be based on and affected by a variety of factors, including our financial condition and results of operations, contractual restrictions, including restrictive covenants contained in our Credit Agreement and AFC's securitization facilities, capital requirements and other factors that our board of directors deems relevant. The restrictive covenants are further described in "Management's Discussion and Analysis of Financial Condition and Results of Operations." No assurance can be given as to whether any future dividends may be declared by our board of directors or the amount thereof.

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Issuer Purchases of Equity Securities

The following table provides information about purchases by KAR Auction Services of its shares of common stock during the quarter ended December 31, 2016 :



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (Dollars in millions)
October 1 - October 31	—	$	—	—	$	500.0
November 1 - November 30	1,131,000	41.33		1,131,000	453.3
December 1 - December 31	800,200	42.01		800,200	419.6
Total	1,931,200	$	41.61	1,931,200

(1)

In October 2016, the board of directors authorized a repurchase of up to $500 million of the Company’s outstanding common stock, par value $0.01 per share, through October 26, 2019. Repurchases may be made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases is subject to market and other conditions.

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Stock Price Performance Graph

The graph below shows the cumulative total stockholder return, assuming an investment of $100 and dividend reinvestment, for the period beginning on December 31, 2011 and ending on December 31, 2016 , on each of KAR Auction Services' common stock, the Standard & Poor's 400 Midcap Index and the Standard and Poor's 500 Index. Our stock price performance shown in the following graph is not indicative of future stock price performance.



Company/Index	Base Period 12/31/2011		12/31/2012		12/31/2013		12/31/2014		12/31/2015		12/31/2016
KAR Auction Services, Inc.	$	100	$	151.44	$	228.63	$	276.88	$	304.58	$	361.01
S&P 400 Midcap Index	$	100	$	117.88	$	157.37	$	172.74	$	168.99	$	204.03
S&P 500 Index	$	100	$	116.00	$	153.57	$	174.60	$	177.01	$	198.18

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Item 6. Selected Financial Data

The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the audited consolidated financial statements and related notes thereto of KAR Auction Services, Inc. and other financial information included elsewhere in this Annual Report on Form 10-K.

Selected Financial Data of KAR Auction Services

For the Years Ended December 31, 2016 , 2015 , 2014 , 2013 and 2012

The following consolidated financial data for the years ended December 31, 2016 , 2015 , 2014 , 2013 and 2012 is based on our audited financial statements.



	Year Ended December 31,
(Dollars in millions except per share amounts)	2016		2015		2014		2013		2012
Operations:
Operating revenues
ADESA ⁽¹⁾	$	1,765.3	$	1,427.8	$	1,271.0	$	1,165.5	$	1,097.2
IAA	1,098.0		994.4		895.9		830.0		716.1
AFC	286.8		268.4		250.1		224.7		193.8
Total operating revenues	$	3,150.1	$	2,690.6	$	2,417.0	$	2,220.2	$	2,007.1
Operating expenses (exclusive of depreciation and amortization) ⁽¹⁾	2,410.5		2,050.5		1,842.7		1,769.1		1,549.9
Operating profit	499.0		427.3		377.7		256.7		267.0
Interest expense	138.8		91.4		86.2		104.7		119.4

Net income	222.4		214.6		169.3		67.7		92.0
Net income per share
Basic	1.62		1.53		1.21		0.49		0.67
Diluted	1.60		1.51		1.19		0.48		0.66
Weighted average shares outstanding
Basic	137.6		140.1		140.2		137.9		136.5
Diluted	139.1		142.3		141.8		140.8		139.0
Cash dividends declared per common share	1.19		1.08		1.02		0.82		0.19



	As of December 31,
	2016		2015		2014		2013		2012
Financial Position:
Working capital ⁽²⁾⁽³⁾	$	506.2	$	232.2	$	490.2	$	366.0	$	297.6
Total assets ⁽³⁾	6,557.6		5,771.5		5,334.8		5,089.3		4,897.4
Total debt, net of unamortized debt issuance costs/discounts ⁽²⁾	2,470.3		1,865.1		1,743.5		1,738.4		1,796.5
Total stockholders' equity	1,397.3		1,386.1		1,547.1		1,481.8		1,443.7



	Year Ended December 31,
	2016		2015		2014		2013		2012
Other Financial Data:
Net cash provided by operating activities	$	360.8	$	475.0	$	431.3	$	434.0	$	290.2
Capital expenditures	155.1		134.7		101.0		96.6		102.0
Depreciation and amortization	240.6		212.8		196.6		194.4		190.2

___________________________________________________________________

⁽¹⁾

Prior to 2016, the gross selling prices for certain vehicles owned and subsequently sold by ADESA were incorrectly netted against cost of services, but have been deemed immaterial. Beginning in 2016, the gross selling prices of the owned vehicles were included in revenue and costs of services, resulting in an increase to ADESA’s revenue and a corresponding increase in cost of services. Prior year amounts have been revised to reflect these changes. For the years ended December

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31, 2016, 2015, 2014, 2013 and 2012 “ADESA revenue” and “Cost of services” were increased by $60.6 million, $51.0 million, $52.5 million, $46.9 million and $43.7 million, respectively. For further information, see Note 2 to the Consolidated Financial Statements, included elsewhere in this Annual Report on Form 10-K.


⁽²⁾	Working capital is defined as current assets less current liabilities.

⁽³⁾

Amounts prior to 2016 have been adjusted to reflect the adoption of ASU 2015-03. The update required debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. For further information, see Note 2 to the Consolidated Financial Statements, included elsewhere in this Annual Report on Form 10-K.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the "Selected Financial Data" and the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made in this report on Form 10-K that are not historical facts (including, but not limited to, expectations, estimates, assumptions and projections regarding the industry, business, future operating results, potential acquisitions and anticipated cash requirements) may be forward-looking statements. Words such as "should," "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions identify forward-looking statements. Such statements, including statements regarding our future growth; anticipated cost savings, revenue increases, credit losses and capital expenditures; dividend declarations and payments; common stock repurchases; strategic initiatives, greenfields and acquisitions; our competitive position and retention of customers; and our continued investment in information technology, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A "Risk Factors" of this Annual Report on Form 10-K. Some of these factors include:


•	our ability to successfully implement our business strategies or realize expected cost savings and revenue enhancements;


•	our ability to effectively maintain or update information and technology systems;


•	our ability to implement and maintain measures to protect against cyber-attacks;


•	significant current competition and the introduction of new competitors;


•	competitive pricing pressures;


•	any losses of key personnel;


•	our ability to meet or exceed customers' expectations, as well as develop and implement information systems responsive to customer needs;


•	business development activities, including greenfields, acquisitions and integration of acquired businesses;


•	costs associated with the acquisition of businesses or technologies;


•	fluctuations in consumer demand for and in the supply of used, leased and salvage vehicles and the resulting impact on auction sales volumes, conversion rates and loan transaction volumes;


•	our ability to obtain land or renew/enter into new leases at commercially reasonable rates;


•	decreases in the number of used vehicles sold at physical auctions;


•	changes in the market value of vehicles auctioned, including changes in the actual cash value of salvage vehicles;


•	trends in new and used vehicle sales and incentives, including wholesale used vehicle pricing;


•	the ability of consumers to lease or finance the purchase of new and/or used vehicles;


•	the ability to recover or collect from delinquent or bankrupt customers;


•	economic conditions including fuel prices, commodity prices, foreign exchange rates and interest rate fluctuations;


•	trends in the vehicle remarketing industry;


•	trends in the number of commercial vehicles being brought to auction, in particular off-lease volumes;


•	changes in the volume of vehicle production, including capacity reductions at the major original equipment manufacturers;


•	laws, regulations and industry standards, including changes in regulations governing the sale of used vehicles, the processing of salvage vehicles and commercial lending activities;

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•	our ability to maintain our brand and protect our intellectual property;


•	the costs of environmental compliance and/or the imposition of liabilities under environmental laws and regulations;


•	weather, including increased expenses as a result of catastrophic events;


•	general business conditions;


•	our substantial amount of debt;


•	restrictive covenants in our debt agreements;


•	our assumption of the settlement risk for vehicles sold;


•	litigation developments;


•	our self-insurance for certain risks;


•	interruptions to service from our workforce;


•	any impairment to our goodwill or other intangible assets;


•	changes in effective tax rates;


•	changes to accounting standards; and


•	other risks described from time to time in our filings with the SEC, including the Quarterly Reports on Form 10-Q to be filed by us in 2017.

Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this document are made as of the date on which they are made and we do not undertake to update our forward-looking statements.

Our future growth depends on a variety of factors, including our ability to increase vehicle sold volumes and loan transaction volumes, expand our product and service offerings, including information systems development, acquire and integrate additional business entities, manage expansion, control costs in our operations, introduce fee increases, and retain our executive officers and key employees. We cannot predict whether our growth strategy will be successful. In addition, we cannot predict what portion of overall sales will be conducted through online auctions or other remarketing methods in the future and what impact this may have on our auction business.

Overview

We provide whole car auction services and salvage auction services in North America and the United Kingdom. Our business is divided into three reportable business segments, each of which is an integral part of the vehicle remarketing industry: ADESA Auctions, IAA and AFC.

•

The ADESA Auctions segment serves a domestic and international customer base through live and online auctions and through 77 whole car auction facilities in North America that are developed and strategically located to draw professional sellers and buyers together and allow the buyers to inspect and compare vehicles remotely or in person. Through ADESA.com, powered by Openlane technology, ADESA offers comprehensive private label remarketing solutions to automobile manufacturers, captive finance companies and other institutions to offer vehicles via the Internet prior to arrival at the physical auction. Vehicles at ADESA's auctions are typically sold by commercial fleet operators, financial institutions, rental car companies, new and used vehicle dealers and vehicle manufacturers and their captive finance companies to franchise and independent used vehicle dealers. ADESA also provides value-added ancillary services including inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. ADESA also includes ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom.

•

The IAA segment serves a domestic and international customer base through live and online auctions and through 172 salvage vehicle auction sites in the United States and Canada at December 31, 2016 . IAA also includes HBC, which operates from 11 locations in the United Kingdom. The salvage auctions facilitate the remarketing of damaged vehicles designated as total losses by insurance companies, charity donation vehicles, recovered stolen (or theft) vehicles and low value used vehicles. The salvage auction business specializes in providing services such as inbound transportation, titling, salvage recovery and claims settlement administrative services.

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•	The AFC segment provides short-term, inventory-secured financing, known as floorplan financing, primarily to independent used vehicle dealers. At December 31, 2016 , AFC conducted business at 126 locations in the United States and Canada. The Company also sells vehicle service contracts through Preferred Warranties, Inc. ("PWI").

The holding company is maintained separately from the three reportable segments and includes expenses associated with the corporate offices, such as salaries, benefits and travel costs for our management team, certain human resources, information technology and accounting costs, and certain insurance, treasury, legal and risk management costs. Holding company interest expense includes the interest expense incurred on capital leases and the corporate debt structure. Intercompany charges relate primarily to interest on intercompany debt or receivables and certain administrative costs allocated by the holding company.

Industry Trends

Whole Car

Used vehicles sold in North America through whole car auctions, including online only sales, were approximately 9.2 million , 9.9 million and an estimated 10.6 million in 2014 , 2015 and 2016 , respectively. We expect that used vehicle auction volumes in North America, including online only volumes, will be over 10.6 million units in 2017, 2018 and 2019. Our estimates are based on information from the Bureau of Economic Analysis, IHS Automotive, Kontos Total Market Estimates, NAAA's 2015 Annual Review and management estimates. A primary driver of the anticipated improvement is more off-lease and repossessed vehicles entering the market over the next three years.

Salvage

Vehicles deemed a total loss by automobile insurance companies represent the largest category of vehicles sold in the salvage vehicle auction industry. The percentage of claims resulting in total losses was approximately 17% in 2016 , 16% in 2015 and 14% in 2014. There is no central reporting system for the salvage vehicle auction industry that tracks the number of salvage vehicle auction volumes in any given year, which makes estimating industry volumes difficult.

Fluctuations in used vehicle and commodity pricing (aluminum, steel, etc.) have an impact on proceeds received in the salvage vehicle auction industry. In times of rising prices, revenue and gross profit are positively impacted. If used vehicle and commodity prices decrease, as the industry has recently experienced, proceeds, revenue and gross profit at salvage auctions may be negatively impacted, which could adversely affect the level of profitability. For example, the average price per ton of crushed auto bodies in North America decreased from $312 in December 2013 to $198 in December 2014 to $115 in December 2015. This reduction in the price of crushed auto bodies has had an adverse impact on the value of salvage vehicles being sold in the salvage auction industry and resulted in reduced revenue per vehicle sold and gross profit. During 2016, the price per ton of crushed auto bodies in North America has ranged from $109 to $188 and finished December 2016 at $136.

Automotive Finance

AFC works with independent used vehicle dealers to improve their results by providing a comprehensive set of business and financial solutions that leverages its local branches, industry experience and scale, as well as KAR affiliations. Over the last few years AFC's North American dealer base grew from over 9,700 dealers in 2009 to approximately 15,700 dealers in 2016 and loan transactions, which includes both loans paid off and loans curtailed, grew from approximately 800,000 in 2009 to approximately 1,718,000 in 2016 . As a result of this increased activity, AFC is experiencing increased competition.

Key challenges for the independent used vehicle dealer include demand for used vehicles, disruptions in pricing of used vehicle inventory and lack of access to consumer financing. These same challenges, to the extent they occur, could result in a material negative impact on AFC's results of operations. A significant decline in used vehicle sales would result in a decrease in consumer auto loan originations and an increased number of dealers defaulting on their loans. In addition, volatility in wholesale vehicle pricing impacts the value of recovered collateral on defaulted loans and the resulting severity of credit losses at AFC.

Seasonality

The volume of vehicles sold through our auctions generally fluctuates from quarter-to-quarter. This seasonality is caused by several factors including weather, the timing of used vehicles available for sale from selling customers, the availability and quality of salvage vehicles, holidays, and the seasonality of the retail market for used vehicles, which affects the demand side of the auction industry. Used vehicle auction volumes tend to decline during prolonged periods of winter weather conditions. In addition, mild weather conditions and decreases in traffic volume can each lead to a decline in the available supply of salvage vehicles because fewer traffic accidents occur, resulting in fewer damaged vehicles overall. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower used vehicle auction volume as well as additional costs associated with the holidays and winter weather.

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Sources of Revenues and Expenses

Our revenue is derived from auction fees and related services associated with our whole car and salvage auctions, and from dealer financing fees, interest income and other service revenue at AFC. Although auction revenues primarily include the auction services and related fees, our related receivables and payables include the gross value of the vehicles sold.

Prior to 2016, the gross selling prices for certain vehicles owned and subsequently sold by ADESA were incorrectly netted against cost of services. Beginning in 2016, the gross selling prices of the owned vehicles were included in revenue and costs of services, resulting in an increase to ADESA’s revenue and a corresponding increase in cost of services. Prior year amounts have been reclassified to reflect these changes. For further information, see Note 2 to the Consolidated Financial Statements, included elsewhere in this Annual Report on Form 10-K.

Our operating expenses consist of cost of services, selling, general and administrative and depreciation and amortization. Cost of services is composed of payroll and related costs, subcontract services, the cost of vehicles purchased, supplies, insurance, property taxes, utilities, service contract claims, maintenance and lease expense related to the auction sites and loan offices. Cost of services excludes depreciation and amortization. Selling, general and administrative expenses are composed of payroll and related costs, sales and marketing, information technology services and professional fees.

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Results of Operations

Overview of Results of KAR Auction Services, Inc. for the Years Ended December 31, 2016 and 2015 :



	Year Ended December 31,
(Dollars in millions except per share amounts)	2016			2015
Revenues
ADESA	$	1,765.3		$	1,427.8
IAA	1,098.0			994.4
AFC	286.8			268.4
Total revenues	3,150.1			2,690.6
Cost of services*	1,827.4			1,548.5
Gross profit*	1,322.7			1,142.1
Selling, general and administrative	583.1			502.0
Depreciation and amortization	240.6			212.8
Operating profit	499.0			427.3
Interest expense	138.8			91.4
Other income, net	(0.5		)	(4.6		)
Loss on extinguishment of debt	5.4			—
Income before income taxes	355.3			340.5
Income taxes	132.9			125.9
Net income	$	222.4		$	214.6
Net income per share
Basic	$	1.62		$	1.53
Diluted	$	1.60		$	1.51

* Exclusive of depreciation and amortization

Overview

For the year ended December 31, 2016 , we had revenue of $3,150.1 million compared with revenue of $2,690.6 million for the year ended December 31, 2015 , an increase of 17% . For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.

Depreciation and Amortization

Depreciation and amortization increased $27.8 million , or 13% , to $240.6 million for the year ended December 31, 2016 , compared with $212.8 million for the year ended December 31, 2015 . The increase in depreciation and amortization was primarily the result of certain assets placed in service over the last twelve months and depreciation and amortization for the assets of businesses acquired in 2015 and 2016.

Interest Expense

Interest expense increased $47.4 million , or 52% , to $138.8 million for the year ended December 31, 2016 , compared with $91.4 million for the year ended December 31, 2015 . The increase was primarily attributable to the interest associated with the new Term Loan B-3, the increase in interest rate on Term Loan B-2, as well as the interest associated with outstanding revolver borrowings. In addition, there was an increase in interest expense at AFC of $10.0 million, which resulted from an increase in the average portfolio financed in 2016 as compared with 2015 .

Loss on Extinguishment of Debt

In March 2016, we amended our Credit Agreement and recorded a $4.0 million pretax charge resulting from the write-off of unamortized debt issue costs associated with Term Loan B-1 and unamortized debt issue costs associated with the old revolving credit facility. Additionally, in December 2016, we recorded a $1.4 million pretax charge primarily resulting from the write-off of a portion of unamortized securitization issuance costs associated with AFC's Receivables Purchase Agreement.

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Income Taxes

We had an effective tax rate of 37.4% for the year ended December 31, 2016 , compared with an effective tax rate of 37.0% for the year ended December 31, 2015 .

Impact of Foreign Currency

The strengthening of the U.S. dollar has impacted the reporting of our Canadian operations in U.S. dollars. For the year ended December 31, 2016 , fluctuations in the Canadian exchange rate decreased revenue by $11.9 million, operating profit by $4.0 million, net income by $2.3 million and net income per diluted share by $0.02.

ADESA Results



	Year Ended December 31,
(Dollars in millions)	2016		2015
ADESA revenue	$	1,765.3	$	1,427.8
Cost of services*	1,036.5		836.9
Gross profit*	728.8		590.9
Selling, general and administrative	327.0		276.6
Depreciation and amortization	100.0		86.2
Operating profit	$	301.8	$	228.1
Vehicles sold	2,885,000		2,465,000

* Exclusive of depreciation and amortization

Note: Prior to 2016, the gross selling prices for certain vehicles owned and subsequently sold by ADESA were incorrectly netted against cost of services. At December 31, 2016, the gross selling prices of the owned vehicles were included in revenue and costs of services, resulting in an increase to ADESA’s revenue and a corresponding increase in cost of services. For the year ended December 31, 2016, “ADESA revenue” and “Cost of services” have both been increased by $60.6 million. For the year ended December 31, 2015, “ADESA revenue” and “Cost of services” have both been increased by $51.0 million.

Revenue

Revenue from ADESA increased $337.5 million , or 24% , to $1,765.3 million for the year ended December 31, 2016 , compared with $1,427.8 million for the year ended December 31, 2015 . The increase in revenue was primarily a result of a 17% increase in the number of vehicles sold (9% increase excluding acquisitions), as well as a 6% increase in revenue per vehicle sold. Businesses acquired in 2016 and 2015 accounted for an increase in revenue of $137.1 million. Revenue decreased $8.5 million due to fluctuations in the Canadian exchange rate.

The increase in volume sold was primarily attributable to a 22% increase in institutional volume (16% increase excluding acquisitions), including vehicles sold on our online only platform, as well as a 9% increase in dealer consignment units sold (2% decrease excluding acquisitions) for the year ended December 31, 2016 compared with the year ended December 31, 2015 . Online sales volume for ADESA represented approximately 42% of the total vehicles sold in 2016 , compared with approximately 40% in 2015 . "Online sales" includes the following: (i) selling vehicles directly from a dealership or other interim storage location (upstream selling); (ii) online solutions that offer vehicles for sale while in transit to auction locations (midstream selling); (iii) simultaneously broadcasting video and audio of the physical auctions to online bidders (LiveBlock ^® ); and (iv) bulletin-board or real-time online auctions (DealerBlock ^® ). Upstream and midstream selling represent online only sales, which accounted for approximately 63% of ADESA's online sales volume. ADESA sold approximately 743,000 and 592,000 vehicles through its online only offerings in 2016 and 2015 , respectively, of which approximately 385,000 and 352,000 represented vehicle sales to grounding dealers in 2016 and 2015 , respectively. For the year ended December 31, 2016 , dealer consignment vehicles represented approximately 48% of used vehicles sold at ADESA physical auction locations, compared with approximately 50% for the year ended December 31, 2015 . Vehicles sold at physical auction locations increased 14% (4% increase excluding acquisitions) in 2016 , compared with 2015 . The used vehicle conversion percentage at North American physical auction locations, calculated as the number of vehicles sold as a percentage of the number of vehicles entered for sale at our ADESA auctions was 58.3% for the years ended December 31, 2016 and 2015 .

Physical auction revenue per vehicle sold increased $53, or 7%, to $781 for the year ended December 31, 2016 , compared with $728 for the year ended December 31, 2015 . Physical auction revenue per vehicle sold includes revenue from seller and

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buyer auction fees and ancillary and other related services, which includes non-auction services and the sale of purchased vehicles. The increase in physical auction revenue per vehicle sold was primarily attributable to an increase in lower margin ancillary and other related services revenue, including revenue from certain businesses acquired, partially offset by a decrease in physical auction revenue per vehicle sold of $4 due to fluctuations in the Canadian exchange rate. Excluding vehicles purchased, physical auction revenue per vehicle would have been $753 and $701 for the year ended December 31, 2016 and 2015 , respectively.

Online only auction revenue per vehicle sold increased $17 to $124 for the year ended December 31, 2016 , compared with $107 for the year ended December 31, 2015 . The increase in online only auction revenue per vehicle sold was attributable to an increase in purchased vehicles associated with the ADESA Assurance Program and an increase in the mix of cars sold in closed sales to non-grounding dealers, partially offset by a decrease in online only auction revenue per vehicle sold of $1 due to fluctuations in the Canadian exchange rate. Excluding vehicles purchased as part of the ADESA Assurance Program, online only revenue per vehicle would have been $110 and $102 for the year ended December 31, 2016 and 2015 , respectively.

Gross Profit

For the year ended December 31, 2016 , gross profit for ADESA increased $137.9 million , or 23% , to $728.8 million , compared with $590.9 million for the year ended December 31, 2015 . Gross profit for ADESA was 41.3% of revenue for the year ended December 31, 2016 , compared with 41.4% of revenue for the year ended December 31, 2015 . The increase in gross profit was mainly attributable to the 17% increase in the number of vehicles sold.

Selling, General and Administrative

Selling, general and administrative expenses for the ADESA segment increased $50.4 million , or 18% , to $327.0 million for the year ended December 31, 2016 , compared with $276.6 million for the year ended December 31, 2015 , primarily due to increases in selling, general and administrative expenses associated with acquisitions of $27.7 million, compensation expense of $11.8 million, bad debt expense of $5.1 million, information technology costs of $3.3 million, professional fees of $1.9 million, benefit-related expenses of $1.6 million, supply and mailing expenses of $1.5 million and other miscellaneous expenses aggregating $3.8 million, partially offset by a decrease in marketing expenses of $3.1 million, a decrease in the loss on disposal of certain assets of $1.7 million and fluctuations in the Canadian exchange rate of $1.5 million.

IAA Results



	Year Ended December 31,
(Dollars in millions)	2016		2015
IAA revenue	$	1,098.0	$	994.4
Cost of services*	708.0		633.6
Gross profit*	390.0		360.8
Selling, general and administrative	104.2		98.1
Depreciation and amortization	87.9		80.8
Operating profit	$	197.9	$	181.9
Vehicles sold	2,184,000		1,970,000

* Exclusive of depreciation and amortization

Revenue

Revenue from IAA increased $103.6 million , or 10% , to $1,098.0 million for the year ended December 31, 2016 , compared with $994.4 million for the year ended December 31, 2015 , and included an increase in revenue of $25.8 million from HBC (HBC was acquired in June 2015). The increase in revenue was a result of an increase in vehicles sold of approximately 11% (10% excluding HBC) for the year ended December 31, 2016 , partially offset by a decrease in revenue of $6.9 million due to fluctuations in the U.K. exchange rate and $2.8 million due to fluctuations in the Canadian exchange rate. Revenue per vehicle sold was consistent year over year. IAA's North American same-store total loss vehicle inventory increased approximately 25% at December 31, 2016, as compared to December 31, 2015, in part related to recent catastrophic events. Vehicles sold under purchase agreements were approximately 7% (5% excluding HBC) and 7% (6% excluding HBC) of total salvage vehicles sold for the year ended December 31, 2016 and 2015 , respectively. Online sales volumes for IAA for the years ended December 31, 2016 and 2015 represented approximately 60% of the total vehicles sold by IAA.

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Gross Profit

For the year ended December 31, 2016 , gross profit at IAA increased to $390.0 million , or 35.5% of revenue, compared with $360.8 million , or 36.3% of revenue, for the year ended December 31, 2015 . The increase in gross profit was mainly attributable to a 10% increase in revenue, partially offset by a 12% increase in cost of services, which included costs associated with purchase contract vehicles and volume growth. Excluding HBC, IAA's gross profit margin was 36.7% and 37.0% for the year ended December 31, 2016 and 2015 , respectively. For the year ended December 31, 2016 and 2015 , HBC had revenue of approximately $51.6 million and $25.8 million, respectively, and cost of services of approximately $45.8 million and $23.5 million, respectively, as the majority of HBC's vehicles are sold under purchase contracts. HBC accounted for a 0.5% decrease in IAA's gross profit margin percentage for the year ended December 31, 2016 .

Selling, General and Administrative

Selling, general and administrative expenses at IAA increased $6.1 million , or 6% , to $104.2 million for the year ended December 31, 2016 , compared with $98.1 million for the year ended December 31, 2015 . The increase in selling, general and administrative expenses was primarily attributable to an increase in expenses at HBC of $1.5 million, increases in stock-based compensation expense of $1.3 million, telecom costs of $1.1 million, bad debt expense of $0.9 million, benefit-related expenses of $0.9 million, non-income based taxes of $0.7 million, employee related expenses of $0.4 million, incentive-based compensation of $0.4 million and other miscellaneous expenses aggregating $1.3 million, partially offset by decreases in professional fees of $1.6 million and travel expenses of $0.8 million.

AFC Results



	Year Ended December 31,
(Dollars in millions except volumes and per loan amounts)	2016			2015
AFC revenue
Interest and fee income	$	275.1		$	246.8
Other revenue	10.3			9.7
Provision for credit losses	(30.7		)	(16.0		)
Other service revenue	32.1			27.9
Total AFC revenue	286.8			268.4
Cost of services*	82.9			78.0
Gross profit*	203.9			190.4
Selling, general and administrative	28.7			27.8
Depreciation and amortization	31.1			30.8
Operating profit	$	144.1		$	131.8
Loan transactions	1,718,000			1,607,000
Revenue per loan transaction, excluding "Other service revenue"	$	148		$	150

* Exclusive of depreciation and amortization

Revenue

For the year ended December 31, 2016 , AFC revenue increased $18.4 million , or 7% , to $286.8 million , compared with $268.4 million for the year ended December 31, 2015 . The increase in revenue was the result of a 7% increase in loan transactions and an increase of 15% in "Other service revenue" generated by PWI, partially offset by an increase in the provision for credit losses to 1.8% of the average managed receivables for the year ended December 31, 2016 . The increase in revenue and decrease in revenue per loan transaction included the impact of a decrease in revenue of $0.6 million due to fluctuations in the Canadian exchange rate. In addition, managed receivables increased to $1,792.2 million at December 31, 2016 from $1,641.0 million at December 31, 2015 .

Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $2, or 1%, primarily as a result of an increase in the provision for credit losses, a decrease in floorplan fee income per unit and a decrease in interest yield, partially offset by increases in average loan values, other revenue and average portfolio duration. Revenue per loan transaction excludes "Other service revenue."

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The provision for credit losses has increased to 1.8% from 1.1% of the average managed receivables for the year ended December 31, 2016 compared with the year ended December 31, 2015 . In the current credit environment, the provision for credit losses is expected to be approximately 1.75% to 2.25%, annually, of the average managed receivables balance. However, the actual losses in any particular quarter could deviate from this range.

Gross Profit

For the year ended December 31, 2016 , gross profit for the AFC segment increased $13.5 million , or 7% , to $203.9 million , or 71.1% of revenue, compared with $190.4 million , or 70.9% of revenue, for the year ended December 31, 2015 , primarily as a result of a 7% increase in revenue, partially offset by a 6% increase in cost of services. The floorplan lending business gross profit margin percentage increased from 77.5% to 77.7%. The gross profit margin percentage in the warranty service contract business also improved.

Selling, General and Administrative

Selling, general and administrative expenses at AFC increased $0.9 million , or 3% , to $28.7 million for the year ended December 31, 2016 , compared with $27.8 million for the year ended December 31, 2015 . The increase was primarily attributable to increases in stock-based compensation expense of $0.7 million, information technology costs of $0.7 million and other miscellaneous expenses aggregating $0.5 million, partially offset by a decrease in incentive-based compensation of $0.6 million and a decrease in selling, general and administrative costs at PWI of $0.4 million.

Holding Company Results



	Year Ended December 31,
(Dollars in millions)	2016			2015
Selling, general and administrative	$	123.2		$	99.5
Depreciation and amortization	21.6			15.0
Operating loss	$	(144.8	)	$	(114.5	)

Selling, General and Administrative

For the year ended December 31, 2016 , selling, general and administrative expenses at the holding company increased $23.7 million , or 24% , to $123.2 million , compared with $99.5 million for the year ended December 31, 2015 , primarily as a result of increases in compensation expense of $8.7 million, professional fees of $7.5 million, stock-based compensation expense of $3.4 million, incentive-based compensation expense of $1.8 million, acquisition-related professional fees of $1.7 million and other miscellaneous expenses aggregating $2.2 million, partially offset by a decrease in medical expenses of $1.6 million. The Company has increased Holding Company expenses to support the growing businesses of KAR. The increase in expenses relate to costs associated with talent management, technology and support of strategic initiatives.

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Overview of Results of KAR Auction Services, Inc. for the Years Ended December 31, 2015 and 2014 :



	Year Ended December 31,
(Dollars in millions except per share amounts)	2015			2014
Revenues
ADESA	$	1,427.8		$	1,271.0
IAA	994.4			895.9
AFC	268.4			250.1
Total revenues	2,690.6			2,417.0
Cost of services*	1,548.5			1,371.3
Gross profit*	1,142.1			1,045.7
Selling, general and administrative	502.0			471.4
Depreciation and amortization	212.8			196.6
Operating profit	427.3			377.7
Interest expense	91.4			86.2
Other income, net	(4.6		)	(3.8		)
Loss on extinguishment of debt	—			30.3
Income before income taxes	340.5			265.0
Income taxes	125.9			95.7
Net income	$	214.6		$	169.3
Net income per share
Basic	$	1.53		$	1.21
Diluted	$	1.51		$	1.19

* Exclusive of depreciation and amortization

Revenue

For the year ended December 31, 2015, we had revenue of $ 2,690.6 million compared with revenue of $ 2,417.0 million for the year ended December 31, 2014, an increase of 11%. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.

Depreciation and Amortization

Depreciation and amortization increased $16.2 million, or 8%, to $212.8 million for the year ended December 31, 2015, compared with $196.6 million for the year ended December 31, 2014. The increase in depreciation and amortization was primarily the result of certain assets placed in service over the last twelve months and depreciation and amortization for the assets of businesses acquired.

Interest Expense

Interest expense increased $5.2 million, or 6%, to $91.4 million for the year ended December 31, 2015, compared with $86.2 million for the year ended December 31, 2014. The increase was primarily attributable to an increase in interest expense at AFC of $5.5 million, which resulted from an increase in the average U.S. portfolio financed in 2015 as compared with 2014.

Loss on Extinguishment of Debt

In March 2014, we amended and restated our Credit Agreement and recorded a $30.3 million pretax charge resulting from the write-off of unamortized debt discount and unamortized debt issue costs.

Income Taxes

We had an effective tax rate of 37.0% for the year ended December 31, 2015, compared with an effective tax rate of 36.1% for the year ended December 31, 2014. During the year ended December 31, 2014, our effective tax rate benefited from a favorable state law change as well as changes to our income tax reserves for uncertain tax positions which resulted in a net

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benefit of $3.3 million. Excluding the effect of the discrete items, our effective tax rate for the year ended December 31, 2015 and 2014 would have been 36.7% and 37.9%, respectively.

Impact of Foreign Currency

The strengthening of the U.S. dollar had a significant impact on the reporting of our Canadian operations in U.S. dollars. For the year ended December 31, 2015, fluctuations in the Canadian exchange rate decreased revenue by $49.4 million, operating profit by $16.0 million, net income by $9.2 million and net income per diluted share by $0.06.

ADESA Results



	Year Ended December 31,
(Dollars in millions)	2015		2014
ADESA revenue	$	1,427.8	$	1,271.0
Cost of services*	836.9		745.9
Gross profit*	590.9		525.1
Selling, general and administrative	276.6		259.9
Depreciation and amortization	86.2		80.2
Operating profit	$	228.1	$	185.0
Vehicles sold	2,465,000		2,198,000

* Exclusive of depreciation and amortization

Note: Prior to 2016, the gross selling prices for certain vehicles owned and subsequently sold by ADESA were incorrectly netted against cost of services. At December 31, 2016, the gross selling prices of the owned vehicles were included in revenue and costs of services, resulting in an increase to ADESA’s revenue and a corresponding increase in cost of services. For the year ended December 31, 2015, “ADESA revenue” and “Cost of services” have both been increased by $51.0 million. For the year ended December 31, 2014, “ADESA revenue” and “Cost of services” have both been increased by $52.5 million.

Revenue

Revenue from ADESA increased $156.8 million, or 12%, to $1,427.8 million for the year ended December 31, 2015, compared with $1,271.0 million for the year ended December 31, 2014. The increase in revenue was primarily a result of a 12% increase in the number of vehicles sold, as well as a 1% increase in revenue per vehicle sold, which included an increase in revenue of $39.5 million for businesses acquired in 2015 and a decrease in revenue of $35.9 million due to fluctuations in the Canadian exchange rate.

The increase in volume sold was primarily attributable to an increase in institutional volume, including vehicles sold on our online only platform, as well as a 7% increase in dealer consignment units sold for the year ended December 31, 2015 compared with the year ended December 31, 2014. Online sales volume for ADESA represented approximately 40% of the total vehicles sold in 2015, compared with approximately 38% in 2014. "Online sales" includes the following: (i) selling vehicles directly from a dealership or other interim storage location (upstream selling); (ii) online solutions that offer vehicles for sale while in transit to auction locations (midstream selling); (iii) simultaneously broadcasting video and audio of the physical auctions to online bidders (LiveBlock ^® ); and (iv) bulletin-board or real-time online auctions (DealerBlock ^® ). Both the upstream and midstream selling represent online only sales, which accounted for over half of ADESA's online sales volume. ADESA sold approximately 592,000 and 495,000 vehicles through its online only offerings in 2015 and 2014, respectively, of which approximately 352,000 and 312,000 represented vehicle sales to grounding dealers in 2015 and 2014, respectively. For the year ended December 31, 2015 and 2014, dealer consignment vehicles represented approximately 50% and 51%, respectively, of used vehicles sold at ADESA physical auction locations. Vehicles sold at physical auction locations increased 10% in 2015, compared with 2014. The used vehicle conversion percentage at physical auction locations, calculated as the number of vehicles sold as a percentage of the number of vehicles entered for sale at our ADESA auctions, increased to 58.3% for the year ended December 31, 2015, compared with 58.2% for the year ended December 31, 2014.

Physical auction revenue per vehicle sold increased $12 or 2%, to $728 for the year ended December 31, 2015, compared with $716 for the year ended December 31, 2014. Physical auction revenue per vehicle sold includes revenue from seller and buyer auction fees and ancillary and other related services, which includes non-auction services and the sale of purchased vehicles. The increase in physical auction revenue per vehicle sold was primarily attributable to an increase in lower margin

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ancillary and other related services revenue, including revenue from certain businesses acquired, partially offset by a decrease in physical auction revenue per vehicle sold of $18 due to fluctuations in the Canadian exchange rate. Excluding vehicles purchased, revenue per vehicle would have been $701 and $685 for the year ended December 31, 2015 and 2014, respectively.

Online only auction revenue per vehicle sold increased $3 to $107 for the year ended December 31, 2015, compared with $104 for the year ended December 31, 2014. The increase in online only auction revenue per vehicle sold was attributable to an increase in fees per car sold, primarily due to an increase in the mix of cars sold in closed sales to non-grounding dealers, as well as an increase in the number of purchased vehicles associated with the ADESA Assurance Program, partially offset by a decrease in online only auction revenue per vehicle sold of $3 due to fluctuations in the Canadian exchange rate.

Gross Profit

For the year ended December 31, 2015, gross profit for ADESA increased $65.8 million, or 13%, to $590.9 million, compared with $525.1 million for the year ended December 31, 2014. Gross profit for ADESA was 41.4% of revenue for the year ended December 31, 2015, compared with 41.3% of revenue for the year ended December 31, 2014. The decrease in gross profit percentage for the year ended December 31, 2015, compared with the year ended December 31, 2014, was primarily the result of the 12% increase in cost of services. The increase in cost of services was primarily attributable to an increase in lower margin ancillary and non-auction services, partially offset by fluctuations in the Canadian exchange rate.

Selling, General and Administrative

Selling, general and administrative expenses for the ADESA segment increased $16.7 million, or 6%, to $276.6 million for the year ended December 31, 2015, compared with $259.9 million for the year ended December 31, 2014, primarily due to increases in compensation expense of $9.7 million, selling, general and administrative expenses associated with acquisitions of $7.4 million, incentive-based compensation expense of $4.9 million, acquisition-related professional fees of $2.5 million, customer incentives and marketing related expenses of $2.4 million, the loss on disposal of certain assets of $2.0 million, supply expenses of $1.6 million and travel expenses of $1.5 million, partially offset by a decrease in stock-based compensation expense of $9.1 million and fluctuations in the Canadian exchange rate of $6.4 million.

IAA Results



	Year Ended December 31,
(Dollars in millions)	2015		2014
IAA revenue	$	994.4	$	895.9
Cost of services*	633.6		555.7
Gross profit*	360.8		340.2
Selling, general and administrative	98.1		98.8
Depreciation and amortization	80.8		76.2
Operating profit	$	181.9	$	165.2
Vehicles sold	1,970,000		1,732,000

* Exclusive of depreciation and amortization

Revenue

Revenue from IAA increased $98.5 million, or 11%, to $994.4 million for the year ended December 31, 2015, compared with $895.9 million for the year ended December 31, 2014. The increase in revenue was a result of an increase in vehicles sold of approximately 14% for the year ended December 31, 2015, partially offset by a 2% decrease in revenue per vehicle sold, which included an increase in revenue of $25.8 million from HBC and a decrease in revenue of $11.2 million due to fluctuations in the Canadian exchange rate. Revenue per vehicle sold was also negatively impacted by lower average auction prices due to a decrease in scrap prices and the impact of a strong U.S. dollar. IAA's total loss vehicle inventory increased approximately 14% at December 31, 2015, as compared to December 31, 2014. Vehicles sold under purchase agreements were approximately 7% of total salvage vehicles sold for the year ended December 31, 2015, compared with approximately 6% for the year ended December 31, 2014. The 1% increase in vehicles sold under purchase agreements is representative of vehicles sold by HBC. Online sales volumes for IAA for the years ended December 31, 2015 and 2014 represented over half of the total vehicles sold by IAA.

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Gross Profit

For the year ended December 31, 2015, gross profit at IAA increased to $360.8 million, or 36.3% of revenue, compared with $340.2 million, or 38.0% of revenue, for the year ended December 31, 2014. The increase in gross profit was mainly attributable to an 11% increase in revenue, partially offset by a 14% increase in cost of services, which included costs associated with purchase contract vehicles and volume growth. For the year ended December 31, 2015, HBC had revenue of approximately $25.8 million and cost of services of approximately $23.5 million, as the majority of HBC's vehicles are sold under purchase contracts. HBC accounted for a 0.7% decrease in IAA's gross profit margin percentage for the year ended December 31, 2015. In addition, the reduction in gross profit on North American purchase contract vehicles accounted for a 0.6% decrease in IAA's gross profit margin percentage for the year ended December 31, 2015.

Selling, General and Administrative

Selling, general and administrative expenses at IAA decreased $0.7 million, or 1%, to $98.1 million for the year ended December 31, 2015, compared with $98.8 million for the year ended December 31, 2014. The decrease in selling, general and administrative expenses was primarily attributable to decreases in stock-based compensation expense of $5.1 million, non-income based taxes of $1.6 million, bad debt expense of $0.9 million, fluctuations in the Canadian exchange rate of $0.8 million and professional fees of $0.7 million, partially offset by increases in telecom costs and other information technology costs of $3.6 million, the inclusion of expenses associated with HBC of $2.2 million and compensation expense of $2.0 million.

AFC Results



	Year Ended December 31,
(Dollars in millions except volumes and per loan amounts)	2015			2014
AFC revenue
Interest and fee income	$	246.8		$	225.0
Other revenue	9.7			11.9
Provision for credit losses	(16.0		)	(12.3		)
Other service revenue	27.9			25.5
Total AFC revenue	268.4			250.1
Cost of services*	78.0			69.7
Gross profit*	190.4			180.4
Selling, general and administrative	27.8			28.8
Depreciation and amortization	30.8			30.4
Operating profit	$	131.8		$	121.2
Loan transactions	1,607,000			1,445,000
Revenue per loan transaction, excluding "Other service revenue"	$	150		$	155

* Exclusive of depreciation and amortization

Revenue

For the year ended December 31, 2015, AFC revenue increased $18.3 million, or 7%, to $268.4 million, compared with $250.1 million for the year ended December 31, 2014. The increase in revenue was the result of an 11% increase in loan transactions and an increase of 9% in "Other service revenue" generated by PWI, partially offset by a 3% decrease in revenue per loan transaction for the year ended December 31, 2015, which included the impact of a decrease in revenue of $2.4 million, or $1 per loan transaction, due to fluctuations in the Canadian exchange rate. In addition, managed receivables increased to $1,641.0 million at December 31, 2015 from $1,371.1 million at December 31, 2014.

Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $5, or 3%, primarily as a result of a decrease in interest and fee income, fluctuations in the Canadian exchange rate and an increase in the provision for credit losses, partially offset by increases in average loan values, other revenue and average portfolio duration. Revenue per loan transaction excludes "Other service revenue."

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Gross Profit

For the year ended December 31, 2015, gross profit for the AFC segment increased $10.0 million, or 6%, to $190.4 million, or 70.9% of revenue, compared with $180.4 million, or 72.1% of revenue, for the year ended December 31, 2014, primarily as a result of a 7% increase in revenue, partially offset by a 12% increase in cost of services. The floorplan lending business gross profit margin percentage decreased from 78.5% to 77.5% as a result of lower revenue per loan transaction and increased compensation expense. The gross profit margin percentage in the warranty service contract business decreased from 15.5% to 14.8% partially as a result of costs associated with the expansion of the warranty service contract business into new markets.

Selling, General and Administrative

Selling, general and administrative expenses at AFC decreased $1.0 million, or 3%, to $27.8 million for the year ended December 31, 2015, compared with $28.8 million for the year ended December 31, 2014. The decrease was primarily attributable to a decrease in stock-based compensation expense of $2.7 million, partially offset by increases in compensation expense, travel expense and licensing fees.

Holding Company Results



	Year Ended December 31,
(Dollars in millions)	2015			2014
Selling, general and administrative	$	99.5		$	83.9
Depreciation and amortization	15.0			9.8
Operating loss	$	(114.5	)	$	(93.7	)

Selling, General and Administrative

For the year ended December 31, 2015, selling, general and administrative expenses at the holding company increased $15.6 million, or 19%, to $99.5 million, compared with $83.9 million for the year ended December 31, 2014, primarily as a result of increases in employee related benefits expense of $5.0 million, compensation expense of $5.1 million, acquisition-related professional fees of $1.7 million, stock-based compensation and incentive-based compensation of $1.3 million, other professional fees of $1.0 million and other miscellaneous expenses aggregating $1.5 million.

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Overview of Results of KAR Auction Services, Inc. for the Three Months Ended December 31, 2016 and 2015 :



	Three Months Ended December 31,
(Dollars in millions except per share amounts)	2016		2015
Revenues
ADESA	$	442.3	$	365.9
IAA	302.6		261.6
AFC	68.8		68.2
Total revenues	813.7		695.7
Cost of services*	488.3		414.3
Gross profit*	325.4		281.4
Selling, general and administrative	148.8		128.5
Depreciation and amortization	64.7		56.0
Operating profit	111.9		96.9
Interest expense	38.0		24.2
Other expense (income), net	0.3		(2.5		)
Loss on extinguishment of debt	1.4		—
Income before income taxes	72.2		75.2
Income taxes	26.7		26.9
Net income	$	45.5	$	48.3
Net income per share
Basic	$	0.33	$	0.35
Diluted	$	0.33	$	0.35

* Exclusive of depreciation and amortization

Overview

For the three months ended December 31, 2016 , we had revenue of $813.7 million compared with revenue of $695.7 million for the three months ended December 31, 2015 , an increase of 17%. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.

Income Taxes

We had an effective tax rate of 37.0% for the three months ended December 31, 2016 , compared with an effective tax rate of 35.8% for the three months ended December 31, 2015 .

ADESA Results



	Three Months Ended December 31,
(Dollars in millions)	2016		2015
ADESA revenue	$	442.3	$	365.9
Cost of services*	269.4		221.3
Gross profit*	172.9		144.6
Selling, general and administrative	89.2		69.3
Depreciation and amortization	27.4		22.4
Operating profit	$	56.3	$	52.9
Vehicles sold	700,000		605,000

* Exclusive of depreciation and amortization

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Note: Prior to 2016, the gross selling prices for certain vehicles owned and subsequently sold by ADESA were incorrectly netted against cost of services. At December 31, 2016, the gross selling prices of the owned vehicles were included in revenue and costs of services, resulting in an increase to ADESA’s revenue and a corresponding increase in cost of services. For the three months ended December 31, 2016, “ADESA revenue” and “Cost of services” have both been increased by $14.8 million. For the three months ended December 31, 2015, “ADESA revenue” and “Cost of services” have both been increased by $13.5 million.

Revenue

Revenue from ADESA increased $76.4 million, or 21%, to $442.3 million for the three months ended December 31, 2016 , compared with $365.9 million for the three months ended December 31, 2015 . The increase in revenue was primarily a result of a 16% increase in the number of vehicles sold (4% increase excluding acquisitions), as well as a 5% increase in revenue per vehicle sold. Businesses acquired in the last 12 months accounted for an increase in revenue of $37.4 million.

The increase in volume sold was primarily attributable to a 21% increase in institutional volume (11% increase excluding acquisitions), including vehicles sold on our online only platform, as well as a 7% increase in dealer consignment units sold (7% decrease excluding acquisitions) for the three months ended December 31, 2016 compared with the three months ended December 31, 2015 . Online sales volume for ADESA represented approximately 41% of the total vehicles sold in the fourth quarter of 2016 and 2015 . "Online sales" includes the following: (i) selling vehicles directly from a dealership or other interim storage location (upstream selling); (ii) online solutions that offer vehicles for sale while in transit to auction locations (midstream selling); (iii) simultaneously broadcasting video and audio of the physical auctions to online bidders (LiveBlock ^® ); and (iv) bulletin-board or real-time online auctions (DealerBlock ^® ). Both the upstream and midstream selling represent online only sales, which accounted for approximately 62% of ADESA's online sales volume. ADESA sold approximately 177,000 and 152,000 vehicles through its online only offerings in the fourth quarter of 2016 and 2015 , respectively, of which approximately 88,000 and 80,000 represented vehicle sales to grounding dealers in the fourth quarter of 2016 and 2015 , respectively. For the three months ended December 31, 2016 , dealer consignment vehicles represented approximately 45% of used vehicles sold at ADESA physical auction locations, compared with approximately 49% for the three months ended December 31, 2015 . Vehicles sold at physical auction locations increased 15% (no increase excluding acquisitions) in the fourth quarter of 2016 , compared with the fourth quarter of 2015 . The used vehicle conversion percentage at North American physical auction locations, calculated as the number of vehicles sold as a percentage of the number of vehicles entered for sale at our ADESA auctions, decreased to 54.7% for the three months ended December 31, 2016 , compared with 56.1% for the three months ended December 31, 2015 .

Physical auction revenue per vehicle sold increased $31, or 4%, to $801 for the three months ended December 31, 2016 , compared with $770 for the three months ended December 31, 2015 . Physical auction revenue per vehicle sold includes revenue from seller and buyer auction fees and ancillary and other related services, which includes non-auction services and the sale of purchased vehicles. The increase in physical auction revenue per vehicle sold was primarily attributable to an increase in lower margin ancillary and other related services revenue. Excluding vehicles purchased, physical auction revenue per vehicle would have been $773 and $740 for the three months ended December 31, 2016 and 2015 , respectively.

Online only auction revenue per vehicle sold increased $18 to $131 for the three months ended December 31, 2016 , compared with $113 for the three months ended December 31, 2015 . The increase in online only auction revenue per vehicle sold was attributable to an increase in purchased vehicles associated with the ADESA Assurance Program and an increase in the mix of cars sold in closed sales to non-grounding dealers. Excluding vehicles purchased as part of the ADESA Assurance Program, online only revenue per vehicle would have been $115 and $105 for the three months ended December 31, 2016 and 2015 , respectively.

Gross Profit

For the three months ended December 31, 2016 , gross profit for ADESA increased $28.3 million, or 20%, to $172.9 million , compared with $144.6 million for the three months ended December 31, 2015 . Gross profit for ADESA was 39.1% of revenue for the three months ended December 31, 2016 , compared with 39.5% of revenue for the three months ended December 31, 2015 . The increase in gross profit for the three months ended December 31, 2016 , compared with the three months ended December 31, 2015 , was mainly attributable to the 16% increase in the number of vehicles sold. The decrease in gross profit percentage was primarily the result of the increase in cost of services, which was attributable to an increase in lower margin ancillary and other related services.

Selling, General and Administrative

Selling, general and administrative expenses for the ADESA segment increased $19.9 million, or 29%, to $89.2 million for the three months ended December 31, 2016 , compared with $69.3 million for the three months ended December 31, 2015 ,

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primarily due to increases in selling, general and administrative expenses associated with acquisitions of $8.4 million, bad debt expense of $4.4 million, compensation expense of $2.9 million, information technology costs of $1.2 million, professional fees of $0.7 million and other miscellaneous expenses aggregating $3.7 million, partially offset by a decrease in incentive-based compensation expense of $1.4 million.

IAA Results



	Three Months Ended December 31,
(Dollars in millions)	2016		2015
IAA revenue	$	302.6	$	261.6
Cost of services*	198.7		173.0
Gross profit*	103.9		88.6
Selling, general and administrative	25.3		25.5
Depreciation and amortization	23.5		21.7
Operating profit	$	55.1	$	41.4
Vehicles sold	610,000		517,000

* Exclusive of depreciation and amortization

Revenue

Revenue from IAA increased $41.0 million, or 16%, to $302.6 million for the three months ended December 31, 2016 , compared with $261.6 million for the three months ended December 31, 2015 , and included an increase in revenue of $0.2 million from HBC. The increase in revenue was a result of an increase in vehicles sold of approximately 18% (18% increase excluding HBC), partially offset by a decrease in revenue per vehicle sold of approximately 2% for the three months ended December 31, 2016 , including a decrease in revenue of $2.7 million due to fluctuations in the U.K. exchange rate. IAA's North American same-store total loss vehicle inventory increased approximately 25% at December 31, 2016 , as compared to December 31, 2015 , in part related to recent catastrophic events. Vehicles sold under purchase agreements were approximately 6% (5% excluding HBC) and 7% (6% excluding HBC) of total salvage vehicles sold for the three months ended December 31, 2016 and 2015 , respectively. Online sales volumes for IAA for the three months ended December 31, 2016 and 2015 represented approximately 60% of the total vehicles sold by IAA.

Gross Profit

For the three months ended December 31, 2016 , gross profit at IAA increased to $103.9 million , or 34.3% of revenue, compared with $88.6 million , or 33.9% of revenue, for the three months ended December 31, 2015 . The increase in gross profit was mainly attributable to a 16% increase in revenue, partially offset by a 15% increase in cost of services, which included costs associated with purchase contract vehicles and volume growth. Excluding HBC, IAA's gross profit margin was 35.1% and 34.9% for the three months ended December 31, 2016 and 2015 , respectively. For the three months ended December 31, 2016 and 2015 , HBC had revenue of approximately $12.0 million and $11.8 million, respectively, and cost of services of approximately $10.1 million and $10.5 million, respectively, as the majority of HBC's vehicles are sold under purchase contracts.

Selling, General and Administrative

Selling, general and administrative expenses at IAA decreased $0.2 million, or 1%, to $25.3 million for the three months ended December 31, 2016 , compared with $25.5 million for the three months ended December 31, 2015 .

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AFC Results



	Three Months Ended December 31,
(Dollars in millions except volumes and per loan amounts)	2016			2015
AFC revenue
Interest and fee income	$	69.6		$	63.9
Other revenue	2.6			2.7
Provision for credit losses	(11.7		)	(5.5		)
Other service revenue	8.3			7.1
Total AFC revenue	68.8			68.2
Cost of services*	20.2			20.0
Gross profit*	48.6			48.2
Selling, general and administrative	6.8			6.8
Depreciation and amortization	7.7			7.6
Operating profit	$	34.1		$	33.8
Loan transactions	417,000			408,000
Revenue per loan transaction, excluding "Other service revenue"	$	145		$	150

* Exclusive of depreciation and amortization

Revenue

For the three months ended December 31, 2016 , AFC revenue increased $0.6 million, or 1%, to $68.8 million , compared with $68.2 million for the three months ended December 31, 2015 . The increase in revenue was the result of a 2% increase in loan transactions and an increase of 17% in "Other service revenue" generated by PWI, partially offset by a 3% decrease in revenue per loan transaction for the three months ended December 31, 2016 . In addition managed receivables increased to $1,792.2 million at December 31, 2016 from $1,641.0 million at December 31, 2015 .

Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $5, or 3%, primarily as a result of an increase in the provision for credit losses and a decrease in interest and fee income, partially offset by increases in other revenue, average loan values, and average portfolio duration. Revenue per loan transaction excludes "Other service revenue."

The provision for credit losses has increased to 2.6% from 1.4% of the average managed receivables for the three months ended December 31, 2016 compared with the three months ended December 31, 2015 . The provision for credit losses was 1.8% of the average managed receivables for the year ended December 31, 2016 . In the current credit environment, the provision for credit losses is expected to be approximately 1.75% to 2.25%, annually, of the average managed receivables balance. However, the actual losses in any particular quarter could deviate from this range.

Gross Profit

For the three months ended December 31, 2016 , gross profit for the AFC segment increased $0.4 million to $48.6 million , or 70.6% of revenue, compared with $48.2 million , or 70.7% of revenue, for the three months ended December 31, 2015 . The floorplan lending business gross profit margin percentage decreased from 77.3% to 76.8% as a result of lower revenue per loan transaction. The gross profit margin percentage in the warranty service contract business improved.

Selling, General and Administrative

Selling, general and administrative expenses at AFC remained consistent year over year at $6.8 million for the three months ended December 31, 2016 and 2015 . Stock-based compensation expense and information technology costs both increased $0.2 million, offset by a decrease in incentive-based compensation of $0.4 million.

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Holding Company Results



	Three Months Ended December 31,
(Dollars in millions)	2016			2015
Selling, general and administrative	$	27.5		$	26.9
Depreciation and amortization	6.1			4.3
Operating loss	$	(33.6	)	$	(31.2	)

Selling, General and Administrative

For the three months ended December 31, 2016 , selling, general and administrative expenses at the holding company increased $0.6 million, or 2%, to $27.5 million , compared with $26.9 million for the three months ended December 31, 2015 , primarily as a result of increases in compensation expense of $3.0 million and professional fees of $2.0 million partially offset by a decrease in medical expenses of $4.4 million. The Company has increased Holding Company expenses to support the growing businesses of KAR. The increase in expenses relate to costs associated with talent management, technology and support of strategic initiatives.

LIQUIDITY AND CAPITAL RESOURCES

We believe that the significant indicators of liquidity for our business are cash on hand, cash flow from operations, working capital and amounts available under our Credit Facility. Our principal sources of liquidity consist of cash generated by operations and borrowings under our revolving credit facility.



	December 31,
(Dollars in millions)	2016		2015
Cash and cash equivalents	$	201.8	$	155.0
Restricted cash	17.9		16.2
Working capital	506.2		232.2
Amounts available under Credit Facility*	219.5		110.0
Cash flow from operations for the year ended	360.8		475.0


*	There were related outstanding letters of credit totaling approximately $29.7 million and $28.0 million at December 31, 2016 and 2015 , respectively, which reduced the amount available for borrowings under the revolving credit facility.

We regularly evaluate alternatives for our capital structure and liquidity given our expected cash flows, growth and operating capital requirements as well as capital market conditions.

Working Capital

A substantial amount of our working capital is generated from the payments received for services provided. The majority of our working capital needs are short-term in nature, usually less than a week in duration. Due to the decentralized nature of the business, payments for most vehicles purchased are received at each auction and branch. Most of the financial institutions place a temporary hold on the availability of the funds deposited that generally can range up to two business days, resulting in cash in our accounts and on our balance sheet that is unavailable for use until it is made available by the various financial institutions. There are outstanding checks (book overdrafts) to sellers and vendors included in current liabilities. Because a portion of these outstanding checks for operations in the U.S. are drawn upon bank accounts at financial institutions other than the financial institutions that hold the cash, we cannot offset all the cash and the outstanding checks on our balance sheet. Changes in working capital vary from quarter-to-quarter as a result of the timing of collections and disbursements of funds to consignors from auctions held near period end. The significant increase in working capital from December 31, 2015 to December 31, 2016 was primarily a result of the cash provided from the refinancing of our debt in the first quarter of 2016.

Approximately $98.1 million of available cash was held by our foreign subsidiaries. If the portion of funds held by our foreign subsidiaries that are considered to be permanently reinvested were to be repatriated, tax expense would need to be accrued at the U.S. statutory rate, net of any applicable foreign tax credits. Such foreign tax credits would substantially offset any U.S. taxes that would be due in the event cash held by our foreign subsidiaries was repatriated.

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AFC offers short-term inventory-secured financing, also known as floorplan financing, to independent used vehicle dealers. Financing is primarily provided for terms of 30 to 90 days. AFC principally generates its funding through the sale of its receivables. The receivables sold pursuant to the securitization agreements are accounted for as secured borrowings. For further discussion of AFC's securitization arrangements, see "Securitization Facilities."

Credit Facilities

On March 9, 2016, we entered into an Incremental Commitment Agreement and First Amendment (the "First

Amendment") to the Credit Agreement. The First Amendment provided for, among other things, (i) a new seven-year senior

secured term loan facility ("Term Loan B-3") and (ii) a $300 million, five-year senior secured revolving credit facility (the

"revolving credit facility"), which replaced the previously existing revolving credit facility (the "old revolving credit facility").

The proceeds received from Term Loan B-3 were used to repay in full Term Loan B-1 and the amount outstanding on the old

revolving credit facility. No early termination penalties were incurred by the Company; however, we incurred a non-cash loss

on the extinguishment of debt of $4.0 million in the first quarter of 2016. The loss was a result of the write-off of unamortized

debt issuance costs associated with Term Loan B-1 and the old revolving credit facility. The First Amendment did not change

the amount outstanding on Term Loan B-2, but did increase its interest rate margin. In addition, we capitalized approximately

$18.0 million of debt issuance costs in connection with the First Amendment.

The Credit Facility is available for letters of credit, working capital, permitted acquisitions and general corporate

purposes. The Credit Agreement provides that with respect to the revolving credit facility, up to $75 million is available for

letters of credit and up to $75 million is available for swing line loans.

Term Loan B-2 was issued at a discount of $2.8 million and Term Loan B-3 was issued at a discount of $13.5 million.

The discounts are being amortized using the effective interest method to interest expense over the respective terms of the loans.

Both Term Loan B-2 and Term Loan B-3 are payable in quarterly installments equal to 0.25% of the original aggregate

principal amounts of the term loans, respectively. Such payments commenced on June 30, 2014 for Term Loan B-2 and on June

30, 2016 for Term Loan B-3, with the balances payable at each respective maturity date. The Credit Facility is subject to

mandatory prepayments and reduction in an amount equal to the net proceeds of certain debt offerings, certain asset sales and

certain insurance recovery even ts. In addition, in accordance with the terms of the Credit Agreement, 50% of the net cash proceeds from the sale-lea seback of certain technology and capital equipment were used to prepay $6.5 million and $7.8 million of Term Loan B-2 and Term Loan B-3, respectively, for the year ended December 31, 2016 . Each such prepayment is credited to prepay, on a pro rata basis, in order of maturity the unpaid amounts due on the first eight scheduled quarterly installments of Term Loan B-2 and Term Loan B-3 and thereafter to the remaining scheduled quarterly installments of each term loan on a pro rata basis.

As set forth in the Credit Agreement, Term Loan B-2 bears interest at Adjusted LIBOR (as defined in the Credit

Agreement) plus 3.1875% (with an Adjusted LIBOR floor of 0.75% per annum), Term Loan B-3 at Adjusted LIBOR (as

defined in the Credit Agreement) plus 3.50% (with an Adjusted LIBOR floor of 0.75% per annum) and revolving loan

borrowings at Adjusted LIBOR plus 2.50%. However, for specified types of borrowings, the Company may elect to make Term

Loan B-2 borrowings at a Base Rate (as defined in the Credit Agreement) plus 2.1875%, Term Loan B-3 at a Base Rate plus

2.50% and revolving loan borrowings at a Base Rate plus 1.50%. The rates on Term Loan B-2 and Term Loan B-3 were 4.19% and 4.50% at December 31, 2016 , respectively . In addition, if the Company reduces its Consolidated Senior Secured Leverage Ratio, which is based on a net debt calculation, to levels specified in the Credit Agreement, the applicable interest rate on the revolving credit facility will step down by 25 basis points. The Company also pays a commitment fee of 40 basis points, payable quarterly, on the average daily unused amount of the revolving credit facility. The fee may step down to 35 basis points based on the Company's Consolidated Senior Secured Leverage Ratio as described above.

On December 31, 2016 , $1,082.7 million w as outstanding on Term Loan B- 2, $1,339.9 million was outstanding on Term Loan B-3 a nd $80.5 million was drawn on the revolving credit facility. In addition, there were related outstanding letters of credit in the aggregate amount of $29.7 million and $28.0 million at December 31, 2016 and December 31, 2015 , respectively, which reduce the amount available for borrowings under the Credit Facilit y. The Company intends to repay the $80.5 million of outstanding borrowings under the revolving credit facility within the next twelve months. Our C anadian operations also have a C$8 million line of credit which wa s undrawn a s of December 31, 2016 . However, there were related letters of credit outstanding totaling approxima tely C$0.9 m illion at December 31, 2016 , which reduce credit available under the Canadian line of credit.

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Company's and the Subsidiary Guarantors' first tier foreign subsidiaries and (b) perfected first priority security interests in substantially all other tangible and intangible assets of the Company and each Subsidiary Guarantor, subject to certain exceptions.

The Credit Agreement contains certain restrictive loan covenants, including, among others, a financial covenant requiring that a maximum consolidated senior secured leverage ratio be satisfied as of the last day of each fiscal quarter if revolving loans are outstanding, and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, consummate change of control transactions, dispose of assets, pay dividends, make investments and engage in certain transactions with affiliates. The senior secured leverage ratio is calculated as total senior secured debt divided by the last four quarters consolidated Adjusted EBITDA. Senior secured debt includes term loan borrowings, revolving loans and capital lease liabilities less available cash as defined in the Credit Agreement. Consolidated Adjusted EBITDA is EBITDA (earnings before interest expense, income taxes, depreciation and amortization) adjusted to exclude among other things (a) gains and losses from asset sales; (b) unrealized foreign currency translation gains and losses in respect of indebtedness; (c) certain non-recurring gains and losses; (d) stock-based compensation expense; (e) certain other non-cash amounts included in the determination of net income; (f) charges and revenue reductions resulting from purchase accounting; (g) minority interest; (h) expenses associated with the consolidation of salvage operations; (i) consulting expenses incurred for cost reduction, operating restructuring and business improvement efforts; (j) expenses realized upon the termination of employees and the termination or cancellation of leases, software licenses or other contracts in connection with the operational restructuring and business improvement efforts; (k) expenses incurred in connection with permitted acquisitions; (l) any impairment charges or write-offs of intangibles; and (m) any extraordinary, unusual or non-recurring charges, expenses or losses.

Certain covenants contained within the Credit Agreement are critical to an investor's understanding of our financial liquidity, as the failure to maintain compliance with these covenants could result in a default and allow our lenders to declare all amounts borrowed immediately due and payable. The maximum consolidated senior secured leverage ratio is required to be met when there are revolving loans outstanding under our Credit Agreement. For the quarter ended December 31, 2016 the ratio could not exceed 3.75 to 1.0 and it steps down to 3.5 to 1.0 at September 30, 2017. Our actual consolidated senior secured leverage ratio, including capital lease obligations of $51.5 mil lion, w as 3.25 to 1.0 at December 31, 2016 , excluding pro forma Adjusted EBITDA for businesses acquired in the last twelve months.

In addition, the Credit Agreement contains certain financial and operational restrictions that limit our ability to pay dividends and other distributions, make certain acquisitions or investments, incur indebtedness, grant liens and sell assets. The covenants in the Credit Agreement affect our operating flexibility by, among other things, restricting our ability to incur expenses and indebtedness that could be used to grow the business, as well as to fund general corporate purposes. We were in compliance with the covenants in the Credit Agreement at December 31, 2016 .

We believe our sources of liquidity from our cash and cash equivalents on hand, working capital, cash provided by operating activities, and availability under our credit facility are sufficient to meet our short and long-term operating needs for the foreseeable future. In addition, we believe the previously mentioned sources of liquidity will be sufficient to fund our capital requirements, debt service payments, announced acquisitions and dividends for the next twelve months.

Securitization Facilities

AFC sells the majority of its U.S. dollar denominated finance receivables on a revolving basis and without recourse to AFC Funding Corporation. A securitization agreement allows for the revolving sale by AFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. AFC Funding Corporation had committed liquidity of $1.50 billion for U.S. finance receivables at December 31, 2016 .

In December 2016, AFC and AFC Funding Corporation entered into the Seventh Amended and Restated Receivables Purchase Agreement (the "Receivables Purchase Agreement"). The Receivables Purchase Agreement increased AFC Funding's U.S. committed liquidity from $1.25 billion to $1.50 billion and extended the facility's maturity date from June 29, 2018 to January 31, 2020 . In addition, the definition of eligible receivables was expanded and the tangible net worth requirement increased. We capitalized approximately $12.7 million of costs in connection with the Receivables Purchase Agreement. In addition, we recorded a $1.4 million pretax charge resulting from the write-off of a portion of the unamortized securitization issuance costs.

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Agreement. The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.

AFC manage d total finance receivables of $1,792.2 million and $1,641.0 million at December 31, 2016 and December 31, 2015 , respectively. AFC's allowance for losses wa s $12.0 million and $9.0 million at December 31, 2016 and December 31, 2015 , respectively.

As of December 31, 2016 and December 31, 2015 , $1,774.8 million and $1,626.6 million , respectively, of finance receivables and a cash reserve of 1 percent of the obligations collateralized by finance receivables served as security for the $1,280.3 million and $1,189.0 million of obligations collateralized by finance receivables at December 31, 2016 and December 31, 2015 , respectively. There were unamortized securitization issuance costs of approximately $19.7 million and $12.2 million at December 31, 2016 and December 31, 2015 , respectively. After the occurrence of a termination event, as defined in the U.S. securitization agreement, the banks may, and could, cause the stock of AFC Funding Corporation to be transferred to the bank facility, though as a practical matter the bank facility would look to the liquidation of the receivables under the transaction documents as their primary remedy.

Proceeds from the revolving sale of receivables to the bank facilities are used to fund new loans to customers. AFC, AFC Funding Corporation and AFCI must maintain certain financial covenants including, among others, limits on the amount of debt AFC and AFCI can incur, minimum levels of tangible net worth, and other covenants tied to the performance of the finance receivables portfolio. The securitization agreements also incorporate the financial covenants of our Credit Facility. At December 31, 2016 , we were in compliance with the covenants in the securitization agreements.

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA, as presented herein, are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States, or GAAP. They are not measurements of our financial performance under GAAP and should not be considered substitutes for net income (loss) or any other performance measures derived in accordance with GAAP.

EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings, as described above in the discussion of certain restrictive loan covenants under "Credit Facilities."

Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.

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The following tables reconcile EBITDA and Adjusted EBITDA to net income (loss) for the periods presented:



	Three Months Ended December 31, 2016
(Dollars in millions)	ADESA			IAA		AFC			Corporate			Consolidated
Net income (loss)	$	27.9		$	29.0	$	19.8		$	(31.2	)	$	45.5
Add back:
Income taxes	16.0			16.8		12.2			(18.3		)	26.7
Interest expense, net of interest income	(0.2		)	—		9.4			28.7			37.9
Depreciation and amortization	27.4			23.5		7.7			6.1			64.7
Intercompany interest	9.3			9.5		(8.7		)	(10.1		)	—
EBITDA	80.4			78.8		40.4			(24.8		)	174.8
Intercompany charges	3.1			—		—			(3.1		)	—
Non-cash stock-based compensation	1.2			0.7		0.4			1.7			4.0
Loss on extinguishment of debt	—			—		1.4			—			1.4
Acquisition related costs	1.3			—		—			0.1			1.4
Securitization interest	—			—		(7.7		)	—			(7.7		)
Minority interest	1.1			—		—			—			1.1
Other	0.9			0.7		0.2			(0.3		)	1.5
Total addbacks	7.6			1.4		(5.7		)	(1.6		)	1.7
Adjusted EBITDA	$	88.0		$	80.2	$	34.7		$	(26.4	)	$	176.5



	Three Months Ended December 31, 2015
(Dollars in millions)	ADESA			IAA			AFC			Corporate			Consolidated
Net income (loss)	$	25.1		$	23.3		$	21.4		$	(21.5	)	$	48.3
Add back:
Income taxes	13.9			11.1			13.4			(11.5		)	26.9
Interest expense, net of interest income	(0.3		)	—			6.9			17.2			23.8
Depreciation and amortization	22.4			21.7			7.6			4.3			56.0
Intercompany interest	12.1			9.5			(7.9		)	(13.7		)	—
EBITDA	73.2			65.6			41.4			(25.2		)	155.0
Intercompany charges	1.9			0.1			—			(2.0		)	—
Non-cash stock-based compensation	0.9			0.3			0.3			1.4			2.9
Acquisition related costs	0.6			—			0.2			0.2			1.0
Securitization interest	—			—			(5.5		)	—			(5.5		)
Minority interest	0.2			(1.1		)	—			—			(0.9		)
Other	0.8			0.7			0.3			0.2			2.0
Total addbacks	4.4			—			(4.7		)	(0.2		)	(0.5		)
Adjusted EBITDA	$	77.6		$	65.6		$	36.7		$	(25.4	)	$	154.5

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	Year Ended December 31, 2016
(Dollars in millions)	ADESA			IAA			AFC			Corporate			Consolidated
Net income (loss)	$	156.9		$	101.1		$	88.4		$	(124.0	)	$	222.4
Add back:
Income taxes	92.7			59.3			54.0			(73.1		)	132.9
Interest expense, net of interest income	(0.3		)	—			34.1			104.6			138.4
Depreciation and amortization	100.0			87.9			31.1			21.6			240.6
Intercompany interest	41.7			37.8			(33.8		)	(45.7		)	—
EBITDA	391.0			286.1			173.8			(116.6		)	734.3
Intercompany charges	10.9			0.3			—			(11.2		)	—
Non-cash stock-based compensation	4.6			2.6			1.8			10.1			19.1
Loss on extinguishment of debt	—			—			1.4			4.0			5.4
Acquisition related costs	4.9			0.2			0.1			3.4			8.6
Securitization interest	—			—			(28.0		)	—			(28.0		)
Minority interest	3.8			—			—			—			3.8
(Gain)/Loss on asset sales	1.6			0.2			—			0.6			2.4
Other	2.7			(0.5		)	0.2			(0.1		)	2.3
Total addbacks	28.5			2.8			(24.5		)	6.8			13.6
Adjusted EBITDA	$	419.5		$	288.9		$	149.3		$	(109.8	)	$	747.9



	Year Ended December 31, 2015
(Dollars in millions)	ADESA		IAA			AFC			Corporate			Consolidated
Net income (loss)	$	109.2	$	92.8		$	83.2		$	(70.6	)	$	214.6
Add back:
Income taxes	62.3		52.4			51.3			(40.1		)	125.9
Interest expense, net of interest income	0.1		—			24.1			66.6			90.8
Depreciation and amortization	86.2		80.8			30.8			15.0			212.8
Intercompany interest	49.7		37.7			(25.3		)	(62.1		)	—
EBITDA	307.5		263.7			164.1			(91.2		)	644.1
Intercompany charges	7.9		0.7			—			(8.6		)	—
Non-cash stock-based compensation	3.8		1.1			1.3			6.5			12.7
Acquisition related costs	2.7		0.1			0.2			1.8			4.8
Securitization interest	—		—			(18.7		)	—			(18.7		)
Minority interest	0.8		(1.4		)	—			—			(0.6		)
(Gain)/Loss on asset sales	3.6		(0.1		)	—			—			3.5
Other	2.3		1.0			0.4			0.3			4.0
Total addbacks	21.1		1.4			(16.8		)	—			5.7
Adjusted EBITDA	$	328.6	$	265.1		$	147.3		$	(91.2	)	$	649.8

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Certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters. The following table reconciles EBITDA and Adjusted EBITDA to net income (loss) for the periods presented:



	Three Months Ended												Twelve Months Ended
(Dollars in millions)	March 31, 2016			June 30, 2016			September 30, 2016			December 31, 2016			December 31, 2016
Net income (loss)	$	60.7		$	61.8		$	54.4		$	45.5		$	222.4
Add back:
Income taxes	36.7			37.7			31.8			26.7			132.9
Interest expense, net of interest income	28.7			35.7			36.1			37.9			138.4
Depreciation and amortization	56.4			59.0			60.5			64.7			240.6
EBITDA	182.5			194.2			182.8			174.8			734.3
Non-cash stock-based compensation	5.5			4.9			4.7			4.0			19.1
Loss on extinguishment of debt	4.0			—			—			1.4			5.4
Acquisition related costs	2.6			3.3			1.3			1.4			8.6
Securitization interest	(6.4		)	(6.7		)	(7.2		)	(7.7		)	(28.0		)
Minority interest	0.6			1.0			1.1			1.1			3.8
(Gain)/Loss on asset sales	0.4			0.4			1.3			0.3			2.4
Other	0.3			—			0.8			1.2			2.3
Total addbacks	7.0			2.9			2.0			1.7			13.6
Adjusted EBITDA	$	189.5		$	197.1		$	184.8		$	176.5		$	747.9

Summary of Cash Flows



	Year Ended December 31,
(Dollars in millions)	2016			2015
Net cash provided by (used by):
Operating activities	$	360.8		$	475.0
Investing activities	(765.3		)	(547.6		)
Financing activities	453.2			94.5
Effect of exchange rate on cash	(1.9		)	(19.8		)
Net increase in cash and cash equivalents	$	46.8		$	2.1

Cash flow from operating activities was $360.8 million for the year ended December 31, 2016 , compared with $475.0 million for the year ended December 31, 2015 . The decrease in operating cash flow was primarily attributable to changes in operating assets and liabilities as a result of the timing of collections and the disbursement of funds to consignors for auctions held near period-ends, partially offset by a net increase in non-cash adjustments to net income and increased profitability.

Net cash used by investing activities was $765.3 million for the year ended December 31, 2016 , compared with $547.6 million for the year ended December 31, 2015 . The increase in net cash used by investing activities was primarily attributable to:


•	an increase in cash used for acquisitions of approximately $314.0 million; and


•	an increase in capital expenditures of approximately $20.4 million. For a discussion of the Company's capital expenditures, see “Capital Expenditures” below;

partially offset by:


•	a decrease in the additional finance receivables held for investment of approximately $119.5 million.

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Net cash provided by financing activities was $453.2 million for the year ended December 31, 2016 , compared with $94.5 million for the year ended December 31, 2015 . The increase in net cash from financing activities was primarily attributable to:


•	the debt refinancing and payment activities in the first quarter of 2016, for which the Company received approximately $558.9 million of cash after the repayment and rollover of debt; and


•	a $147.2 million decrease in cash used for the repurchase and retirement of common stock;

partially offset by:


•	a decrease in the additional obligations collateralized by finance receivables of approximately $253.0 million; and


•	an increase in payments for debt issuance costs of $21.9 million.

Capital Expenditures

Capital expenditures for the years ended December 31, 2016 and 2015 approximated $155.1 million and $134.7 million , respectively. Included in the capital expenditures for the year ended December 31, 2016 was approximately $27.4 million for the greenfield development of ADESA Chicago. Capital expenditures were funded primarily from internally generated funds. We continue to invest in our core information technology capabilities and capacity expansion. Capital expenditures are expected to be approximately $145 million for fiscal year 2017 . Anticipated capital expenditures are primarily attributable to ongoing information system projects, upkeep, improvements and expansion at vehicle auction facilities and improvements in information technology systems and infrastructure. Future capital expenditures could vary substantially based on capital project timing, the opening of new auction facilities, capital expenditures related to acquired businesses and the initiation of new information systems projects to support our business strategies.

Dividends

Subject to board of director approval, we expect to pay a quarterly dividend of $0.32 per share in 2017 using cash flow from operations, representing an annualized dividend of $1.28 per share. The following dividend information has been released in 2016 and 2017:


•	On February 17, 2016 , the Company announced a cash dividend of $0.29 per share that was paid on April 5, 2016 , to stockholders of record at the close of business on March 23, 2016 .


•	On May 3, 2016 , the Company announced a cash dividend of $0.29 per share that was paid on July 5, 2016 , to stockholders of record at the close of business on June 22, 2016 .


•	On August 2, 2016 , the Company announced a cash dividend of $0.29 per share that was paid on October 4, 2016 , to stockholders of record at the close of business on September 21, 2016 .


•	On November 3, 2016 , the Company announced a cash dividend of $0.32 per share that was paid on January 6, 2017 , to stockholders of record at the close of business on December 21, 2016 .


•	On February 21, 2017 , the Company announced a cash dividend of $0.32 per share that is payable on April 4, 2017 , to stockholders of record at the close of business on March 22, 2017 .

Future dividend decisions will be based on and affected by a variety of factors, including our financial condition and results of operations, contractual restrictions, including restrictive covenants contained in our Credit Agreement and AFC's securitization facilities, capital requirements and other factors that our board of directors deems relevant. No assurance can be given as to whether any future dividends may be declared by our board of directors or the amount thereof.

Acquisitions

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and a final valuation of intangibles related to the acquisition of Flint Auto Auction. The Company does not expect adjustments to the purchase accounting will be material. The acquisitions resulted in aggregate goodwill of $269.6 million . The goodwill is recorded in the ADESA Auctions and AFC reportable segments. The financial impact of these acquisitions, including pro forma financial results, was immaterial to the Company’s consolidated results for the year ended December 31, 2016 .

In February 2016, ADESA signed a definitive agreement to acquire auctions owned by the Brasher family. In April 2016, ADESA completed the acquisition of Brasher's eight auctions, which strengthens ADESA's western U.S. footprint. In 2015, Brasher's had revenues of approximately $140 million . We entered into operating lease obligations related to various facilities through 2036. Initial annual lease payments for the various facilities are approximately $5 million per year.

In March 2016, ADESA signed a definitive agreement to acquire Sanford Auto Dealers Exchange ("SADE"). In May 2016, ADESA completed the acquisition of SADE, which expands ADESA's geographic footprint in central Florida.

In June 2016, the Company acquired GRS Remarketing Limited ("GRS"), a subsidiary of Greenhous Group Limited.

GRS is an established online vehicle remarketing business in the U.K. The acquisition complements the Company's wide range

of vehicle remarketing services and provides the opportunity to offer our full range of services in the U.K.

In November 2016, ADESA completed the acquisition of Flint Auto Auction, a whole car auction facility in Flint, Michigan. This acquisition expands ADESA's geographic footprint in the Midwest.

Certain of the purchase agreements included contingent payments related to vehicle volumes subsequent to the purchase date. The purchased assets included land, buildings, accounts receivable, operating equipment, customer relationships, tradenames, software, inventory and other intangible assets. Financial results for each acquisition have been included in our consolidated financial statements from the date of acquisition.

Contractual Obligations

The table below sets forth a summary of our contractual debt and lease obligations as of December 31, 2016 . Some of the figures included in this table are based on management's estimates and assumptions about these obligations, including their duration, the possibility of renewal and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we may actually pay in future periods could vary from those reflected in the table. The following summarizes our contractual cash obligations as of December 31, 2016 (in millions) :



	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 - 3 Years		4 - 5 Years		More than 5 Years
Long-term debt
$300 million revolving credit facility	$	80.5	$	80.5	$	—	$	—	$	—
Term Loan B-2 (a)	1,082.7		11.2		22.4		1,049.1		—
Term Loan B-3 (a)	1,339.9		13.5		27.0		27.0		1,272.4
Capital lease obligations (b)	52.5		27.2		25.1		0.2		—
Interest payments relating to long-term debt (c)	561.3		108.1		209.9		172.1		71.2
Operating leases (d)	1,118.9		121.7		220.2		182.6		594.4
Total contractual cash obligations	$	4,235.8	$	362.2	$	504.6	$	1,431.0	$	1,938.0

________________________________________


(a)	The table assumes the long-term debt is held to maturity.


(b)	We have entered into capital leases for furniture, fixtures, equipment and software. The amounts include the interest portion of the capital leases. Future capital lease obligations would change if we entered into additional capital lease agreements.


(c)	Interest payments on long-term debt are projected based on the contractual rates of the debt securities. Interest rates for the variable rate term debt instruments were held constant at rates as of December 31, 2016 .

(d)

Operating leases are entered into in the normal course of business. We lease most of our auction facilities, as well as other property and equipment under operating leases. Some lease agreements contain options to renew the lease or purchase the leased property. Future operating lease obligations would change if the renewal options were exercised and/or if we entered into additional operating lease agreements.

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Critical Accounting Estimates

In preparing the financial statements in accordance with U.S. generally accepted accounting principles, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex. Consequently, actual results could differ from those estimates. Accounting measurements that management believes are most critical to the reported results of our operations and financial condition include: uncollectible receivables and allowance for credit losses and doubtful accounts, goodwill and long-lived assets, self-insurance programs, legal proceedings and other loss contingencies and income taxes.

In addition to the critical accounting estimates, there are other items used in the preparation of the consolidated financial statements that require estimation, but are not deemed critical. Changes in estimates used in these and other items could have a material impact on our financial statements.

We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. In cases where management estimates are used, they are based on historical experience, information from third-party professionals, and various other assumptions believed to be reasonable. In addition, our most significant accounting policies are discussed in Note 2 and elsewhere in the Notes to the Consolidated Financial Statements for the year ended December 31, 2016 , which are included in this Annual Report on Form 10-K.

Uncollectible Receivables and Allowance for Credit Losses and Doubtful Accounts

We maintain an allowance for credit losses and doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Delinquencies and losses are monitored on an ongoing basis and this historical experience provides the primary basis for estimating the allowance. The allowances for credit losses and doubtful accounts are also based on management's evaluation of the receivables portfolio under current economic conditions, the size of the portfolio, overall portfolio credit quality, review of specific collection matters and such other factors which, in management's judgment, deserve recognition in estimating losses. Specific collection matters can be impacted by the outcome of negotiations, litigation and bankruptcy proceedings with individual customers.

Due to the nature of our business, substantially all trade receivables are due from vehicle dealers, salvage buyers, institutional customers and insurance companies. We generally have possession of vehicles or vehicle titles collateralizing a significant portion of these receivables. At the auction sites, risk is mitigated through a pre-auction registration process that includes verification of identification, bank accounts, dealer license status, acceptable credit history, buying history at other auctions and the written acceptance of all of the auction's policies and procedures.

AFC controls credit risk through credit approvals, credit limits, underwriting and collateral management monitoring procedures, including over 81,000 lot audits and holding vehicle titles where permitted. The estimates are based on management’s evaluation of many factors, including AFC’s historical credit loss experience, the value of the underlying collateral, delinquency trends and economic conditions. The estimates are based on information available as of each reporting date. Actual losses may differ from the original estimates due to actual results varying from those assumed in our estimates.

As a measure of sensitivity, if we had experienced a 10% increase in net charge-offs of trade and finance receivables for the year ended December 31, 2016 , our provision for credit losses would have increased by approximately $3.1 million in 2016 .

Goodwill and Long-Lived Assets

When we acquire businesses, we estimate and recognize the fair values of tangible assets and liabilities and identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The purchase accounting process requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on historical experience and information obtained from the management of the acquired companies. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates.

In accordance with ASC 350, Intangibles—Goodwill and Other , we assess goodwill for impairment at least annually and whenever events or circumstances indicate that the carrying amount of the goodwill may be impaired. Important factors that could trigger an impairment review include significant under-performance relative to historical or projected future operating results; significant negative industry or economic trends; and our market valuation relative to our book value. In assessing goodwill, we must make assumptions regarding estimated future cash flows and earnings, changes in our business strategy and economic conditions affecting market valuations related to the fair values of our reporting units. In response to changes in

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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.

ASC 350 permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the two-step goodwill impairment model. If it is determined through the qualitative assessment that a reporting unit's fair value is more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. The quantitative assessment for goodwill impairment is a two-step test. Under the first step, the fair value of each reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC 805, Business Combinations . The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

Based on our goodwill assessments, the Company has not identified a reporting unit for which the goodwill was impaired in 2016, 2015 or 2014. As a measure of sensitivity, a 10% decrease in the estimated fair value of the Company's reporting units would have ha d no impact on the carrying value of goodwill at the annual measurement date in 2016 .

As with goodwill, we assess indefinite-lived tradenames for impairment, in accordance with ASC 350, at least annually and whenever events or circumstances indicate that the carrying amount of the indefinite-lived tradenames may be impaired. At the end of each assessment, we make a determination as to whether the tradenames still have an indefinite life.

We review long-lived assets for possible impairment whenever circumstances indicate that their carrying amount may not be recoverable. If it is determined that the carrying amount of a long-lived asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, we would recognize a loss to the extent that the carrying amount exceeds the fair value of the asset. Management judgment is involved in both deciding if testing for recovery is necessary and in estimating undiscounted cash flows. Our impairment analysis is based on the current business strategy, expected growth rates and estimated future economic conditions.

Self-Insurance Programs

We self-insure a portion of employee medical benefits under the terms of our employee health insurance program, as well as a portion of our automobile, general liability and workers' compensation claims. We have insurance coverage that limits the exposure on individual claims. We also have insurance coverage that limits the total exposure to overall automobile, general liability and workers' compensation claims.

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, utilizing historical claims experience. Our calculation of self-insurance program reserves requires management to apply judgment to estimate the ultimate cost of reported claims and claims incurred but not yet reported as of the balance sheet date and the application of alternative assumptions could result in a different estimate of these liabilities. Trends in healthcare and legal costs could have a significant impact on anticipated claims. If actual claims are higher than anticipated, our reserves might be insufficient to cover the claims costs, which would have an adverse impact on the operating results in that period. As we obtain additional information that affects the assumptions and estimates we used to recognize liabilities for claims incurred in prior accounting periods, we adjust our self-insurance program reserves to reflect the revised estimates based on this additional information.

As a measure of sensitivity, a 10% change in our estimated self-insurance program reserves at December 31, 2016 , would have impacted operating expenses approximately $4.3 million.

Legal Proceedings and Other Loss Contingencies

We are subject to the possibility of various legal proceedings and other loss contingencies, many involving litigation incidental to the business and a variety of environmental laws and regulations. Litigation and other loss contingencies are subject to inherent uncertainties and the outcomes of such matters are often very difficult to predict and generally are resolved over long periods of time. We consider the likelihood of loss or the incurrence of a liability, as well as the ability to reasonably estimate the amount of loss, in determining loss contingencies. Estimating probable losses requires the analysis of multiple possible outcomes that often are dependent on the judgment about potential actions by third parties. Contingencies are recorded in the consolidated financial statements, or otherwise disclosed, in accordance with ASC 450, Contingencies . We accrue for an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably

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estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period.

Income Taxes

All income tax amounts reflect the use of the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes, including the future tax benefits of tax net operating losses, tax credits and capital loss carryforwards. Quarterly, we evaluate the recoverability of our deferred tax assets by assessing the likelihood of sufficient future taxable income to realize our deferred tax assets. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. At December 31, 2016 , we recorded a valuation allowance of $26.4 million against tax net operating losses, tax credits and capital loss carryforwards of $32.5 million. In the event our operating performance declines, future assessments could conclude that a larger valuation allowance will be needed to further reduce these deferred tax assets.

We operate in multiple tax jurisdictions with different tax rates and must determine the appropriate allocation of income to each of these jurisdictions. In the normal course of business, we will undergo scheduled reviews by taxing authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. Tax reviews often require an extended period of time to resolve and may result in income tax adjustments if changes to the allocation are required between jurisdictions with different tax rates.

We record our tax provision based on existing laws, experience with previous settlement agreements, the status of current IRS (or other taxing authority) examinations and management's understanding of how the tax authorities view certain relevant industry and commercial matters. In accordance with ASC 740, Income Taxes , we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We establish reserves when we believe that certain positions may not prevail if challenged by a taxing authority. We adjust these reserves in light of changing facts and circumstances. At December 31, 2016 , the balance of unrecognized tax benefits was $14.0 million . This balance includes tax positions for which it is reasonably possible that the currently remaining unrecognized tax benefits will decrease within the next 12 months. This decrease is estimated to be in the range of $2.0 million to $4.0 million based on the potential outcome of the Company’s tax examinations and the expiration of the statute of limitations for specific jurisdictions.

A more complete description of our income taxes is disclosed in “Note 14 – Income Taxes” of our consolidated financial statements.

Off-Balance Sheet Arrangements

As of December 31, 2016 , we had no off-balance sheet arrangements pursuant to Item 303(a)(4) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

New Accounting Standards

In November 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which addresses diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-18 will have on the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on the consolidated financial statements.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The update changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted beginning in annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company will adopt ASU 2016-09 in the first quarter of 2017 and, unless offset by other factors, expects that its income tax expense will initially be lower as a result of excess tax benefits from stock-based compensation, including the expected exercise of approximately 0.4 million options that expire in 2017.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which replaces existing lease guidance. The ASU is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet, with an exception for leases that meet the definition of a short-term lease. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and the ASU is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the consolidated financial statements and anticipates that the new guidance will significantly impact its consolidated financial statements, as the Company has a significant number of leases. Our current minimum commitments under non-cancelable operating leases are disclosed in Note 13. In addition, the recognition of these leases on our consolidated balance sheet would increase our net debt calculation which is included in the determination of our Consolidated Senior Secured Leverage Ratio. In this event, our Credit Agreement specifies that the covenant shall continue to be calculated as if the accounting standard had not occurred and that we could enter into negotiations to amend such provisions in the Credit Agreement so as to equitably reflect such changes with the desired result that the criteria for evaluating our financial condition would be the same after the change as if such change had not been made. We plan to amend the applicable provision in our Credit Agreement upon the adoption of ASU 2016-02.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which superseded the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition . The new guidance provides clarification on the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosures to help financial statement users better understand the nature, amount, timing and uncertainty of revenue that is recognized. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which defers the effective date of ASU 2014-09 by one year. In accordance with the agreed upon delay, the new guidance is effective for the first annual reporting period and interim periods beginning after December 15, 2017, and will require either retrospective application to each prior reporting period presented or retrospective application with the cumulative effect of initially applying the standard recognized at the date of adoption. The Company expects to use retrospective application with the cumulative effect as its transition method. The Company is currently evaluating the impact the adoption of ASU 2014-09 will have on the consolidated financial statements and related disclosures. However, we have identified services such as towing, vehicle inspection reports and other pre-sale services which could result in the acceleration of revenue recognition.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

Our foreign currency exposure is limited and arises from transactions denominated in foreign currencies, particularly intercompany loans, as well as from translation of the results of operations from our Canadian and, to a much lesser extent, United Kingdom and Mexican subsidiaries. However, fluctuations between U.S. and non-U.S. currency values may adversely affect our results of operations and financial position. We have not entered into any foreign exchange contracts to hedge changes in the Canadian dollar, British pound or Mexican peso. Canadian currency translation negatively affected net income by approximately $2.3 million and $9.2 million for the years ended December 31, 2016 and 2015 , respectively. A 1% change in the average Canadian exchange rate for the year ended December 31, 2016 would have impacted net income by approximately $0.9 million. Currency exposure of our U.K. and Mexican operations is not material to the results of operations.

Interest Rates

We are exposed to interest rate risk on our variable rate borrowings. Accordingly, interest rate fluctuations affect the amount of interest expense we are obligated to pay. We currently use interest rate cap agreements to manage our exposure to interest rate changes. We have not designated any of the interest rate caps as hedges for accounting purposes. Accordingly, changes in the fair value of the interest rate caps are recognized as "Interest expense" in the consolidated statement of income.

In August 2015, we purchased three interest rate caps for an aggregate amount of approximately $1.5 million with an aggregate notional amount of $800 million to manage our exposure to interest rate movements on our variable rate Credit Facility if/when three-month LIBOR (i) exceeded 2.0% between August 19, 2015 (the effective date) and September 29, 2016 and (ii) exceeds 1.75% between September 30, 2016 and August 19, 2017 (the maturity date).

In April 2015, we purchased two interest rate caps for approximately $0.7 million with an aggregate notional amount of $400 million to manage our exposure to interest rate movements on our variable rate Credit Facility when three-month LIBOR exceeds 1.5%. The interest rate cap agreements cap three-month LIBOR at 1.5%, had an effective date of April 16, 2015 and mature on March 31, 2017.

Taking our interest rate caps into account, a sensitivity analysis of the impact on our variable rate corporate debt instruments to a hypothetical 100 basis point increase in short-term rates (LIBOR) for the year ended December 31, 2016 would have resulted in an increase in interest expense of approximately $21.8 million.

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Item 8. Financial Statements and Supplementary Data

Index to Financial Statements



	Page
KAR Auction Services, Inc.

Management's Report on Internal Control Over Financial Reporting	71

Report of Independent Registered Public Accounting Firm	72

Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014	73

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014	74

Consolidated Balance Sheets as of December 31, 2016 and 2015	75

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2016, 2015 and 2014	77

Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014	78

Notes to Consolidated Financial Statements	79

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Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed under the supervision of our principal executive officer and principal financial and accounting officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and include those policies and procedures that:


•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets;


•	Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and


•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2016 , using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013) . Based on our assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2016 . During our assessment, we did not identify any material weaknesses in our internal control over financial reporting.

We have excluded the 2016 acquisitions from our assessment of internal control over financial reporting as of December 31, 2016 because we are continuing to integrate the acquisitions into our corporate processes. The total assets of the 2016 acquisitions represent 6.5% (of which 5.2% represents goodwill and intangibles included within the scope of the assessment) and the total revenues of the 2016 acquisitions represent 3.5% of the related consolidated financial statement amounts as of and for the year ended December 31, 2016. No potential internal control changes due to new acquisitions would be considered material to, or are reasonably likely to materially affect, our internal control over financial reporting.

KPMG LLP, the independent registered public accounting firm that audited our consolidated financial statements for the year ended December 31, 2016 , also audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2016 as stated in their report included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

/s/ JAMES P. HALLETT

James P. Hallett

Chief Executive Officer

(Principal Executive Officer)

/s/ ERIC M. LOUGHMILLER

Eric M. Loughmiller

Chief Financial Officer

(Principal Financial and Accounting Officer)

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

KAR Auction Services, Inc.:

We have audited the accompanying consolidated balance sheets of KAR Auction Services, Inc. and subsidiaries (the "Company") as of December 31, 2016 and 2015 , and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2016 . We also have audited the Company's internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management's report on internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of KAR Auction Services, Inc. and subsidiaries as of December 31, 2016 and 2015 , and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016 , in conformity with U.S. generally accepted accounting principles. Also in our opinion, KAR Auction Services, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Management has excluded from its assessment of internal control over financial reporting as of December 31, 2016, the 2016 acquisitions' internal control over financial reporting associated with total assets of 6.5% (of which 5.2% represents goodwill and intangibles included within the scope of the assessment) and total revenues of 3.5% included in the consolidated financial statements of KAR Auction Services, Inc. and subsidiaries as of and for the year ended December 31, 2016. Our audit of internal control over financial reporting of KAR Auction Services, Inc. and subsidiaries also excluded an evaluation of the internal control over financial reporting of the 2016 acquisitions.

/s/ KPMG LLP

Indianapolis, Indiana

February 23, 2017

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KAR Auction Services, Inc.

Consolidated Statements of Income

(In millions, except per share data)



	Year Ended December 31,
	2016			2015			2014
Operating revenues
ADESA Auction Services	$	1,765.3		$	1,427.8		$	1,271.0
IAA Salvage Services	1,098.0			994.4			895.9
AFC	286.8			268.4			250.1
Total operating revenues	3,150.1			2,690.6			2,417.0
Operating expenses
Cost of services (exclusive of depreciation and amortization)	1,827.4			1,548.5			1,371.3
Selling, general and administrative	583.1			502.0			471.4
Depreciation and amortization	240.6			212.8			196.6
Total operating expenses	2,651.1			2,263.3			2,039.3
Operating profit	499.0			427.3			377.7
Interest expense	138.8			91.4			86.2
Other income, net	(0.5		)	(4.6		)	(3.8		)
Loss on extinguishment of debt	5.4			—			30.3
Income before income taxes	355.3			340.5			265.0
Income taxes	132.9			125.9			95.7
Net income	$	222.4		$	214.6		$	169.3
Net income per share
Basic	$	1.62		$	1.53		$	1.21
Diluted	$	1.60		$	1.51		$	1.19
Dividends declared per common share	$	1.19		$	1.08		$	1.02

See accompanying notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Statements of Comprehensive Income

(In millions)



	Year Ended December 31,
	2016			2015			2014
Net income	$	222.4		$	214.6		$	169.3
Other comprehensive loss, net of tax
Foreign currency translation loss	(9.1		)	(38.5		)	(20.3		)
Unrealized loss on postretirement benefit obligation	—			(0.1		)	—
Total other comprehensive loss, net of tax	(9.1		)	(38.6		)	(20.3		)
Comprehensive income	$	213.3		$	176.0		$	149.0

See accompanying notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Balance Sheets

(In millions)



	December 31,
	2016		2015
Assets
Current assets
Cash and cash equivalents	$	201.8	$	155.0
Restricted cash	17.9		16.2
Trade receivables, net of allowances of $13.0 and $6.6	682.9		511.9
Finance receivables, net of allowances $12.0 and $9.0	1,780.2		1,632.0
Other current assets	158.4		131.0
Total current assets	2,841.2		2,446.1
Other assets
Goodwill	2,057.0		1,795.9
Customer relationships, net of accumulated amortization of $707.8 and $619.3	461.0		417.7
Other intangible assets, net of accumulated amortization of $301.6 and $258.1	320.1		310.8
Other assets	35.8		34.1
Total other assets	2,873.9		2,558.5
Property and equipment, net of accumulated depreciation of $655.6 and $569.6	842.5		766.9
Total assets	$	6,557.6	$	5,771.5

See accompanying notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Balance Sheets

(In millions, except share and per share data)



	December 31,
	2016			2015
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	648.5		$	608.4
Accrued employee benefits and compensation expenses	100.7			90.9
Accrued interest	2.2			0.8
Other accrued expenses	149.4			128.4
Income taxes payable	5.0			5.3
Dividends payable	43.7			37.2
Obligations collateralized by finance receivables	1,280.3			1,189.0
Current maturities of long-term debt	105.2			153.9
Total current liabilities	2,335.0			2,213.9
Non-current liabilities
Long-term debt	2,365.1			1,711.2
Deferred income tax liabilities	291.7			300.8
Other liabilities	168.5			159.5
Total non-current liabilities	2,825.3			2,171.5
Commitments and contingencies (Note 16)
Stockholders' equity
Preferred stock, $0.01 par value:
Authorized shares: 100,000,000
Issued shares: none	—			—
Common stock, $0.01 par value:
Authorized shares: 400,000,000
Issued and outstanding shares:
136,639,217 (2016)
137,795,296 (2015)	1.4			1.4
Additional paid-in capital	1,371.1			1,407.6
Retained earnings	74.1			17.3
Accumulated other comprehensive loss	(49.3		)	(40.2		)
Total stockholders' equity	1,397.3			1,386.1
Total liabilities and stockholders' equity	$	6,557.6		$	5,771.5

See accompanying notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Statements of Stockholders' Equity

(In millions)



	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital			(Accumulated Deficit)/Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2013	139.0		$	1.4	$	1,534.0		$	(72.3	)	$	18.7		$	1,481.8
Net income								169.3						169.3
Other comprehensive loss											(20.3		)	(20.3		)
Issuance of common stock under stock plans	2.3				27.6									27.6
Stock-based compensation expense					28.0									28.0
Excess tax benefit from stock-based compensation					4.1									4.1
Cash dividends declared to stockholders ($1.02 per share)								(143.4		)				(143.4		)
Balance at December 31, 2014	141.3		1.4		1,593.7			(46.4		)	(1.6		)	1,547.1
Net income								214.6						214.6
Other comprehensive loss											(38.6		)	(38.6		)
Issuance of common stock under stock plans	1.8				22.7									22.7
Stock-based compensation expense					11.7									11.7
Excess tax benefit from stock-based compensation					7.1									7.1
Repurchase and retirement of common stock	(5.3	)			(227.6		)							(227.6		)
Cash dividends declared to stockholders ($1.08 per share)								(150.9		)				(150.9		)
Balance at December 31, 2015	137.8		1.4		1,407.6			17.3			(40.2		)	1,386.1
Net income								222.4						222.4
Other comprehensive loss											(9.1		)	(9.1		)
Issuance of common stock under stock plans	1.5				6.6									6.6
Stock-based compensation expense					18.1									18.1
Excess tax benefit from stock-based compensation					17.2									17.2
Repurchase and retirement of common stock	(2.7	)			(80.4		)							(80.4		)
Dividends earned under stock plans					2.0			(2.0		)				—
Cash dividends declared to stockholders ($1.19 per share)								(163.6		)				(163.6		)
Balance at December 31, 2016	136.6		$	1.4	$	1,371.1		$	74.1		$	(49.3	)	$	1,397.3

See accompanying notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Statements of Cash Flows

(In millions)



	Year Ended December 31,
	2016			2015			2014
Operating activities
Net income	$	222.4		$	214.6		$	169.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	240.6			212.8			196.6
Provision for credit losses	40.5			18.8			16.6
Deferred income taxes	(4.2		)	5.0			(24.5		)
Amortization of debt issuance costs	8.8			7.2			7.5
Stock-based compensation	18.1			11.7			28.0
Excess tax benefit from stock-based compensation	(17.2		)	(7.1		)	(4.1		)
Loss (gain) on disposal of fixed assets	0.1			0.9			(0.2		)
Loss on extinguishment of debt	5.4			—			30.3
Other non-cash, net	9.5			2.0			3.6
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables and other assets	(194.7		)	(127.0		)	(52.3		)
Accounts payable and accrued expenses	31.5			136.1			60.5
Net cash provided by operating activities	360.8			475.0			431.3
Investing activities
Net increase in finance receivables held for investment	(176.4		)	(295.9		)	(282.8		)
Acquisition of businesses (net of cash acquired) and equity method investments	(432.1		)	(118.1		)	(31.9		)
Purchases of property, equipment and computer software	(155.1		)	(134.7		)	(101.0		)
Proceeds from the sale of property and equipment	—			0.3			1.1
(Increase) decrease in restricted cash	(1.7		)	0.8			1.8
Net cash used by investing activities	(765.3		)	(547.6		)	(412.8		)
Financing activities
Net increase in book overdrafts	17.7			10.7			9.9
Net (decrease) increase in borrowings from lines of credit	(59.5		)	140.0			—
Net increase in obligations collateralized by finance receivables	96.8			349.8			99.6
Proceeds from long-term debt	1,336.5			—			1,767.2
Payments for debt issuance costs/amendments	(32.8		)	(10.9		)	(12.3		)
Payments on long-term debt	(662.6		)	(21.5		)	(1,785.1		)
Payments on capital leases	(25.6		)	(20.5		)	(19.4		)
Payments of contingent consideration and deferred acquisition costs	(3.6		)	(1.2		)	(0.2		)
Initial net investment for interest rate caps	—			(2.2		)	—
Issuance of common stock under stock plans	6.6			22.7			27.6
Excess tax benefit from stock-based compensation	17.2			7.1			4.1
Repurchase and retirement of common stock	(80.4		)	(227.6		)	—
Dividends paid to stockholders	(157.1		)	(151.9		)	(139.9		)
Net cash provided by (used by) financing activities	453.2			94.5			(48.5		)
Effect of exchange rate changes on cash	(1.9		)	(19.8		)	(8.7		)
Net increase (decrease) in cash and cash equivalents	46.8			2.1			(38.7		)
Cash and cash equivalents at beginning of period	155.0			152.9			191.6
Cash and cash equivalents at end of period	$	201.8		$	155.0		$	152.9
Cash paid for interest	$	124.5		$	79.7		$	75.9
Cash paid for taxes, net of refunds	$	121.6		$	129.9		$	102.2

See accompanying notes to consolidated financial statements

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 , 2015 and 2014

Note 1—Organization and Other Matters

KAR Auction Services, Inc. was organized in the State of Delaware on November 9, 2006. The KAR group of companies is comprised of ADESA, Inc., Insurance Auto Auctions, Inc., Automotive Finance Corporation and additional business units.

Defined Terms

Unless otherwise indicated or unless the context otherwise requires, the following terms used herein shall have the following meanings:


•	"we," "us," "our" and "the Company" refer, collectively, to KAR Auction Services, Inc. and all of its subsidiaries;


•	"ADESA" or "ADESA Auctions" refer, collectively, to ADESA, Inc., a wholly-owned subsidiary of KAR Auction Services, and ADESA, Inc.'s subsidiaries, including Openlane, Inc. (together with Openlane, Inc.'s subsidiaries, "Openlane") and ADESA Remarketing Limited (formerly known as GRS Remarketing Limited ("GRS" or "ADESA Remarketing Limited"));


•	"AFC" refers, collectively, to Automotive Finance Corporation, a wholly-owned subsidiary of ADESA, and Automotive Finance Corporation's subsidiaries and other related entities, including PWI Holdings, Inc.;


•	"Credit Agreement" refers to the Amended and Restated Credit Agreement, dated March 11, 2014, as amended on March 9, 2016, among KAR Auction Services, as the borrower, the several banks and other financial institutions or entities from time to time parties thereto and the administrative agent;


•	"Original Credit Agreement" refers to the Credit Agreement, dated May 19, 2011, as amended on November 29, 2012 and March 12, 2013, among KAR Auction Services, as the borrower, the several banks and other financial institutions or entities from time to time parties thereto and the administrative agent;

•

"Credit Facility" refers to the three -year senior secured term loan B-1 facility ("Term Loan B-1"), the seven -year senior secured term loan B-2 facility ("Term Loan B-2"), the seven -year senior secured term loan B-3 facility ("Term Loan B-3"), the $300 million , five -year senior secured revolving credit facility (the "revolving credit facility") and the $250 million , five -year senior secured revolving credit facility (the "old revolving credit facility"), the terms of which are set forth in the Credit Agreement. Term Loan B-1 and the old revolving credit facility were extinguished in March 2016 with proceeds received from Term Loan B-3;


•	"Original Credit Facility" refers to the six -year senior secured term loan facility ("Term Loan B") and the $250 million , five -year senior secured revolving credit facility, the terms of which are set forth in the Original Credit Agreement;


•	"IAA" refers, collectively, to Insurance Auto Auctions, Inc., a wholly-owned subsidiary of KAR Auction Services, and Insurance Auto Auctions, Inc.'s subsidiaries and other related entities, including HBC Vehicle Services Limited ("HBC"); and


•	"KAR Auction Services" refers to KAR Auction Services, Inc. and not to its subsidiaries.

Business and Nature of Operations

As of December 31, 2016 , we have a North American network of 77 ADESA whole car auction sites and 172 IAA salvage vehicle auction sites; in addition, we offer online auctions for both whole car and salvage vehicles. ADESA also includes ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom. IAA also includes HBC Vehicle Services Limited, which operates from 11 locations in the United Kingdom. Our auctions facilitate the sale of used and salvage vehicles through physical, online or hybrid auctions, which permit Internet buyers to participate in physical auctions. ADESA and IAA are leading, national providers of wholesale and salvage vehicle auctions and related vehicle remarketing services for the automotive industry in North America. ADESA's online service offerings include customized private label solutions powered with software developed by its wholly-owned subsidiary, Openlane, that allow our institutional consignors (automobile manufacturers, captive finance companies and other institutions) to offer vehicles via the Internet prior to arrival at the physical auction. Remarketing services include a variety of activities designed to transfer used and salvage vehicles between sellers and buyers throughout the vehicle life cycle. ADESA and IAA facilitate the exchange of these vehicles through an auction marketplace, which aligns sellers and buyers. As an agent for customers, the Company

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

generally does not take title to or ownership of vehicles sold at the auctions. Generally, fees are earned from the seller and buyer on each successful auction transaction in addition to fees earned for ancillary services.

ADESA has the second largest used vehicle auction network in North America, based upon the number of used vehicles sold through auctions annually, and also provides services such as inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. ADESA is able to serve the diverse and multi-faceted needs of its customers through the wide range of services offered.

IAA is one of the leading providers of salvage vehicle auctions and related services. The salvage auctions facilitate the remarketing of damaged vehicles that are designated as total losses by insurance companies, recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made, purchased vehicles and older model vehicles donated to charity or sold by dealers in salvage auctions. The salvage auction business specializes in providing services such as inbound transportation logistics, inspections, evaluations, salvage recovery services, titling and settlement administrative services.

AFC is a leading provider of floorplan financing to independent used vehicle dealers and this financing is provided through 126 locations throughout the United States and Canada as of December 31, 2016 . Floorplan financing supports independent used vehicle dealers in North America who purchase vehicles at ADESA, IAA, other used vehicle and salvage auctions and non-auction purchases. In addition to floorplan financing, AFC also provides independent used vehicle dealers with other related services and products, such as vehicle service contracts.

Note 2—Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of KAR Auction Services and all of its majority owned subsidiaries. Significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates based in part on assumptions about current, and for some estimates, future economic and market conditions 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 revenues and expenses during the period. Although the current estimates contemplate current conditions and expected future changes, as appropriate, it is reasonably possible that future conditions could differ from these estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of goodwill, intangible assets and long-lived assets, incremental losses on finance receivables, additional allowances on accounts receivable and deferred tax assets, changes in litigation and other loss contingencies and changes in self insurance reserves.

Business Segments

Our operations are grouped into three operating segments: ADESA Auctions, IAA and AFC. The three operating segments also serve as our reportable business segments. Operations are measured through detailed budgeting and monitoring of contributions to consolidated income by each business segment.

Derivative Instruments and Hedging Activity

We recognize all derivative financial instruments in the consolidated financial statements at fair value in accordance with Accounting Standards Codification ("ASC") 815, Derivatives and Hedging . We currently use five interest rate caps to manage the variability of cash flows to be paid due to interest rate movements on our variable rate debt. The fair values of the interest rate derivatives are based on quoted market prices for similar instruments from commercial banks. The fair value of the derivatives is recorded in "Other assets" on the consolidated balance sheet. We have not designated any of the current interest rate caps as hedges for accounting purposes. Accordingly, changes in the fair value of the interest rate derivatives are recognized as "Interest expense" in the consolidated statement of income.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Foreign Currency Translation

The local currency is the functional currency for each of our foreign entities. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at average exchange rates in effect during the year. Assets and liabilities of foreign operations are translated using the exchange rates in effect at year end. Foreign currency transaction gains and losses are included in the consolidated statements of income within "Other income, net" and resulted in a loss of $0.7 million for the year ended December 31, 2016 , a loss of $1.0 million for the year ended December 31, 2015 and a loss of $0.3 million for the year ended December 31, 2014 . Adjustments arising from the translation of net assets located outside the U.S. (gains and losses) are shown as a component of "Accumulated other comprehensive income."

Cash Equivalents

All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. These investments are valued at cost, which approximates fair value.

Restricted Cash

AFC Funding Corporation, a wholly-owned, bankruptcy remote, consolidated, special purpose subsidiary of AFC, is required to maintain a minimum cash reserve of 1 percent of total receivables sold to the group of bank purchasers as security for the receivables sold. Automotive Finance Canada Inc. ("AFCI") is also required to maintain a minimum cash reserve of 1 percent of total receivables sold to its securitization facility. The amount of the cash reserve depends on circumstances which are set forth in the securitization agreements. AFC also maintains other cash reserves from time to time associated with its banking and vehicle service contract program insurance relationships.

Receivables

Trade receivables include the unremitted purchase price of vehicles purchased by third parties at the auctions, fees to be collected from those buyers and amounts due for services provided by us related to certain consigned vehicles in our possession. The amounts due with respect to the consigned vehicles are generally deducted from the sales proceeds upon the eventual auction or other disposition of the related vehicles.

Finance receivables include floorplan receivables created by financing dealer purchases of vehicles in exchange for a security interest in those vehicles and special purpose loans. Floorplan receivables become due at the earlier of the dealer subsequently selling the vehicle or a predetermined time period (generally 30 to 90 days). Special purpose loans relate to loans that are either line of credit loans or working capital loans that can be either secured or unsecured based on the facts and circumstances of the specific loans.

Due to the nature of our business, substantially all trade and finance receivables are due from vehicle dealers, salvage buyers, institutional sellers and insurance companies. We have possession of vehicles or vehicle titles collateralizing a significant portion of the trade and finance receivables.

Trade receivables and finance receivables are reported net of an allowance for doubtful accounts and credit losses. The allowances for doubtful accounts and credit losses are based on management's evaluation of the receivables portfolio under current conditions, the volume of the portfolio, overall portfolio credit quality, review of specific collection issues and such other factors which in management's judgment deserve recognition in estimating losses.

Other Current Assets

Other current assets consist of inventories, prepaid expenses, taxes receivable and other miscellaneous assets. The inventories, which consist of vehicles, supplies and parts, are accounted for on the specific identification method and are stated at the lower of cost or net realizable value.

Goodwill

Goodwill represents the excess of cost over fair value of identifiable net assets of businesses acquired. Goodwill is tested for impairment annually in the second quarter, or more frequently as impairment indicators arise. ASC 350, Intangibles—Goodwill and Other , permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the two-step goodwill impairment model. If it is determined through the qualitative assessment that a reporting unit's fair value is more likely than not greater than its carrying

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. The quantitative assessment for goodwill impairment is a two-step test. Under the first step, the fair value of each reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC 805, Business Combinations . The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

Customer Relationships and Other Intangible Assets

Customer relationships are amortized on a straight-line basis over the life determined in the valuation of the particular acquisition. Other intangible assets generally consist of tradenames, computer software and non-compete agreements, which if amortized, are amortized using the straight-line method. Tradenames with indefinite lives are not amortized and tradenames that have been assigned a useful life are amortized over their estimated useful lives. Costs incurred related to software developed or obtained for internal use are capitalized during the application development stage of software development and amortized over their estimated useful lives. The non-compete agreements are amortized over the life of the agreements. The lives of other intangible assets are re-evaluated periodically when facts and circumstances indicate that revised estimates of useful lives may be warranted. Indefinite-lived tradenames are assessed for impairment, in accordance with ASC 350, annually in the second quarter or more frequently as impairment indicators arise. At the end of each assessment, we make a determination as to whether the tradenames still have an indefinite life.

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method at rates intended to depreciate the costs of assets over their estimated useful lives. Upon retirement or sale of property and equipment, the cost of the disposed assets and related accumulated depreciation is removed from the accounts and any resulting gain or loss is credited or charged to selling, general and administrative expenses. Expenditures for normal repairs and maintenance are charged to expense as incurred. Additions and expenditures for improving or rebuilding existing assets that extend the useful life are capitalized. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease term including any renewals that are reasonably assured.

Unamortized Debt Issuance Costs

Debt issuance costs reflect the expenditures incurred in conjunction with term loan debt, the revolving credit facility and the U.S. and Canadian receivables purchase agreements. The debt issuance costs are being amortized to interest expense using the effective interest method or the straight-line method, as applicable, over the lives of the related debt issues.

We adopted Accounting Standards Update (“ASU”) 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs , in the first quarter of 2016. The update required debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. The new guidance represents a change in accounting principle and required retrospective application. As shown in the table below, we have reclassified unamortized debt issuance costs previously reported as of December 31, 2015 (in millions):



	Originally Reported		Reclassified			As Adjusted
Unamortized debt issuance costs	$	20.3	$	(20.3	)	$	—
Obligations collateralized by finance receivables	1,201.2		(12.2		)	1,189.0
Long-term debt	1,719.3		(8.1		)	1,711.2

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Other Assets

Other assets consist of equity method investments, below market leases, deposits, notes receivable and other long-term assets.

Equity Method Investments

We use the equity method to account for investments in companies when we have the ability to exercise significant influence over operating and financial policies of the investee but do not have a controlling financial interest. Our judgment regarding the level of influence over an equity method investment includes considering key factors such as our ownership interest, representation on the board of directors, participation in policy making decisions and material intercompany transactions. Under this method of accounting, the Company records its proportionate share of the net earnings or losses of the equity method investee and a corresponding increase or decrease to the investment balance, which is included in "Other assets" on the consolidated balance sheet. Based on the timing of when financial information is received from the investee, the Company records its share of net earnings or losses of such investments on a lag basis. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

Long-Lived Assets

Management reviews our property and equipment, customer relationships and other intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The determination includes evaluation of factors such as current market value, future asset utilization, business climate, and future cash flows expected to result from the use of the related assets. If the carrying amount of a long-lived asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, a loss is recognized in the period to the extent that the carrying amount exceeds the fair value of the asset. The impairment analysis is based on our current business strategy, expected growth rates and estimated future economic and regulatory conditions.

Accounts Payable

Accounts payable include amounts due sellers from the proceeds of the sale of their consigned vehicles less any fees, as well as outstanding checks to sellers and vendors. Book overdrafts, representing outstanding checks in excess of funds on deposit, are recorded in "Accounts payable" and amounted to $154.4 million and $136.7 million at December 31, 2016 and 2015 , respectively.

Self Insurance Reserves

We self-insure our employee medical benefits, as well as a portion of our automobile, general liability and workers' compensation claims. We have insurance coverage that limits the exposure on individual claims. We also have insurance coverage that limits the total exposure to overall automobile, general liability and workers' compensation claims. The cost of the 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. Accrued medical benefits and workers' compensation expenses are included in "Accrued employee benefits and compensation expenses" while accrued automobile and general liability expenses are included in "Other accrued expenses."

Environmental Liabilities

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in "Other accrued expenses" at undiscounted amounts and exclude claims for recoveries from insurance or other third parties.

Revenue Recognition

ADESA Auction Services

Revenues and the related costs are recognized when the services are performed. Auction fees from sellers and buyers are recognized upon the sale of the vehicle through the auction process. Most of the vehicles that are sold through auctions are

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

consigned to ADESA by the seller and held at ADESA's facilities or third party locations. ADESA does not take title to these consigned vehicles and recognizes revenue when a service is performed as requested by the owner of the vehicle. ADESA does not record the gross selling price of the consigned vehicles sold at auction as revenue. Instead, ADESA records only its auction fees as revenue because it does not take title to the consigned vehicles, has no influence on the vehicle auction selling price agreed to by the seller and buyer at the auction and the fees that ADESA receives for its services are generally a fixed amount. Revenues from reconditioning, logistics, vehicle inspection and certification, titling, evaluation and salvage recovery services are generally recognized when the services are performed.

Subsequent to the issuance of our consolidated financial statements for the year ended December 31, 2015, we identified that the gross selling price for certain vehicles owned and subsequently sold by ADESA had been incorrectly netted against cost of services. As a result of the correction of this immaterial item, ADESA Auction Services revenue and cost of services have increased by $51.0 million and $52.5 million for the years ended December 31, 2015 and 2014, respectively. In addition, we have adjusted ADESA Auction Services revenue and cost of services in the applicable notes to the consolidated financial statements, including the unaudited quarterly financial data in Note 19.

IAA Salvage Services

Revenues (including vehicle sales and fee income) are generally recognized at the date the vehicles are sold at auction. Most of the vehicles that are sold through auctions are consigned to IAA by the seller and held at IAA's facilities. IAA does not take title to these consigned vehicles and recognizes revenue when a service is performed as requested by the owner of the vehicle. IAA does not record the gross selling price of the consigned vehicles sold at auction as revenue. Revenue not recognized at the date the vehicles are sold at auction includes annual buyer registration fees, which are recognized on a straight-line basis, and certain buyer-related fees, which are recognized when payment is received.

AFC

AFC's revenue is comprised of interest and fee income, provision for credit losses and other revenues associated with our finance receivables, as well as other service revenue. The following table summarizes the primary components of AFC's revenue:



	Year Ended December 31,
AFC Revenue (In millions)	2016			2015			2014
Interest and fee income	$	275.1		$	246.8		$	225.0
Other revenue	10.3			9.7			11.9
Provision for credit losses	(30.7		)	(16.0		)	(12.3		)
Other service revenue	32.1			27.9			25.5
	$	286.8		$	268.4		$	250.1

Interest and fee income

Interest on finance receivables is recognized based on the number of days the vehicle remains financed. AFC ceases recognition of interest on finance receivables when the loans become delinquent, which is generally 31 days past due. Dealers are also charged a fee to floorplan a vehicle ("floorplan fee"), to extend the terms of the receivable ("curtailment fee") and a document processing fee. AFC fee income including floorplan and curtailment fees is recognized over the life of the finance receivable.

Other revenue

Other revenue includes lot check fees, filing fees and lien holder payoff services, each of which are charged to and collected from AFC's customers.

Other service revenue

Other service revenue represents the revenue generated by Preferred Warranties, Inc. ("PWI"). PWI, a service contract business, was acquired in June 2013. PWI receives advance payments for vehicle service contracts and unearned revenue is deferred and recognized over the terms of the contracts.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Income Taxes

We file federal, state and foreign income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes . The provision for income taxes includes federal, foreign, state and local income taxes currently payable, as well as deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

In accordance with ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average common shares outstanding during the year. Diluted net income per share represents net income divided by the sum of the weighted average common shares outstanding plus potential dilutive instruments related to our stock-based employee compensation program. The effect of stock options and restricted stock on net income per share-diluted is determined through the application of the treasury stock method, whereby net proceeds received by the Company based on assumed exercises are hypothetically used to repurchase our common stock at the average market price during the period. Stock options that would have an anti-dilutive effect on net income per diluted share and performance-based restricted stock units ("PRSUs") subject to performance conditions which have not yet been satisfied are excluded from the calculations.

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation under ASC 718, Compensation—Stock Compensation . We recognize all stock-based compensation as expense in the financial statements and that cost is measured as the fair value of the award at the grant date for equity-classified awards, while liability-classified awards are remeasured each reporting period at fair value. We also consider forfeitures in determining compensation expense. Additionally, in accordance with ASC 718, cash flows resulting from tax deductions from the exercise of stock options in excess of recognized compensation cost (excess tax benefits) are classified as financing cash flows.

New Accounting Standards

In November 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which addresses diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-18 will have on the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on the consolidated financial statements.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . The update changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company will adopt ASU 2016-09 in the first quarter of 2017 and, unless offset by other factors, expects that its income tax expense will initially be lower as a result of excess tax benefits from stock-based compensation, including the expected exercise of approximately 0.4 million options that expire in 2017.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which replaces existing lease guidance. The ASU is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet, with an exception for leases that meet the definition of a short-term lease. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and the ASU is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the consolidated financial statements and anticipates that the new guidance will significantly impact its consolidated financial statements, as the Company has a significant number of leases. Our current minimum commitments under non-cancelable operating leases are disclosed in Note 13. In addition, the recognition of these leases on our consolidated balance sheet would increase our net debt calculation which is included in the determination of our Consolidated Senior Secured Leverage Ratio. In this event, our Credit Agreement specifies that the covenant shall continue to be calculated as if the accounting standard had not occurred and that we could enter into negotiations to amend such provisions in the Credit Agreement so as to equitably reflect such changes with the desired result that the criteria for evaluating our financial condition would be the same after the change as if such change had not been made. We plan to amend the applicable provision in our Credit Agreement upon the adoption of ASU 2016-02.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which superseded the revenue recognition requirements in ASC 605, Revenue Recognition . The new guidance provides clarification on the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosures to help financial statement users better understand the nature, amount, timing and uncertainty of revenue that is recognized. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which defers the effective date of ASU 2014-09 by one year. In accordance with the agreed upon delay, the new guidance is effective for the first annual reporting period and interim periods beginning after December 15, 2017, and will require either retrospective application to each prior reporting period presented or retrospective application with the cumulative effect of initially applying the standard recognized at the date of adoption. The Company expects to use retrospective application with the cumulative effect as its transition method. The Company is currently evaluating the impact the adoption of ASU 2014-09 will have on the consolidated financial statements and related disclosures. However, we have identified services such as towing, vehicle inspection reports and other pre-sale services which could result in the acceleration of revenue recognition.

Note 3—Acquisitions and Equity Method Investment

2016 Acquisitions

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

In June 2016, the Company acquired GRS, a subsidiary of Greenhous Group Limited. GRS is an established online vehicle remarketing business in the U.K. The acquisition complements the Company's wide range of vehicle remarketing services and provides the opportunity to offer our full range of services in the U.K.

In November 2016, ADESA completed the acquisition of Flint Auto Auction, a whole car auction facility in Flint, Michigan. This acquisition expands ADESA's geographic footprint in the Midwest.

The aggregate purchase price for the businesses acquired in 2016, net of cash acquired, was approximately $433.4 million , which included estimated contingent payments with a fair value of $1.3 million . The maximum amount of undiscounted contingent payments related to these acquisitions could approximate $1.5 million . The purchase price for the acquired businesses was allocated to acquired assets and liabilities based upon fair values, including $136.8 million to intangible assets, representing the fair value of acquired customer relationships of $129.8 million , software of $4.9 million , tradenames of $1.8 million and non-competes of $0.3 million , which are being amortized over their expected useful lives. The purchase accounting associated with these acquisitions is preliminary, subject to determination of working capital adjustments and a final valuation of intangibles related to the acquisition of Flint Auto Auction. The Company does not expect adjustments to the purchase accounting will be material. The acquisitions resulted in aggregate goodwill of $269.6 million . The goodwill is recorded in the ADESA Auctions and AFC reportable segments. The financial impact of these acquisitions, including pro forma financial results, was immaterial to the Company’s consolidated results for the year ended December 31, 2016.

2015 Acquisitions

In March 2015, ADESA completed the acquisition of Pittsburgh Auto Auction. This acquisition bolsters ADESA’s presence in the eastern region and complements its current buyer base.

In April 2015, ADESA purchased all of the equity interests in MobileTrac LLC ("MobileTrac"). MobileTrac provides retail and wholesale car buyers with instaVIN’s vehicle history reports as well as the instaLEAD and instaDEAL technology through which automotive dealers can attract and structure retail transactions with consumers online. MobileTrac enhances the Company’s portfolio of service offerings to its customers.

In May 2015, AutoVIN, a subsidiary of ADESA, completed the acquisition of the vehicle inspection business from DataScan Field Services. AutoVIN utilizes Internet-based technology to perform vehicle inspection services for major auto manufacturers, financial institutions, leasing companies and warranty companies. The network’s broad geographical reach in the U.S. and Canada will provide expanded coverage for inspection customers, and the acquisition also brings new offerings to the AutoVIN portfolio, including warranty claim inspections, certified pre-owned audits and physical damage appraisals.

In May 2015, ADESA purchased all of the issued and outstanding membership interests in Autoniq, LLC ("Autoniq"). Autoniq provides real-time information such as vehicle pricing, history reports and market guides to dealers. Its mobile app allows used car dealers to scan VINs on mobile devices, view auction run lists and access vehicle history reports and market value reports instantly. Autoniq offers access to valued resources such as CARFAX and AutoCheck, as well as Black Book Daily, NADA guides, Kelley Blue Book and Galves pricing guide information. It also includes a comprehensive wholesale and retail market report for all markets in the United States. Autoniq enhances the Company’s portfolio of service offerings to its customers.

In June 2015, ADESA (UK) Limited completed the acquisition of HBC, which specializes in salvage vehicle auctions and related services and is headquartered in Canvey Island, England. HBC provides salvage collection and disposal services for the U.K.’s top insurance, fleet and accident management companies. HBC conducts business using a variety of sales channels, including online auctions.

In December 2015, Impact Auto Auctions, a subsidiary of IAA, purchased the assets of Sudbury Auto Auction Ltd. ("SAA"). The purchase of SAA provides the opportunity to expand into northern Ontario.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Certain of the purchase agreements included contingent payments related to financial results subsequent to the purchase

date. The purchased assets included land, buildings, accounts receivable, operating equipment, customer relationships,

tradenames, software, inventory and other intangible assets. Financial results for each acquisition have been included in our

consolidated financial statements from the date of acquisition.

The aggregate purchase price for the businesses acquired in 2015, net of cash acquired, was approximately $128.0 million , which included estimated contingent payments with a fair value of $9.9 million . The maximum amount of

undiscounted contingent payments related to these acquisitions could approximate $18.6 million . The purchase price for the

acquired businesses was allocated to acquired assets and liabilities based upon fair values, including $33.3 million to intangible

assets, representing the fair value of acquired customer relationships, tradenames and software, which are being amortized over

their expected useful lives. The acquisitions resulted in aggregate goodwill of $92.3 million . The goodwill is recorded in the

ADESA Auctions and IAA reportable segments. The financial impact of these acquisitions, including pro forma financial

results, was immaterial to the Company’s consolidated results for the year ended December 31, 2015.

Equity Method Investment

In August 2014, ADESA acquired a 50% interest in Nth Gen Software Inc. ("TradeRev") and its online vehicle remarketing system for approximately $30 million in cash. TradeRev is an online automotive remarketing system where dealers can launch and participate in real-time vehicle auctions at any time from their mobile devices or desktop. In addition, ADESA also entered into a joint marketing agreement with TradeRev to assist in expanding its footprint in the dealer-to-dealer online space in the U.S. and Canadian markets.

ASC 323, Investments - Equity Method and Joint Ventures , specifies that to the extent there is a basis difference between the cost and the underlying equity in the net assets of an equity investment, such difference is required to be allocated between tangible and intangible assets. At the date of acquisition, the carrying amount of the investment in TradeRev was greater than the Company’s equity in the underlying assets of TradeRev by approximately $21.8 million as a result of the difference in the carrying amounts of intangible assets. The difference attributable to amortizable intangible assets was approximately $4.8 million at the time of the equity investment, which is being amortized on a straight-line basis over the expected useful lives of the intangible assets, which range from 6 to 14 years. The intangible assets are not reflected on the balance sheet of KAR Auction Services.

TradeRev’s results of operations are recorded on a one-month lag basis. The Company’s share in the net losses of TradeRev for fiscal year 2016, 2015 and 2014 was $3.8 million , $0.8 million and $0.2 million , respectively. This amount was recorded to “Other income, net” in the consolidated statements of income.

Note 4—Stock and Stock-Based Compensation Plans

Our stock-based compensation expense has included expense associated with KAR Auction Services, Inc. PRSUs, service-based restricted stock units ("RSUs"), service options and exit options. We have classified the KAR Auction Services, Inc. PRSUs, RSUs, service options and exit options as equity awards.

The compensation cost that was charged against income for all stock-based compensation plans was $18.1 million , $11.7 million and $28.0 million for the years ended December 31, 2016 , 2015 and 2014 , respectively, and the total income tax benefit recognized in the consolidated statement of income for options, PRSUs and RSUs was approximately $6.9 million , $4.4 million and $10.1 million for the years ended December 31, 2016 , 2015 and 2014 , respectively. We did not capitalize any stock-based compensation cost in the years ended December 31, 2016 , 2015 or 2014 .

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

The following table summarizes our stock-based compensation expense by type of award (in millions) :



	Year Ended December 31,
	2016		2015		2014
PRSUs	$	10.3	$	6.1	$	3.5
RSUs	5.9		2.5		—
Service options	1.9		3.1		3.6
Exit options	—		—		20.9
Total stock-based compensation expense	$	18.1	$	11.7	$	28.0

KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan - PRSUs, RSUs, Service Options and Exit Options

We adopted the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan ("Omnibus Plan") in December 2009. The Omnibus Plan is intended to provide equity or cash-based awards to our employees. At KAR Auction Services' Annual Meeting of Stockholders in June 2014, the stockholders approved the amendment and restatement of the Omnibus Plan. As a result, the maximum number of shares that may be issued pursuant to awards under the Omnibus Plan was increased from 6.5 million to 12.5 million . The Omnibus Plan provides for the grant of options, restricted stock, stock appreciation rights, other stock-based awards and cash-based awards. The PRSU and RSU grants described below were made pursuant to the Company's Policy on Granting Equity Awards.

PRSUs

In 2016, we granted a target amount of approximately 0.3 million PRSUs to certain executive officers and management of the Company. The PRSUs vest if and to the extent that the Company's three -year operating adjusted earnings per share attains certain specified goals. The weighted average grant date fair value of the PRSUs was $34.94 per share, which was determined using the closing price of the Company's common stock on the dates of grant.

In 2015, we granted a target amount of approximately 0.2 million PRSUs to certain executive officers and management of the Company. The PRSUs vest if and to the extent that the Company's three -year adjusted earnings per share attains certain specified goals. The weighted average grant date fair value of the PRSUs was $37.03 per share, which was determined using the closing price of the Company's common stock on the dates of grant.

In the first quarter of 2014, we granted a target amount of approximately 0.1 million PRSUs to certain executive officers of the Company. Half of the PRSUs vest three years from the grant date if and to the extent that the Company's total shareholder return relative to that of companies within the S&P 500 Index exceeds certain levels over the same period. The other half of the PRSUs vest if and to the extent that the Company's three -year adjusted earnings per share attains certain specified goals. The grant date fair value of the PRSUs tied to total shareholder return was $36.54 per share and was developed in consultation with independent valuation specialists who used a Monte-Carlo simulation using a geometric Brownian motion based upon a risk-neutral framework. Key assumptions in the valuation included the fair market value of our common stock on the date of grant, the expected volatility of our common stock over the expected term of the award and the risk-free interest rate for the expected term of the award. The grant date fair value of the PRSUs tied to adjusted earnings per share was $30.89 per share, which was the closing price of the Company's common stock on the date of grant.

In December 2013, we granted a target amount of approximately 0.2 million PRSUs to certain executive officers of the Company. The PRSUs vest three years from the grant date if and to the extent that the Company's total shareholder return relative to that of companies within the S&P 500 Index exceeds certain levels over the same period. The grant date fair value of the PRSUs granted in 2013 was $32.79 per share and was developed in consultation with independent valuation specialists who used a Monte-Carlo simulation using a geometric Brownian motion based upon a risk neutral framework. Key assumptions in the valuation included the fair market value of our common stock on the date of grant, the expected volatility of our common stock over the expected term of the award and the risk-free interest rate for the expected term of the award.

As of December 31, 2016, an estimated $8.8 million of unrecognized compensation expense related to nonvested PRSUs is expected to be recognized over a weighted average term of approximately 1.6 years. Dividend equivalents accrue on the PRSUs and are subject to the same vesting and forfeiture terms as the PRSUs.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

RSUs

In 2016 and 2015, approximately 0.3 million and 0.3 million , respectively, RSUs were granted to certain executive officers and management of the Company. The RSUs are contingent upon continued employment and vest in three equal annual installments. The fair value of RSUs is the value of the Company's common stock at the date of grant and the weighted average grant date fair value of the RSUs was $34.91 per share and $37.04 per share in 2016 and 2015, respectively. Dividend equivalents accrue on the RSUs and are subject to the same vesting and forfeiture terms as the RSUs.

The following table summarizes RSU activity, excluding dividend equivalents, under the Omnibus Plan for the year ended December 31, 2016:



Restricted Stock Units	Number		Weighted Average Grant Date Fair Value
RSUs at January 1, 2016	240,387		$	37.04
Granted	285,386		34.91
Vested	(82,860	)	36.96
Forfeited	(25,201	)	35.78
RSUs at December 31, 2016	417,712		$	35.67

As of December 31, 2016, there was approximately $9.5 million of unrecognized compensation expense related to nonvested RSUs which is expected to be recognized over a weighted average term of 1.8 years.

Service Options

In 2014 , we granted approximately 0.9 million service options, with a weighted average exercise price of $30.06 per share under the Omnibus Plan. The service options have a ten year life and generally vest in four equal annual installments, commencing on the first anniversary of the respective grant dates.

Exit Options

The outstanding exit options granted in 2010 under the Omnibus Plan contain the same vesting criteria as the exit options noted below under the KAR Auction Services, Inc. Stock Incentive Plan.

KAR Auction Services, Inc. Stock Incentive Plan - Service Options and Exit Options

The Company adopted the KAR Auction Services, Inc. Stock Incentive Plan (the "Plan") in May 2007. The Plan was intended to provide equity incentive benefits to the Company's employees. The maximum number of shares that were to be issued pursuant to awards under the Plan was approximately 7.9 million . The Plan provided for the grant of incentive stock options and non-qualified stock options and restricted stock. Awards granted since the adoption of the Plan were non-qualified stock options, and no further grants will be awarded under the Plan.

The Plan provided two types of stock options: service-related options, which were to vest ratably in four annual installments from the date of grant based upon the passage of time, and performance-related exit options, which were generally to become exercisable upon a change in equity control of our former parent company. Under the exit options, in addition to the change in equity control requirement, the number of options that vest were to be determined based on the strike price and certain performance hurdles based on our former owners and other investors' achievement of certain multiples on their original indirect equity investment in KAR Auction Services subject to a minimum internal rate of return at the time of change in equity control. All vesting criteria was subject to continued employment with our former parent company or affiliates thereof. Options were to be granted under the Plan at an exercise price of not less than the fair market value of a share of KAR Auction Services common stock on the date of grant and have a contractual life of ten years.

On December 10, 2009, in conjunction with the initial public offering, all outstanding service options became fully vested and exercisable. In addition, the vesting criteria and exercisability of the exit options were modified to become based on the price per share of our common stock, rather than vest upon the achievement of certain specified performance goals at the time of an exit event. On March 1, 2013, the board of directors approved additional amendments to the outstanding exit options that previously vested based on a 90 -day average closing price of the Company's common stock being above a stated dollar amount.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Generally, such vesting terms were amended to require that the average closing price over a period of 90 trading days be greater than a specified dollar amount to instead requiring that the closing price be greater than the specified dollar amount over a period of 20 consecutive trading days. As a result of this change, effective on March 1, 2013, approximately 1.4 million of such exit options became vested. The incremental expense related to the modification was approximately $0.8 million .

On November 6, 2013, another modification occurred stating that upon an exit event, exercisable stock option awards would not be canceled in exchange for cash and unexercisable options would not be canceled and forfeited, as specified in the Plan. As a result of the modification, there was no incremental compensation expense for the vested service and exit options under the Plan. The fair value of the vested service and exit options immediately before and immediately after the modification both approximated the intrinsic value of the respective options. However, the modification resulted in incremental compensation expense for the unvested exit options of approximately $32.6 million , which was recognized through December 31, 2014.

The exit options granted under the Plan and the Omnibus Plan vested as follows:



Amount Vested	Vesting Conditions	Vested & Exercisable Date
25% of exit options vested and became exercisable when	(i) the fair market value of Company common stock exceeded $20.00	March 2013
An additional 25% of exit options vested and became exercisable when	(i) the fair market value of Company common stock exceeded $25.00	August 2013
An additional 25% of exit options vested and became exercisable when	(i) the fair market value of Company common stock exceeded $30.00	March 2014
An additional 25% of exit options vested and became exercisable when	(i) the fair market value of Company common stock exceeds $35.00	March 2015

Service Options Summary

The following table summarizes service option activity under the Omnibus Plan and the Plan for the year ended December 31, 2016 :



Service Options	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2016	2,163,329		$	21.66
Granted	—		N/A
Exercised	(429,274	)	17.57
Forfeited	(28,760	)	25.66
Canceled	(17,370	)	25.87
Outstanding at December 31, 2016	1,687,925		$	22.59	5.8 years	$	33.8
Exercisable at December 31, 2016	1,149,057		$	19.45	5.1 years	$	26.6

The intrinsic value presented in the table above represents the amount by which the market value of the underlying stock exceeds the exercise price of the option at December 31, 2016 . The intrinsic value changes continuously based on the fair value of our stock. The market value is based on KAR Auction Services' closing stock price of $42.62 on December 31, 2016 . The total intrinsic value of service options exercised during the years ended December 31, 2016 , 2015 and 2014 was $9.6 million , $11.0 million and $12.4 million , respectively. The fair value of all vested and exercisable service options at December 31, 2016 and 2015 was $49.0 million and $45.1 million , respectively.

As of December 31, 2016 , there was approximately $1.8 million of unrecognized compensation expense related to nonvested service options which is expected to be recognized over a weighted average term of 1.1 years.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Service options have been accounted for as equity awards and, as such, compensation expense was measured based on the fair value of the award at the date of grant and recognized over the four year service periods, using the straight-line attribution method. The weighted average fair value of the service options granted was $6.37 per share for the year ended December 31, 2014. The fair value of service options granted was estimated on the date of grant using the Black-Scholes option pricing model and the following assumptions:



Assumptions	2014
Risk-free interest rate	1.80% - 1.915%
Expected life	6.25 years
Expected volatility	30.0	%
Dividend yield	3.24% - 3.45%

Risk-free interest rate —This is the yield on U.S. Treasury Securities posted at the date of grant (or date of modification) having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

Expected life—years —This is the period of time over which the options granted are expected to remain outstanding. Options granted by KAR Auction Services have a maximum term of ten years. An increase in the expected life will increase compensation expense.

Expected volatility —Actual changes in the market value of stock are used to calculate the volatility assumption. Based on the Company's limited time as a publicly traded company, the expected volatility used was determined based on a combination of historical volatility, the volatility of selected comparable companies and other relevant factors. An increase in the expected volatility will increase compensation expense.

Dividend yield —This is the annual rate of dividends per share over the exercise price of the option. An increase in the dividend yield will decrease compensation expense.

Exit Options Summary

The following table summarizes exit option activity under the Omnibus Plan and the Plan for the year ended December 31, 2016 :



Exit Options	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2016	1,808,428		$	11.27
Granted	—		N/A
Exercised	(817,152	)	10.54
Forfeited	—		N/A
Canceled	—		N/A
Outstanding at December 31, 2016	991,276		$	11.90	2.0 years	$	30.4
Exercisable at December 31, 2016	991,276		$	11.90	2.0 years	$	30.4

The intrinsic value presented in the table above represents the amount by which the market value of the underlying stock exceeds the exercise price of the option at December 31, 2016 . The intrinsic value changes continuously based on the fair value of our stock. The market value is based on KAR Auction Services' closing stock price of $42.62 on December 31, 2016 . The total intrinsic value of exit options exercised during the years ended December 31, 2016 , 2015 and 2014 was $23.8 million , $35.9 million and $30.8 million , respectively. The fair value of all vested and exercisable exit options at December 31, 2016 and 2015 was $42.2 million and $67.0 million , respectively.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

The requisite service period and the fair value of the exit options were developed in consultation with independent valuation specialists. The original time horizons over which our stock price was projected to achieve the market conditions noted in the above tables ranged from 1.2 years to 3.9 years. As a result, compensation expense was originally recognized over the derived service periods ranging from 1.2 years to 3.9 years. In connection with the modifications in 2013, incremental compensation expense was recognized over a new derived service period which ended December 31, 2014. As of December 31, 2014, all of the compensation expense related to the exit options was recognized.

KAR Auction Services, Inc. Employee Stock Purchase Plan

A maximum of 1,000,000 shares of our common stock have been reserved for issuance under the KAR Auction Services, Inc. Employee Stock Purchase Plan ("ESPP"). At December 31, 2016 , 554,576 shares remain available for purchase under the ESPP. The ESPP provides for one month offering periods with a 15% discount from the fair market value of a share on the date of purchase. In accordance with ASC 718, Compensation—Stock Compensation , the entire 15% purchase discount is recorded as compensation expense. A participant's combined payroll deductions and cash payments in the ESPP may not exceed $25,000 per year.

Share Repurchase Programs

In October 2016, the board of directors authorized a repurchase of up to $500 million of the Company’s outstanding common stock, par value $0.01 per share, through October 26, 2019 . Repurchases may be made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases is subject to market and other conditions. As of December 31, 2016 , we had repurchased and retired a total of 1,931,200 shares of common stock in the open market at a weighted average price of $41.61 per share under the October 2016 authorization.

In October 2014, the board of directors authorized a repurchase of up to $300 million of the Company’s outstanding common stock, par value $0.01 per share, through October 28, 2016 . Repurchases were made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases was subject to market and other conditions. In 2015 we repurchased and retired a total of 744,900 shares of common stock in the open market at a weighted average price of $37.04 per share. In 2016 we made no repurchases of common stock in the open market under the October 2014 authorization.

In August 2015, as part of the authorized program to repurchase common stock noted above, the Company entered into an accelerated share repurchase agreement under which it paid $200 million for an initial delivery of approximately 4.6 million shares of its common stock. The initial delivery of shares represented 90% of the shares anticipated to be repurchased based on current market prices at that time. The initial delivery of shares also resulted in an immediate reduction in the number of shares used to calculate the weighted average common shares outstanding for basic and diluted net income per share. The Company settled the accelerated share repurchase agreement in January 2016 and received approximately 0.8 million additional shares of its common stock based on an adjusted volume weighted average price of its stock over the period. In total, 5,413,274 shares were repurchased under the accelerated share repurchase agreement at an average repurchase price of $36.95 per share.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Note 5—Net Income Per Share

The following table sets forth the computation of net income per share (in millions except per share amounts) :



	Year Ended December 31,
	2016		2015		2014
Net income	$	222.4	$	214.6	$	169.3
Weighted average common shares outstanding	137.6		140.1		140.2
Effect of dilutive stock options and restricted stock awards	1.5		2.2		1.6
Weighted average common shares outstanding and potential common shares	139.1		142.3		141.8
Net income per share
Basic	$	1.62	$	1.53	$	1.21
Diluted	$	1.60	$	1.51	$	1.19

Basic net income per share was calculated by dividing net income by the weighted average number of outstanding common shares for the period. Diluted net income per share was calculated consistent with basic net income per share including the effect of dilutive unissued common shares related to our stock-based employee compensation program. The effect of stock options and restricted stock on net income per share-diluted is determined through the application of the treasury stock method, whereby net proceeds received by the Company based on assumed exercises are hypothetically used to repurchase our common stock at the average market price during the period. Stock options that would have an anti-dilutive effect on net income per diluted share and PRSUs subject to performance conditions which have not yet been satisfied are excluded from the calculations. No options were excluded from the calculation of diluted net income per share for the years ended December 31, 2016 and 2015 , respectively, and approximately 0.4 million were excluded from the calculation of diluted net income per share for the year ended December 31, 2014 . In addition, approximately 0.5 million , 0.3 million , and 0.1 million PRSUs were excluded from the calculation of diluted net income per share for the years ended December 31, 2016 , 2015 , and 2014 , respectively. Total options outstanding at December 31, 2016 , 2015 and 2014 were 2.7 million , 4.0 million and 5.9 million , respectively.

Note 6—Allowance for Credit Losses and Doubtful Accounts

The following is a summary of the changes in the allowance for credit losses related to finance receivables ( in millions ):



	Year Ended December 31,
	2016			2015			2014
Allowance for Credit Losses
Balance at beginning of period	$	9.0		$	8.0		$	8.0
Provision for credit losses	30.7			16.0			12.3
Recoveries	4.2			4.1			3.5
Less charge-offs	(31.9		)	(19.1		)	(15.8		)
Balance at end of period	$	12.0		$	9.0		$	8.0

AFC's allowance for credit losses includes estimated losses for finance receivables currently held on the balance sheet of AFC and its subsidiaries.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

The following is a summary of changes in the allowance for doubtful accounts related to trade receivables ( in millions ):



	Year Ended December 31,
	2016			2015			2014
Allowance for Doubtful Accounts
Balance at beginning of period	$	6.6		$	6.3		$	4.8
Provision for credit losses	9.8			2.8			4.3
Less net charge-offs	(3.4		)	(2.5		)	(2.8		)
Balance at end of period	$	13.0		$	6.6		$	6.3

Recoveries of trade receivables were netted with charge-offs, as they were not material. Changes in the Canadian exchange rate did not have a material effect on the allowance for doubtful accounts.

Note 7—Finance Receivables and Obligations Collateralized by Finance Receivables

AFC sells the majority of its U.S. dollar denominated finance receivables on a revolving basis and without recourse to a wholly-owned, bankruptcy remote, consolidated, special purpose subsidiary ("AFC Funding Corporation"), established for the purpose of purchasing AFC's finance receivables. A securitization agreement allows for the revolving sale by AFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. AFC Funding Corporation had committed liquidity of $1.50 billion for U.S. finance receivables at December 31, 2016 .

In March 2016, AFC and AFC Funding Corporation entered into Amendment No. 1 (the "Amendment") to the Sixth Amended and Restated Receivables Purchase Agreement. The Amendment increased AFC Funding's U.S. committed liquidity from $1.15 billion to $1.25 billion . We capitalized approximately $0.8 million of costs in connection with the Amendment.

In June 2015, AFC and AFC Funding Corporation entered into the Sixth Amended and Restated Receivables Purchase Agreement. The Sixth Amended and Restated Receivables Purchase Agreement increased AFC Funding's U.S. committed liquidity from $950 million to $1.15 billion and extended the facility's maturity date. In addition, the definition of eligible receivables was expanded and the overcollateralization requirement was reduced. We capitalized approximately $10.0 million of costs in connection with the Sixth Amended and Restated Receivables Purchase Agreement.

We also have an agreement for the securitization of AFCI's receivables. AFCI's committed facility is provided through a third party conduit (separate from the U.S. facility) and was C$125 million at December 31, 2016 . In December 2016, AFCI entered into the Fourth Amended and Restated Receivables Purchase Agreement (the "Canadian Receivables Purchase Agreement"). The Canadian Receivables Purchase Agreement extended the facility's maturity date from June 29, 2018 to January 31, 2020 . We capitalized approximately $0.7 million of costs in connection with the Canadian Receivables Purchase Agreement. In June 2015, AFCI entered into the Third Amended and Restated Receivables Purchase Agreement. The Third Amended and Restated Receivables Purchase Agreement increased AFCI's committed liquidity from C$100 million to C$125 million and extended the facility's maturity date. In addition, the definition of eligible receivables was expanded. We capitalized approximately $0.9 million of costs in connection with the Third Amended and Restated Receivables Purchase Agreement. The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

The following tables present quantitative information about delinquencies, credit losses less recoveries ("net credit losses") and components of securitized financial assets and other related assets managed. For purposes of this illustration, delinquent receivables are defined as receivables 31 days or more past due.



	December 31, 2016				Net Credit Losses During 2016
	Principal Amount of:
(in millions)	Receivables		Receivables Delinquent
Floorplan receivables	$	1,781.1	$	12.0	$	27.7
Other loans	11.1		—		—
Total receivables managed	$	1,792.2	$	12.0	$	27.7



	December 31, 2015				Net Credit Losses During 2015
	Principal Amount of:
(in millions)	Receivables		Receivables Delinquent
Floorplan receivables	$	1,635.5	$	7.0	$	15.0
Other loans	5.5		—		—
Total receivables managed	$	1,641.0	$	7.0	$	15.0

AFC's allowance for losses was $12.0 million and $9.0 million at December 31, 2016 and 2015 , respectively.

As of December 31, 2016 and 2015 , $1,774.8 million and $1,626.6 million , respectively, of finance receivables and a cash reserve of 1 percent of the obligations collateralized by finance receivables served as security for the obligations collateralized by finance receivables. Obligations collateralized by finance receivables consisted of the following:



	December 31, 2016			December 31, 2015
Obligations collateralized by finance receivables, gross	$	1,300.0		$	1,201.2
Unamortized securitization issuance costs	(19.7		)	(12.2		)
Obligations collateralized by finance receivables	$	1,280.3		$	1,189.0

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Note 8—Goodwill and Other Intangible Assets

Goodwill consisted of the following ( in millions ):



	ADESA Auctions			IAA			AFC		Total
Balance at December 31, 2014	$	962.7		$	523.5		$	219.0	$	1,705.2
Increase for acquisition activity	77.6			14.7			—		92.3
Other	(0.9		)	(0.7		)	—		(1.6		)
Balance at December 31, 2015	$	1,039.4		$	537.5		$	219.0	$	1,795.9
Increase for acquisition activity	224.1			0.8			44.7		269.6
Other	(6.6		)	(1.9		)	—		(8.5		)
Balance at December 31, 2016	$	1,256.9		$	536.4		$	263.7	$	2,057.0

Goodwill represents the excess cost over fair value of identifiable net assets of businesses acquired. Goodwill increased in 2016 and 2015 primarily as a result of acquisitions. A majority of the goodwill resulting from the businesses acquired in 2016 and 2015 is expected to be deductible for tax purposes. The "other" category primarily represents the impact of fluctuations in exchange rates.

A summary of customer relationships is as follows ( in millions ):



		December 31, 2016							December 31, 2015
	Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization			Carrying Value		Gross Carrying Amount		Accumulated Amortization			Carrying Value
Customer relationships	5 - 19	$	1,168.8	$	(707.8	)	$	461.0	$	1,037.0	$	(619.3	)	$	417.7

The increase in customer relationships in 2016 was primarily related to customer relationships acquired, partially offset by the amortization of existing customer relationships, as well as changes in the Canadian exchange rate.

A summary of other intangibles is as follows ( in millions ):



		December 31, 2016							December 31, 2015
	Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization			Carrying Value		Gross Carrying Amount		Accumulated Amortization			Carrying Value
Tradenames	2 - Indefinite	$	201.1	$	(6.9	)	$	194.2	$	199.2	$	(5.3	)	$	193.9
Computer software & technology	3 - 13	404.8		(279.7		)	125.1		354.2		(238.3		)	115.9
Covenants not to compete	1 - 5	15.8		(15.0		)	0.8		15.5		(14.5		)	1.0
Total		$	621.7	$	(301.6	)	$	320.1	$	568.9	$	(258.1	)	$	310.8

Other intangibles increased in 2016 primarily as a result of computer software additions and acquisitions, partially offset by the amortization of existing intangibles.

Amortization expense for customer relationships and other intangibles was $151.0 million , $138.0 million and $128.8 million for the years ended December 31, 2016 , 2015 and 2014 , respectively. Estimated amortization expense on existing intangible assets for the next five years is $146.1 million for 2017 , $109.3 million for 2018 , $81.7 million for 2019 , $57.6 million for 2020 and $40.7 million for 2021 .

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Note 9—Property and Equipment

Property and equipment consisted of the following ( in millions ):



	Useful Lives (in years)	December 31,
	Useful Lives (in years)	2016			2015
Land		$	266.4		$	236.8
Buildings	5 - 40	244.7			217.0
Land improvements	5 - 20	167.7			149.1
Building and leasehold improvements	3 - 33	384.5			348.4
Furniture, fixtures and equipment	1 - 10	388.6			325.5
Vehicles	3 - 10	19.1			15.0
Construction in progress		27.1			44.7
		1,498.1			1,336.5
Accumulated depreciation		(655.6		)	(569.6		)
Property and equipment, net		$	842.5		$	766.9

Depreciation expense for the years ended December 31, 2016 , 2015 and 2014 was $89.6 million , $74.8 million and $67.8 million , respectively.

We have acquired furniture, fixtures and equipment by undertaking capital lease obligations. Assets held under the capital leases are depreciated in a manner consistent with our depreciation policy for owned assets. The assets included above that are held under capital leases are summarized below ( in millions ):



	December 31,
Classes of Property	2016			2015
Furniture, fixtures and equipment	$	149.2		$	120.4
Accumulated depreciation	(94.2		)	(71.3		)
Capital lease assets	$	55.0		$	49.1

Note 10—Self Insurance and Retained Loss Reserves

We self-insure our employee medical benefits, as well as a portion of our automobile, general liability and workers' compensation claims. We have insurance coverage that limits the exposure on individual claims. We also have insurance coverage that limits the total exposure to overall automobile, general liability and workers' compensation claims. The cost of the insurance is expensed over the contract periods. Utilizing historical claims experience, we record an accrual for the claims based upon the expected amount of all such claims, which includes the cost of claims that have been incurred but not reported. Accrued medical benefits and workers' compensation expenses are included in "Accrued employee benefits and compensation expenses" while accrued automobile and general liability expenses are included in "Other accrued expenses."

The following is a summary of the changes in the reserves for self-insurance and the retained losses ( in millions) :



	Year Ended December 31,
	2016			2015			2014
Balance at beginning of period	$	36.1		$	33.3		$	27.8
Net payments	(76.5		)	(66.3		)	(55.8		)
Expense	83.5			69.1			61.3
Balance at end of period	$	43.1		$	36.1		$	33.3

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Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Individual stop-loss coverage for medical benefits was $0.5 million in 2016 and 2015 . There was no aggregate policy limit for medical benefits for the Company in either year. The retention for automobile and general liability claims was $1.0 million per occurrence and the retention for workers' compensation claims was $0.5 million per occurrence with a $1.0 million corridor deductible in the 2016 policy year. The retention for automobile, general liability and workers' compensation claims was $0.5 million per occurrence with a $1.0 million corridor deductible in the 2015 policy year. Once the $1.0 million corridor deductible is met for workers' compensation claims, the deductible reverts back to $0.5 million per occurrence. The aggregate policy limits for the combined automobile, general liability and workers' compensation program was $30.4 million and $25.0 million for the 2016 and 2015 policy years, respectively.

Note 11—Long-Term Debt

Long-term debt consisted of the following (in millions) :



				December 31,
	Interest Rate*		Maturity	2016			2015
Term Loan B-1	LIBOR	+ 2.50%	March 11, 2017	$	—		$	637.2
Term Loan B-2	Adjusted LIBOR	+ 3.1875%	March 11, 2021	1,082.7			1,098.0
Term Loan B-3	Adjusted LIBOR	+ 3.50%	March 9, 2023	1,339.9			—
Revolving credit facility	Adjusted LIBOR	+ 2.50%	March 9, 2021	80.5			—
Old revolving credit facility	LIBOR	+ 2.25%	March 11, 2019	—			140.0
Canadian line of credit	CAD Prime	+ 0.50%	Repayable upon demand	—			—
Total debt				2,503.1			1,875.2
Unamortized debt issuance costs/discounts				(32.8		)	(10.1		)
Current portion of long-term debt				(105.2		)	(153.9		)
Long-term debt				$	2,365.1		$	1,711.2

*The interest rates presented in the table above represent the rates in place at December 31, 2016. The weighted average interest rate on our variable rate debt was 4.39% and 3.31% at December 31, 2016 and 2015 , respectively.

Credit Facility

On March 9, 2016, we entered into an Incremental Commitment Agreement and First Amendment (the "First Amendment") to the Credit Agreement. The First Amendment provided for, among other things, (i) a new seven -year senior secured term loan facility ("Term Loan B-3") and (ii) a $300 million , five -year senior secured revolving credit facility (the "revolving credit facility"), which replaced the previously existing revolving credit facility (the "old revolving credit facility"). The proceeds received from Term Loan B-3 were used to repay in full Term Loan B-1 and the amount outstanding on the old revolving credit facility. No early termination penalties were incurred by the Company; however, we incurred a non-cash loss on the extinguishment of debt of $4.0 million in the first quarter of 2016. The loss was a result of the write-off of unamortized debt issuance costs associated with Term Loan B-1 and the old revolving credit facility. The First Amendment did not change the amount outstanding on Term Loan B-2, but did increase its interest rate margin. In addition, we capitalized approximately $18.0 million of debt issuance costs in connection with the First Amendment.

The Credit Facility is available for letters of credit, working capital, permitted acquisitions and general corporate purposes. The Credit Agreement provides that with respect to the revolving credit facility, up to $75 million is available for letters of credit and up to $75 million is available for swing line loans.

Term Loan B-2 was issued at a discount of $2.8 million and the Term Loan B-3 was issued at a discount of $13.5 million . The discounts are being amortized using the effective interest method to interest expense over the respective terms of the loans. Both Term Loan B-2 and Term Loan B-3 are payable in quarterly installments equal to 0.25% of the original aggregate principal amounts of the term loans, respectively. Such payments commenced on June 30, 2014 for Term Loan B-2 and on June 30, 2016 for Term Loan B-3, with the balances payable at each respective maturity date. The Credit Facility is subject to mandatory prepayments and reduction in an amount equal to the net proceeds of certain debt offerings, certain asset sales and

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Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

certain insurance recovery events. In addition, in accordance with the terms of the Credit Agreement, 50% of the net cash proceeds from the sale-leaseback of certain technology and capital equipment were used to prepay $6.5 million and $7.8 million of Term Loan B-2 and Term Loan B-3, respectively, for the year ended December 31, 2016 . Each such prepayment is credited to prepay, on a pro rata basis, in order of maturity the unpaid amounts due on the first eight scheduled quarterly installments of Term Loan B-2 and Term Loan B-3 and thereafter to the remaining scheduled quarterly installments of each term loan on a pro rata basis.

The obligations of the Company under the Credit Facility are guaranteed by certain of our domestic subsidiaries (the "Subsidiary Guarantors") and are secured by substantially all of the assets of the Company and the Subsidiary Guarantors, including but not limited to: (a) pledges of and first priority perfected security interests in 100% of the equity interests of certain of the Company's and the Subsidiary Guarantors' domestic subsidiaries and 65% of the equity interests of certain of the Company's and the Subsidiary Guarantors' first tier foreign subsidiaries and (b) perfected first priority security interests in substantially all other tangible and intangible assets of the Company and each Subsidiary Guarantor, subject to certain exceptions. The Credit Agreement contains affirmative and negative covenants that we believe are usual and customary for a senior secured credit agreement. The negative covenants include, among other things, limitations on asset sales, mergers and acquisitions, indebtedness, liens, dividends, investments and transactions with our affiliates. The Credit Agreement also requires us to maintain a maximum leverage ratio, provided there are revolving loans outstanding. We were in compliance with the covenants in the Credit Agreement at December 31, 2016 .

As set forth in the Credit Agreement, Term Loan B-2 bears interest at Adjusted LIBOR (as defined in the Credit Agreement) plus 3.1875% (with an Adjusted LIBOR floor of 0.75% per annum), Term Loan B-3 at Adjusted LIBOR (as defined in the Credit Agreement) plus 3.50% (with an Adjusted LIBOR floor of 0.75% per annum) and revolving loan borrowings at Adjusted LIBOR plus 2.50% . However, for specified types of borrowings, the Company may elect to make Term Loan B-2 borrowings at a Base Rate (as defined in the Credit Agreement) plus 2.1875% , Term Loan B-3 at a Base Rate plus 2.50% and revolving loan borrowings at a Base Rate plus 1.50% . The rates on Term Loan B-2 and Term Loan B-3 were 4.19% and 4.50% at December 31, 2016 , respectively. In addition, if the Company reduces its Consolidated Senior Secured Leverage Ratio, which is based on a net debt calculation, to levels specified in the Credit Agreement, the applicable interest rate on the revolving credit facility will step down by 25 basis points. The Company also pays a commitment fee of 40 basis points, payable quarterly, on the average daily unused amount of the revolving credit facility. The fee may step down to 35 basis points based on the Company's Consolidated Senior Secured Leverage Ratio as described above.

On December 31, 2016 , $80.5 million was drawn on the revolving credit facility and $140.0 million was drawn on the old revolving credit facility at December 31, 2015 . In addition, we had related outstanding letters of credit in the aggregate amount of $29.7 million and $28.0 million at December 31, 2016 and 2015 , respectively, which reduce the amount available for borrowings under the respective revolving credit facility. The $80.5 million of outstanding borrowings under the revolving credit facility have been classified as current debt as the Company intends to repay the outstanding borrowings within the next twelve months.

Original Credit Facility

On March 11, 2014, we repaid all principal outstanding and interest due under the Original Credit Agreement. No early termination penalties were incurred by the Company in connection with the refinancing; however, we incurred a non-cash loss on the extinguishment of debt under the Original Credit Agreement of $30.3 million . The loss was a result of the write-off of certain unamortized debt issuance costs and the unamortized debt discount on Term Loan B.

Canadian Line of Credit

ADESA Canada has a C$8 million line of credit. The line of credit bears interest at a rate equal to the Canadian prime rate plus 50 basis points. There were no borrowings under the Canadian line of credit at December 31, 2016 or 2015 . There were related letters of credit outstanding totaling approximately C$0.9 million at December 31, 2016 and 2015 , which reduce credit available under the Canadian line of credit, but do not affect amounts available for borrowings under our revolving credit facility. The line of credit is guaranteed by certain ADESA Canada companies.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Future Principal Payments

At December 31, 2016 , aggregate future principal payments on long-term debt are as follows ( in millions ):



2017	$	105.2
2018	24.7
2019	24.7
2020	24.7
2021	1,051.4
Thereafter	1,272.4
	$	2,503.1

Note 12—Financial Instruments

Our derivative activities are initiated within the guidelines of documented corporate risk management policies. We do not enter into any derivative transactions for speculative or trading purposes.

Interest Rate Risk Management

We are exposed to interest rate risk on our variable rate borrowings. Accordingly, interest rate fluctuations affect the amount of interest expense we are obligated to pay. We use interest rate derivatives with the objective of managing exposure to interest rate movements, thereby reducing the effect of interest rate changes and the effect they could have on future cash flows. Currently, interest rate cap agreements are used to accomplish this objective.

•


•	In April 2015, we purchased two interest rate caps for an aggregate amount of approximately $0.7 million with an aggregate notional amount of $400 million to manage our exposure to interest rate movements on our variable rate Credit Facility when three-month LIBOR exceeds 1.5% . The interest rate cap agreements each had an effective date of April 16, 2015 and each matures on March 31, 2017.


•	In August 2013, we purchased four interest rate caps for an aggregate amount of approximately $2.2 million with an aggregate notional amount of $1.2 billion to manage our exposure to interest rate movements on our variable rate Credit Facility if/when three-month LIBOR exceeded 1.0% . The interest rate cap agreements each matured on August 16, 2015.

We are exposed to credit loss in the event of non-performance by the counterparties; however, non-performance is not anticipated. ASC 815, Derivatives and Hedging , requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. The fair values of the interest rate derivatives are based on quoted market prices for similar instruments from commercial banks. The following table presents the fair value of our interest rate derivatives included in the consolidated balance sheets for the periods presented ( in millions ):

Asset Derivatives

December 31, 2016

December 31, 2015

Derivatives Not Designated as Hedging Instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

2015 Interest rate caps

Other assets

—

Other assets

0.7

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Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

We have not designated any of the interest rate caps as hedges for accounting purposes. Accordingly, changes in the fair value of the interest rate caps are recognized as "Interest expense" in the consolidated statement of income. The following table presents the effect of the interest rate derivatives on our consolidated statements of income for the periods presented ( in millions ):



	Location of Gain / (Loss) Recognized in Income on Derivatives	Amount of Gain / (Loss) Recognized in Income on Derivatives
		Year Ended December 31,
Derivatives Not Designated as Hedging Instruments		2016			2015			2014
2015 Interest rate caps	Interest expense	$	(0.7	)	$	(1.5	)	N/A
2013 Interest rate caps	Interest expense	N/A			—			(0.8	)

Concentrations of Credit Risk

Financial instruments that potentially subject us to credit risk consist principally of interest-bearing investments, finance receivables, trade receivables and interest rate derivatives. We maintain cash and cash equivalents, short-term investments, and certain other financial instruments with various major financial institutions. We perform periodic evaluations of the relative credit standing of these financial institutions and companies and limit the amount of credit exposure with any one institution. Cash and cash equivalents include interest-bearing investments with maturities of three months or less. Due to the nature of our business, substantially all trade and finance receivables are due from vehicle dealers, salvage buyers, institutional sellers and insurance companies. We have possession of vehicles or vehicle titles collateralizing a significant portion of the trade and finance receivables. The risk associated with this concentration is limited due to the large number of accounts and their geographic dispersion. We monitor the creditworthiness of customers to which we grant credit terms in the normal course of business. In the event of nonperformance by counterparties to financial instruments we are exposed to credit-related losses, but management believes this credit risk is limited by periodically reviewing the creditworthiness of the counterparties to the transactions.

Financial Instruments

The carrying amounts of trade receivables, finance receivables, other current assets, accounts payable, accrued expenses and borrowings under our short-term revolving line of credit facilities approximate fair value because of the short-term nature of those instruments.

As of December 31, 2016 and 2015 , the estimated fair value of our long-term debt amounted to $2,528.0 million and $1,867.4 million , respectively. The estimates of fair value were based on broker-dealer quotes for our debt as of December 31, 2016 and 2015 . The estimates presented on long-term financial instruments are not necessarily indicative of the amounts that would be realized in a current market exchange.

Note 13—Leasing Agreements

We lease property, computer equipment and software, automobiles, trucks and trailers, pursuant to operating lease agreements with terms expiring through 2036. Some of the leases contain renewal provisions upon the expiration of the initial lease term, as well as fair market value purchase provisions. In accordance with ASC 840, Leases , rental expense is being recognized ratably over the lease period, including those leases containing escalation clauses. The deferred portion of the rent, for the leases containing escalation clauses, is included in "Other liabilities" on the consolidated balance sheet.

We also lease furniture, fixtures and equipment under capital leases. The economic substance of the leases is that we are financing the purchase of furniture, fixtures and equipment through leases and, accordingly, they are recorded as assets and liabilities. The capital lease liabilities are included in "Other accrued expenses" and "Other liabilities" on the consolidated balance sheet. Depreciation expense includes the amortization of assets held under capital leases.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Total future minimum lease payments for non-cancelable operating and capital leases with terms in excess of one year (excluding renewal periods) as of December 31, 2016 are as follows ( in millions ):



	Operating Leases		Capital Leases
2017	$	121.7	$	27.2
2018	115.0		17.9
2019	105.2		7.2
2020	94.5		0.1
2021	88.1		0.1
Thereafter	594.4		—
	$	1,118.9	$	52.5
Less: interest portion of capital leases			0.8
Total			$	51.7

Total lease expense for the years ended December 31, 2016 , 2015 and 2014 was $134.8 million , $115.0 million and $108.9 million , respectively.

Note 14—Income Taxes

The components of our income before income taxes and the provision for income taxes are as follows ( in millions ):



	Year Ended December 31,
	2016			2015			2014
Income before income taxes:
Domestic	$	265.8		$	259.5		$	199.3
Foreign	89.5			81.0			65.7
Total	$	355.3		$	340.5		$	265.0
Income tax expense (benefit):
Current:
Federal	$	100.1		$	88.6		$	87.0
Foreign	22.9			22.6			21.1
State	14.1			9.7			12.1
Total current provision	137.1			120.9			120.2
Deferred:
Federal	(1.6		)	6.5			(18.6		)
Foreign	(2.4		)	(1.8		)	(2.2		)
State	(0.2		)	0.3			(3.7		)
Total deferred provision	(4.2		)	5.0			(24.5		)
Income tax expense	$	132.9		$	125.9		$	95.7

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Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

The provision for income taxes was different from the U.S. federal statutory rate applied to income before taxes, and is reconciled as follows:



	Year Ended December 31,
	2016		2015		2014
Statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net	2.4	%	2.1	%	3.0	%
Reserves for tax exposures	(0.2	)%	0.3	%	(0.1	)%
Change in valuation allowance	0.6	%	0.3	%	(0.2	)%
International operations	(0.8	)%	(1.2	)%	(0.6	)%
Other, net	0.4	%	0.5	%	(1.0	)%
Effective rate	37.4	%	37.0	%	36.1	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We believe that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets. The valuation allowance as of December 31, 2016 primarily relates to net operating losses, tax credits and capital loss carryforwards that are not more likely than not to be utilized prior to their expiration.

We offset all deferred tax assets and liabilities by jurisdiction, as well as any related valuation allowance, and present them as a single non-current deferred income tax liability. Deferred tax assets (liabilities) are comprised of the following at December 31 ( in millions ):



	2016			2015
Gross deferred tax assets:
Allowances for trade and finance receivables	$	9.1		$	5.5
Accruals and liabilities	62.6			54.1
Employee benefits and compensation	30.6			27.2
Net operating loss carryforwards	25.1			26.7
Investment basis difference	4.1			2.6
Other	11.6			9.9
Total deferred tax assets	143.1			126.0
Deferred tax asset valuation allowance	(26.4		)	(21.2		)
Total	116.7			104.8
Gross deferred tax liabilities:
Property and equipment	(120.0		)	(104.4		)
Goodwill and intangible assets	(274.6		)	(293.4		)
Other	(13.8		)	(7.8		)
Total	(408.4		)	(405.6		)
Net deferred tax liabilities	$	(291.7	)	$	(300.8	)

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Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

The tax benefit from state and federal net operating loss carryforwards expires as follows ( in millions ):



2017	$	0.3
2018	0.2
2019	0.2
2020	0.8
2021	0.8
2022 to 2036	22.8
	$	25.1

Permanently reinvested undistributed earnings of our foreign subsidiaries were approximately $120.3 million at December 31, 2016 . Because these amounts have been or will be permanently reinvested in properties and working capital, we have not recorded the deferred taxes associated with these earnings. If the undistributed earnings of foreign subsidiaries were to be remitted, tax expense would need to be recognized at the U.S. statutory rate, net of any applicable foreign tax credits. It is not practical for us to determine the additional tax that would be incurred upon remittance of these earnings.

We made federal income tax payments, net of federal income tax refunds, of $79.2 million , $95.2 million and $69.2 million in 2016 , 2015 and 2014 , respectively. State and foreign income taxes paid by us, net of refunds, totaled $42.4 million , $34.7 million and $33.0 million in 2016 , 2015 and 2014 , respectively.

We apply the provisions of ASC 740, Income Taxes . ASC 740 clarifies the accounting and reporting for uncertainty in income taxes recognized in an enterprise's financial statements. These provisions prescribe a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken on income tax returns.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows ( in millions ):



	December 31,
	2016			2015
Balance at beginning of period	$	14.9		$	18.6
Increase in prior year tax positions	1.2			—
Decrease in prior year tax positions	—			(1.9		)
Increase in current year tax positions	1.4			1.2
Settlements	—			—
Lapse in statute of limitations	(3.5		)	(3.0		)
Balance at end of period	$	14.0		$	14.9

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $7.8 million and $8.2 million at December 31, 2016 and 2015 , respectively.

We record interest and penalties associated with the uncertain tax positions within our provision for income taxes on the income statement. We had reserves totaling $3.2 million and $4.6 million in 2016 and 2015 , respectively, associated with interest and penalties, net of tax.

The provision for income taxes involves management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by us. In addition, U.S. and non-U.S. tax authorities periodically review income tax returns filed by us and can raise issues regarding our filing positions, timing and amount of income or deductions and the allocation of income among the jurisdictions in which we operate. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. In the normal course of business we are subject to examination by taxing authorities in the U.S., Canada, United Kingdom and Mexico. In general, the examination of our material tax returns is completed for the years prior to 2011.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Based on the potential outcome of the Company's tax examinations and the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the currently remaining unrecognized tax benefits will change within the next 12 months. The associated net tax impact on the reserve balance is estimated to be in the range of a $2.0 million to $4.0 million decrease.

Note 15—Employee Benefit Plans

401(k) Plan

We maintain a defined contribution 401(k) plan that covers substantially all U.S. employees. Participants are generally allowed to make non-forfeitable contributions up to the annual IRS limits. The Company matches 100 percent of the amounts contributed by each individual participant up to 4 percent of the participant's compensation. Participants are 100 percent vested in the Company's contributions. For the years ended December 31, 2016 , 2015 and 2014 we contributed $13.0 million , $10.8 million and $9.0 million , respectively.

Note 16—Commitments and Contingencies

We are involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business such as employment matters and dealer disputes. Management considers the likelihood of loss or the incurrence of a liability, as well as the 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 (or range of possible losses) can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. Accruals for contingencies including litigation and environmental matters are included in "Other accrued expenses" at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period. Legal fees are expensed as incurred.

We have accrued, as appropriate, for environmental remediation costs anticipated to be incurred at certain of our auction facilities. Liabilities for environmental matters included in "Other accrued expenses" were $0.1 million at December 31, 2016 and 2015 . No amounts have been accrued as receivables for potential reimbursement or recoveries to offset this liability.

We store a significant number of vehicles owned by various customers that are consigned to us to be auctioned. We are contingently liable for each consigned vehicle until the eventual sale or other disposition, subject to certain natural disaster exceptions. Individual stop loss and aggregate insurance coverage is maintained on the consigned vehicles. These consigned vehicles are not included in the consolidated balance sheets.

In the normal course of business, we also enter into various other guarantees and indemnities in our relationships with suppliers, service providers, customers and others. These guarantees and indemnifications do not materially impact our financial condition or results of operations, but indemnifications associated with our actions generally have no dollar limitations and historically have been inconsequential.

As noted above, we are involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business such as employment matters and dealer disputes. Such litigation is generally not, in the opinion of management, likely to have a material adverse effect on our financial condition, results of operations or cash flows. Legal and regulatory proceedings which could be material are discussed below.

IAA—Lower Duwamish Waterway

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December 31, 2016, 2015 and 2014

Response, Compensation, and Liability Act, or "CERCLA," related to the LDW Site. On November 7, 2012, the EPA issued IAA a Second General Notice of Potential Liability, or "Second General Notice," for the LDW Site. The EPA's website indicates that the EPA has issued general notice letters to approximately 116 entities, and has issued Section 104(e) Requests to more than 300 entities related to the LDW Site. In the General Notice and Second General Notice, the EPA informed IAA that the EPA believes IAA may be a Potentially Responsible Party, or "PRP," but the EPA did not specify the factual basis for this assertion. At this time, the EPA still has not specified the factual basis for this assertion and has not demanded that IAA pay any funds or take any action apart from responding to the Section 104(e) Information Request. Four PRPs, The Boeing Company, the City of Seattle, the Port of Seattle and King County - the Lower Duwamish Waterway Group ("LDWG"), have funded a remedial investigation and feasibility study related to the cleanup of the LDW Site. In December 2014, the EPA issued a Record of Decision (ROD), detailing the final cleanup plan for the LDW Site. The ROD estimates the cost of cleanup to be $342 million , with the plan involving dredging of 105 acres, capping 24 acres, and enhanced natural recovery of 48 acres. The estimated length of the cleanup is 17 years, including 7 years of active remediation, and 10 years of monitored natural recovery. IAA is aware that certain authorities may bring natural resource damage claims against PRPs. On February 11, 2016, IAA received a Notice of Intent letter from the United States National Oceanic and Atmospheric Administration informing IAA that the Elliott Bay Trustee Council are beginning to conduct an injury assessment for natural resource damages in the LDW. The Notice of Intent indicates that the decision of the trustees to proceed with this natural resources injury assessment followed a pre-assessment screen performed by the trustees. More recently, in a letter dated August 16, 2016, EPA issued a status update to the PRPs at the LDW Site. The letter stated that EPA expects the bulk of the pre-remedial design work currently being performed by the LDWG to be completed by the beginning of 2018, with the Remedial Design/Remedial Action ("RD/RA")phase to follow. EPA expects to initiate RD/RA negotiations with all PRPs beginning in early 2018. At this time, however, the Company does not have adequate information to determine IAA's responsibility, if any, for contamination at this site, or to estimate IAA's loss as a result of this potential liability.

Note 17—Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following ( in millions ):



	December 31,
	2016			2015
Foreign currency translation loss	$	(49.4	)	$	(40.3	)
Unrealized gain on postretirement benefit obligation, net of tax	0.1			0.1
Accumulated other comprehensive loss	$	(49.3	)	$	(40.2	)

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December 31, 2016, 2015 and 2014

Note 18—Segment Information

ASC 280, Segment Reporting , requires reporting of segment information that is consistent with the manner in which the chief operating decision maker operates and views the Company. Our operations are grouped into three operating segments: ADESA Auctions, IAA and AFC, which also serve as our reportable business segments. These reportable business segments offer different services and have fundamental differences in their operations.

ADESA Auctions encompasses all physical and online wholesale auctions throughout North America (U.S., Canada and Mexico). Beginning in June 2016, the ADESA Auctions segment also includes ADESA Remarketing Limited (formerly known as GRS), an online whole car vehicle remarketing business in the United Kingdom. ADESA Auctions relates to used vehicle remarketing, including auction services, remarketing, or make ready services and all are interrelated, synergistic elements along the auto remarketing chain.

IAA encompasses all salvage auctions throughout North America (U.S. and Canada). Beginning in June 2015, the IAA segment also includes HBC, which operates salvage vehicle auctions and related services in the United Kingdom. IAA provides insurance companies and other vehicle suppliers cost-effective salvage processing solutions, including selling total loss and recovered theft vehicles. As such, IAA relates to total loss vehicle remarketing, including auction services, remarketing, or make ready services. All are interrelated, synergistic elements along the total loss vehicle remarketing chain.

AFC is primarily engaged in the business of providing short-term, inventory-secured financing to independent, used vehicle dealers. AFC also includes other businesses and ventures that AFC may enter into, focusing on providing independent used vehicle dealer customers with other related services and products, including vehicle service contracts. AFC conducts business primarily at or near wholesale used vehicle auctions in the U.S. and Canada.

The holding company is maintained separately from the three reportable segments and includes expenses associated with the corporate offices, such as salaries, benefits and travel costs for the corporate management team, certain human resources, information technology and accounting costs, and certain insurance, treasury, legal and risk management costs. Holding company interest expense includes the interest expense incurred on capital leases and the corporate debt structure. Intercompany charges relate primarily to interest on intercompany debt or receivables and certain administrative costs allocated by the holding company.

Financial information regarding our reportable segments is set forth below for the year ended December 31, 2016 (in millions) :



	ADESA Auctions			IAA			AFC			Holding Company			Consolidated
Operating revenues	$	1,765.3		$	1,098.0		$	286.8		$	—		$	3,150.1
Operating expenses
Cost of services (exclusive of depreciation and amortization)	1,036.5			708.0			82.9			—			1,827.4
Selling, general and administrative	327.0			104.2			28.7			123.2			583.1
Depreciation and amortization	100.0			87.9			31.1			21.6			240.6
Total operating expenses	1,463.5			900.1			142.7			144.8			2,651.1
Operating profit (loss)	301.8			197.9			144.1			(144.8		)	499.0
Interest expense	0.1			—			34.1			104.6			138.8
Other (income) expense, net	(0.5		)	(0.6		)	—			0.6			(0.5		)
Loss on extinguishment of debt	—			—			1.4			4.0			5.4
Intercompany expense (income)	52.6			38.1			(33.8		)	(56.9		)	—
Income (loss) before income taxes	249.6			160.4			142.4			(197.1		)	355.3
Income taxes	92.7			59.3			54.0			(73.1		)	132.9
Net income (loss)	$	156.9		$	101.1		$	88.4		$	(124.0	)	$	222.4
Total assets	$	2,898.0		$	1,358.9		$	2,213.8		$	86.9		$	6,557.6
Capital expenditures	$	74.8		$	41.1		$	7.3		$	31.9		$	155.1

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Financial information regarding our reportable segments is set forth below for the year ended December 31, 2015 (in millions) :



	ADESA Auctions			IAA			AFC			Holding Company			Consolidated
Operating revenues	$	1,427.8		$	994.4		$	268.4		$	—		$	2,690.6
Operating expenses
Cost of services (exclusive of depreciation and amortization)	836.9			633.6			78.0			—			1,548.5
Selling, general and administrative	276.6			98.1			27.8			99.5			502.0
Depreciation and amortization	86.2			80.8			30.8			15.0			212.8
Total operating expenses	1,199.7			812.5			136.6			114.5			2,263.3
Operating profit (loss)	228.1			181.9			131.8			(114.5		)	427.3
Interest expense	0.7			—			24.1			66.6			91.4
Other (income) expense, net	(1.7		)	(1.7		)	(1.5		)	0.3			(4.6		)
Intercompany expense (income)	57.6			38.4			(25.3		)	(70.7		)	—
Income (loss) before income taxes	171.5			145.2			134.5			(110.7		)	340.5
Income taxes	62.3			52.4			51.3			(40.1		)	125.9
Net income (loss)	$	109.2		$	92.8		$	83.2		$	(70.6	)	$	214.6
Total assets	$	2,390.9		$	1,292.1		$	2,025.0		$	63.5		$	5,771.5
Capital expenditures	$	70.0		$	40.4		$	7.0		$	17.3		$	134.7

Financial information regarding our reportable segments is set forth below for the year ended December 31, 2014 (in millions) :



	ADESA Auctions			IAA			AFC			Holding Company			Consolidated
Operating revenues	$	1,271.0		$	895.9		$	250.1		$	—		$	2,417.0
Operating expenses
Cost of services (exclusive of depreciation and amortization)	745.9			555.7			69.7			—			1,371.3
Selling, general and administrative	259.9			98.8			28.8			83.9			471.4
Depreciation and amortization	80.2			76.2			30.4			9.8			196.6
Total operating expenses	1,086.0			730.7			128.9			93.7			2,039.3
Operating profit (loss)	185.0			165.2			121.2			(93.7		)	377.7
Interest expense	0.9			0.2			18.7			66.4			86.2
Other (income) expense, net	(2.4		)	(1.6		)	—			0.2			(3.8		)
Loss on extinguishment of debt	—			—			—			30.3			30.3
Intercompany expense (income)	56.9			38.5			(22.7		)	(72.7		)	—
Income (loss) before income taxes	129.6			128.1			125.2			(117.9		)	265.0
Income taxes	43.2			48.4			48.6			(44.5		)	95.7
Net income (loss)	$	86.4		$	79.7		$	76.6		$	(73.4	)	$	169.3
Total assets	$	2,272.0		$	1,233.8		$	1,771.3		$	57.7		$	5,334.8
Capital expenditures	$	42.3		$	39.3		$	6.4		$	13.0		$	101.0

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Geographic Information

Our foreign operations include Canada, Mexico and the U.K. Most of our operations outside the U.S. are in Canada. Information regarding the geographic areas of our operations is set forth below (in millions) :



	Year Ended December 31,
	2016		2015		2014
Operating revenues
U.S.	$	2,737.6	$	2,337.9	$	2,094.3
Foreign	412.5		352.7		322.7
	$	3,150.1	$	2,690.6	$	2,417.0



	December 31,
	2016		2015
Long-lived assets
U.S.	$	3,447.5	$	3,138.8
Foreign	268.9		186.6
	$	3,716.4	$	3,325.4

No single customer accounted for more than ten percent of our total revenues in any fiscal year presented.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2016, 2015 and 2014

Note 19—Quarterly Financial Data (Unaudited)

Information for any one quarterly period is not necessarily indicative of the results that may be expected for the year. Revenues and cost of services shown in the tables below have been increased by the amounts for owned vehicles noted at the bottom of each of the tables. For a description of the changes, reference the “Revenue Recognition - ADESA Auction Services” section in Note 2.



2016 Quarter Ended	March 31			June 30			Sept. 30		Dec. 31
Operating revenues	$	758.3		$	788.5		$	789.6	$	813.7
Operating expenses
Cost of services (exclusive of depreciation and amortization)	432.0			447.6			459.5		488.3
Selling, general, and administrative	141.1			146.9			146.3		148.8
Depreciation and amortization	56.4			59.0			60.5		64.7
Total operating expenses	629.5			653.5			666.3		701.8
Operating profit	128.8			135.0			123.3		111.9
Interest expense	28.7			35.8			36.3		38.0
Other (income) expense, net	(1.3		)	(0.3		)	0.8		0.3
Loss on extinguishment of debt	4.0			—			—		1.4
Income before income taxes	97.4			99.5			86.2		72.2
Income taxes	36.7			37.7			31.8		26.7
Net income	$	60.7		$	61.8		$	54.4	$	45.5
Basic net income per share of common stock	$	0.44		$	0.45		$	0.39	$	0.33
Diluted net income per share of common stock	$	0.44		$	0.44		$	0.39	$	0.33

Recorded increase in ADESA operating revenues and cost of services for owned vehicles	$	13.3		$	16.7		$	15.8	$	14.8



2015 Quarter Ended	March 31			June 30		Sept. 30			Dec. 31
Operating revenues	$	645.0		$	671.5	$	678.4		$	695.7
Operating expenses
Cost of services (exclusive of depreciation and amortization)	364.7			379.7		389.8			414.3
Selling, general, and administrative	121.5			123.5		128.5			128.5
Depreciation and amortization	50.9			51.8		54.1			56.0
Total operating expenses	537.1			555.0		572.4			598.8
Operating profit	107.9			116.5		106.0			96.9
Interest expense	21.0			21.8		24.4			24.2
Other (income) expense, net	(2.2		)	0.4		(0.3		)	(2.5		)
Income before income taxes	89.1			94.3		81.9			75.2
Income taxes	34.6			34.8		29.6			26.9
Net income	$	54.5		$	59.5	$	52.3		$	48.3
Basic net income per share of common stock	$	0.39		$	0.42	$	0.37		$	0.35
Diluted net income per share of common stock	$	0.38		$	0.41	$	0.37		$	0.35

Recorded increase in ADESA operating revenues and cost of services for owned vehicles	$	12.6		$	13.2	$	11.7		$	13.5

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Internal Control over Financial Reporting

Management's report on our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and the related report of KPMG LLP, our independent registered public accounting firm, are included in Item 8, Financial Statements and Supplementary Data under the headings Management's Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm, respectively, and are incorporated herein by reference.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2016 , that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information relating to our directors and nominees will be included in our Definitive Proxy Statement for our 2017 Annual Meeting of Stockholders and such information will be incorporated by reference herein. Our executive officers as of February 15, 2017 , are as follows:

James P. Hallett, 63, Chief Executive Officer and Chairman of the Board of Directors. Mr. Hallett has served as the Chief Executive Officer since September 2009 and the Chairman of the Board of Directors since December 2014. Mr. Hallett served as President and Chief Executive Officer of ADESA from April 2007 to September 2009. Mr. Hallett served as: Executive Vice President of ADESA, Inc. from May 2004 to May 2005; President of ADESA Corporation, LLC from March 2004 to May 2005; President of ADESA Corporation between August 1996 and October 2001 and again between January 2003 and March 2004; Chief Executive Officer of ADESA Corporation from August 1996 to July 2003; ADESA Corporation's Chairman from October 2001 to July 2003; Chairman, President and Chief Executive Officer of ALLETE Automotive Services, Inc. from January 2001 to January 2003 and Executive Vice President from August 1996 to May 2004. Mr. Hallett left ADESA in May 2005 and thereafter served as President of the Columbus Fair Auto Auction until April 2007.

Warren W. Byrd, 54, Executive Vice President of Corporate Development and Real Estate. Mr. Byrd has been the Executive Vice President of Corporate Development and Real Estate since June 2010. Mr. Byrd previously served as the Executive Vice President of Corporate Development of ADESA from April 2007 to June 2010. From April 2004 to April 2007, Mr. Byrd was the Chief Operating Officer of ServNet Auction Group, a trade co-operative of over 20 independent auto auctions in the U.S. Mr. Byrd previously served in the following positions between September 1994 and November 2003: President of ADESA Impact, a salvage auction subsidiary of ADESA, between February 2002 and November 2003; Senior Vice President and Chief Information Officer of ADESA between May 2001 and February 2002; Vice President of Corporate Development of ADESA between January 1999 and May 2001; General Counsel of ADESA between August 1996 and January 1999; and Legal Counsel of ADESA between September 1994 and August 1996. Prior to joining ADESA, Mr. Byrd practiced law with McHale, Cook and Welch in Indianapolis from May 1989 to September 1994.

Thomas J. Caruso, 57, Chief Client Officer. Mr. Caruso has been the Chief Client Officer since January 2014. Mr. Caruso was the President and Chief Executive Officer of ADESA from September 2009 to January 2014. Mr. Caruso previously was the Chief Operating Officer of ADESA from May 2008 to September 2009. Mr. Caruso also served as Executive Vice President of ADESA from April 2007 to May 2008 and Regional Vice President of ADESA from January 2000 to April 2007. From November 1992 to January 2000 Mr. Caruso served as General Manager of ADESA Boston.

Donald S. Gottwald, 50, Chief Operating Officer. Mr. Gottwald has been the Chief Operating Officer since March 2014. Mr. Gottwald previously served as the Chief Executive Officer of AFC from January 2009 to March 2014. Mr. Gottwald also served as the President of AFC from January 2009 to May 2013. Previously, Mr. Gottwald served in the role of Executive Vice President of Dealer Business for HSBC Auto Finance from December 2005 to October 2008. Prior to working at HSBC Auto Finance, Mr. Gottwald served in several roles of increased responsibility with GMAC Financial Services from June 1993 to December 2005, including Managing Director of Saab Financial Services Corp. and Managing Director of American Suzuki Financial Services. Mr. Gottwald has been active in the American Financial Services Association and previously served on the association's board of directors. In addition, Mr. Gottwald serves on the Northwood University Automotive Marketing Curriculum Advisory Board.

Peter J. Kelly, 48, President of Digital Services and Chief Technology Officer. Mr. Kelly has been the President of Digital Services since December 2014 and the Chief Technology Officer since June 2013. Mr. Kelly was the President and Chief Executive Officer of Openlane from February 2011 to June 2013. Previously, Mr. Kelly was President and Chief Financial Officer of Openlane from February 2010 to February 2011. Prior to that, Mr. Kelly was Chief Financial Officer of Openlane from May 2008 to February 2010. Mr. Kelly was a co-founder of Openlane in 1999 and served in a number of executive roles at Openlane from 1999 to 2008.

John W. Kett, 53, Chief Executive Officer and President of IAA . Mr. Kett has been Chief Executive Officer and President of IAA since May 2014. Mr. Kett joined IAA in 2001 as Senior Vice President of Planning and Business Development and was later promoted to Chief Financial Officer and then President. Prior to joining IAA, Mr. Kett served in a variety of senior financial and operational roles for Central Steel and Wire Co., Safelite Glass Corporation (formerly Vistar, Inc.), Newark Electronics and Deloitte LLP.

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Eric M. Loughmiller, 57, Executive Vice President and Chief Financial Officer. Mr. Loughmiller has been Executive Vice President and Chief Financial Officer since April 2007. Previously, from 2001 to 2006, Mr. Loughmiller was the Vice President and Chief Financial Officer of ThoughtWorks, Inc., an information technology consulting firm. Prior to that, Mr. Loughmiller served as Executive Vice President and Chief Financial Officer of May & Speh, Inc. from 1996 to 1998 until May & Speh was acquired by Acxiom Corporation. Mr. Loughmiller was the finance leader of the Outsourcing Division of Acxiom Corporation from 1998 to 2000. Prior to joining May & Speh, Mr. Loughmiller was an audit partner with PricewaterhouseCoopers LLP, an independent registered public accounting firm. Mr. Loughmiller is a certified public accountant.

James E. Money, 54, President of AFC. Mr. Money has been President of AFC since June 2016. Mr. Money joined AFC in 1999 as Controller and was later promoted to Vice President of Finance in 2006 and to Chief Financial Officer in 2009. Prior to joining AFC, Mr. Money served as Chief Financial Officer of Fundex Games, LTD from 1998 to 1999. Mr. Money is a certified public accountant.

Rebecca C. Polak, 46, Executive Vice President, General Counsel and Secretary. Ms. Polak has been Executive Vice President, General Counsel and Secretary since April 2007. Ms. Polak previously served as the Assistant General Counsel and Assistant Secretary of ADESA from February 2005 to April 2007 and as Vice President of ADESA from December 2006 to April 2007. Prior to joining ADESA, Ms. Polak practiced corporate and securities law with Krieg DeVault in Indianapolis from 2000 to 2005 and with Haynes and Boone in Dallas from 1995 to 1999.

Lisa A. Price, 42, Executive Vice President of Human Resources. Ms. Price has been the Executive Vice President of Human Resources since June 2013. Ms. Price previously served as the Vice President of Employment and Litigation Counsel of the Company from January 2008 to June 2013 and Senior Corporate Counsel from November 2005 to January 2008. Prior to joining ADESA, Ms. Price practiced employment law with Stewart & Irwin in Indianapolis from November 2000 to November 2005.

Benjamin Skuy, 54, Executive Vice President of International Markets and Strategic Initiatives. Mr. Skuy has been Executive Vice President of International Markets and Strategic Initiatives since September 2009. Mr. Skuy previously served in the following positions between July 1999 and September 2009: Executive Vice President of International Markets and Managing Director of ADESA Canada from January 2008 to September 2009; Managing Director and Chief Operating Officer of ADESA Canada from July 2006 to January 2008; Chief Operating Officer of ADESA Canada from January 2002 to July 2006; and Chief Financial Officer of ADESA Canada from July 1999 to January 2002. Prior to joining ADESA, Mr. Skuy served as Assistant Vice President at Manulife Financial from June 1998 to July 1999. From August 1990 to May 1998 he served as Senior Manager at The Bank of Nova Scotia.

Stephane St-Hilaire, 48, Chief Executive Officer and President of ADESA. Mr. St-Hilaire has been the Chief Executive Officer and President of ADESA since January 2014. Mr. St-Hilaire previously served in the following positions between March 1998 and January 2014: President and Chief Operating Officer of ADESA Auctions Canada Corporation from September 2009 to January 2014; Regional Vice President Eastern Canada and General Manager of ADESA Montreal from September 1999 to September 2009; and Chief Financial Officer of ADESA Canada from March 1998 to September 1999. Prior to joining ADESA, Mr. St-Hilaire served as controller at AIT Corporation.

David Vignes, 54, Executive Vice President of Enterprise Optimization. Mr. Vignes has been Executive Vice President of Enterprise Optimization since September 2009. Previously, Mr. Vignes served as Senior Vice President of Operations and Strategic Improvement of ADESA from July 2007 to August 2009. Prior to joining ADESA, Mr. Vignes served as Senior Vice President at Steiner + Associates, a real estate development company, from April 2004 to June 2007. From 1991 to 2004, Mr. Vignes held several executive positions in finance and operations with Disney Corporation companies, such as Disneyland Paris, Walt Disney World Orlando and the Disney cruise line. Mr. Vignes also is a director of Drayer Physical Therapy Institute and an advisor to the board of directors of Wellfount Corporation.

Section 16(a) Beneficial Ownership Reporting Compliance

The information required by this item is incorporated by reference herein from our Definitive Proxy Statement for our 2017 Annual Meeting of Stockholders to be filed with the SEC as set forth under the caption "Documents Incorporated by Reference."

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Code of Business Conduct and Ethics

We have adopted the Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. In addition, we have adopted the Code of Ethics for Principal Executive and Senior Financial Officers that applies to the Company's principal executive officer, principal financial and accounting officer and such other persons who are designated by our board of directors. Both codes are available on our website at www.karauctionservices.com and available in print to any stockholder who requests it. Information on, or accessible through, our website is not part of this Form 10-K. We expect that any amendments to these codes, or any waivers of their requirements, will be disclosed on our website.

Item 11. Executive Compensation

The information required by this Item 11 is incorporated by reference herein from our Definitive Proxy Statement for our 2017 Annual Meeting of Stockholders to be filed with the SEC as set forth under the caption "Documents Incorporated by Reference."

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 403 of Regulation S-K will be included in our Definitive Proxy Statement for our 2017 Annual Meeting and such information will be incorporated by reference herein.

Equity Compensation Plan Information

The following table sets forth the aggregate information of our equity compensation plans in effect as of December 31, 2016 .



Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights(1)	Weighted-average exercise price of outstanding options, warrants and rights(2)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column)(3)
Equity compensation plans approved by security holder(s)	3,661,231	$	18.64	6,768,518
Equity compensation plans not approved by security holders	—	—		—
Total	3,661,231	$	18.64	6,768,518

(1)

Includes (a) service options, exit options, performance-based restricted stock units ("PRSUs") and restricted stock units ("RSUs") issued under the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan; and (b) service and exit options issued under the KAR Auction Services, Inc. Stock Incentive Plan. The amount of PRSUs outstanding at target of 564,318 have been included in the table above.


(2)	Awards issued by KAR Auction Services, Inc. have exercise prices ranging from $10.00 to $30.89. The weighted-average price in the table above only reflects the weighted-average exercise price of outstanding options. The weighted-average exercise price does not include the PRSUs or RSUs.


(3)	The number of securities available for future issuance includes (a) 6,213,942 shares of common stock that may be issued under the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan; and (b) 554,576 shares of common stock that may be issued under the KAR Auction Services, Inc. Employee Stock Purchase Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 is incorporated by reference herein from our Definitive Proxy Statement for our 2017 Annual Meeting of Stockholders to be filed with the SEC as set forth under the caption "Documents Incorporated by Reference."

Item 14. Principal Accounting Fees and Services

The information required by this Item 14 is incorporated by reference herein from our Definitive Proxy Statement for our 2017 Annual Meeting of Stockholders to be filed with the SEC as set forth under the caption "Documents Incorporated by Reference."

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PART IV

Item 15. Exhibits, Financial Statement Schedules


a)	The following documents have been filed as part of this report or, where noted, incorporated by reference:


1)	Financial Statements—the consolidated financial statements of KAR Auction Services, Inc. and its consolidated subsidiaries are filed as part of this report under Item 8.


2)	Financial Statement Schedules—all schedules have been omitted because the matter or conditions are not present or the information required to be set forth therein is included in the consolidated financial statements and related notes thereto.


3)	Exhibits—the exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of this report.

In reviewing the agreements included as exhibits to this Form 10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about KAR Auction Services, ADESA, IAA, AFC or other parties to the agreements.

The agreements included or incorporated by reference as exhibits to this Annual Report on Form 10-K contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Annual Report not misleading. Additional information about KAR Auction Services may be found elsewhere in this Annual Report on Form 10-K and KAR Auction Services, Inc.'s other public filings, which are available without charge through the SEC's website at http://www.sec.gov. See Item 1, "Business—Available Information."

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



KAR Auction Services, Inc.

By:		/s/ JAMES P. HALLETT
		James P. Hallett Chief Executive Officer
		February 23, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



Signature	Title	Date

/s/ JAMES P. HALLETT	Chief Executive Officer and Chairman of the Board	February 23, 2017
James P. Hallett	(Principal Executive Officer)

/s/ ERIC M. LOUGHMILLER	Chief Financial Officer	February 23, 2017
Eric M. Loughmiller	(Principal Financial and Accounting Officer)

/s/ TODD F. BOURELL	Director	February 23, 2017
Todd F. Bourell	Director	February 23, 2017

/s/ DONNA R. ECTON	Director	February 23, 2017
Donna R. Ecton	Director	February 23, 2017

/s/ MARK E. HILL	Director	February 23, 2017
Mark E. Hill	Director	February 23, 2017

/s/ J. MARK HOWELL	Director	February 23, 2017
J. Mark Howell	Director	February 23, 2017

/s/ LYNN JOLLIFFE	Director	February 23, 2017
Lynn Jolliffe	Director	February 23, 2017

/s/ MICHAEL T. KESTNER	Director	February 23, 2017
Michael T. Kestner	Director	February 23, 2017

/s/ JOHN P. LARSON	Lead Independent Director	February 23, 2017
John P. Larson	Lead Independent Director	February 23, 2017

/s/ STEPHEN E. SMITH	Director	February 23, 2017
Stephen E. Smith	Director	February 23, 2017

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EXHIBIT INDEX

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

2.1a

Asset Purchase Agreement, dated as of February 17, 2016, by and among ADESA, Inc., Brasher’s

Reno Auto Auction, L.L.C., BIAA, L.L.C., Brasher’s Auto Auctions, West Coast Auto Auctions, Inc.

and the other parties thereto

8-K

001-34568

2.1

2/18/2016

2.1b

First Amendment to Asset Purchase Agreement, dated as of April 1, 2016, to that certain Asset Purchase Agreement dated as of February 17, 2016, by and among ADESA, Inc., Brasher’s Reno Auto Auction, L.L.C., BIAA, L.L.C., Brasher’s Auto Auctions, West Coast Auto Auctions, Inc. and the other parties thereto

10-Q

001-34568

2.1b

5/4/2016

2.2

Asset Purchase Agreement, dated as of February 17, 2016, by and among ADESA, Inc., Brasher’s

Auto Auctions and the other parties thereto

8-K

001-34568

2.2

2/18/2016

2.3

Asset Purchase Agreement, dated as of February 17, 2016, by and among ADESA, Inc., West Coast

Auto Auctions, Inc., Brasher’s Cascade Auto Auction, Inc., Brasher’s Northwest Auto Auction, Inc.,

Brasher’s Sacramento Auto Auction, Inc., Brasher’s Fresno Auto Auction, Inc. and the other parties

thereto

8-K

001-34568

2.3

2/18/2016

3.1

Amended and Restated Certificate of Incorporation of KAR Auction Services, Inc.

10-Q

001-34568

3.1

8/3/2016

3.2

Second Amended and Restated By-Laws of KAR Auction Services, Inc.

8-K

001-34568

3.1

11/4/2014

4.1

Form of common stock certificate

S-1/A

333-161907

4.15

12/10/2009

10.1a

Amendment and Restatement Agreement, dated March 11, 2014, among KAR Auction Services, Inc. and certain of its subsidiaries and JPMorgan Chase Bank, N.A., as administrative agent, swingline lender and issuing lender (the Amended and Restated Credit Agreement and the Amended and Restated Guarantee and Collateral Agreement are included as Exhibits A and B thereto, respectively)

8-K

001-34568

10.1

3/12/2014

10.1b

Incremental Commitment Agreement and First Amendment, dated as of March 9, 2016, among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of the Company party thereto and the several lenders party thereto

8-K

001-34568

10.1

3/9/2016

10.2

KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) Stock Incentive Plan

S-8

333-164032

10.1

12/24/2009

10.3

Form of Nonqualified Stock Option Agreement of KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) pursuant to the Stock Incentive Plan

S-4

333-148847

10.15

1/25/2008

10.4

Employment Agreement, dated February 27, 2012, between KAR Auction Services, Inc. and James P. Hallett

10-K

001-34568

10.15

2/28/2012

10.5

Employment Agreement, dated April 13, 2015, between KAR Auction Services, Inc. and Stephane St-Hilaire

10-Q

001-34568

10.7

5/6/2015

118

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

10.6

Amended and Restated Employment Agreement, dated March 24, 2014, between KAR Auction Services, Inc. and Don Gottwald

8-K

001-34568

10.1

3/20/2014

10.7

Employment Agreement, dated December 17, 2013, between KAR Auction Services, Inc. and Eric Loughmiller

8-K

001-34568

10.5

12/17/2013

10.8

Employment Agreement, dated May 1, 2014, between KAR Auction Services, Inc. and John Kett

10-K

001-34568

10.10

2/18/2016

10.9a

Employment Agreement, dated December 17, 2013, between KAR Auction Services, Inc. and Peter Kelly

10.9b

Amendment to Employment Agreement, dated December 31, 2014, between KAR Auction Services, Inc. and Peter Kelly

10.10

KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) Annual Incentive Program (2014)

10-K

333-148847

10.29

3/11/2009

10.11

KAR Auction Services, Inc. Annual Incentive Plan Summary of Terms for Plan Year 2015

10-Q

001-34568

10.11

5/6/2015

10.12

KAR Auction Services, Inc. Annual Incentive Plan Summary of Terms for Plan Year 2016

10-Q

001-34568

10.13

5/4/2016

10.13

KAR Auction Services, Inc. Annual Incentive Program Summary of Terms 2017

10.14a

Amended and Restated Purchase and Sale Agreement, dated May 31, 2002, between AFC Funding Corporation and Automotive Finance Corporation

S-4

333-148847

10.32

1/25/2008

10.14b

Amendment No. 1 to Amended and Restated Purchase and Sale Agreement, dated June 15, 2004

S-4

333-148847

10.33

1/25/2008

10.14c

Amendment No. 2 to Amended and Restated Purchase and Sale Agreement, dated January 18, 2007

S-4

333-148847

10.34

1/25/2008

10.14d

Amendment No. 3 to Amended and Restated Purchase and Sale Agreement, dated April 20, 2007

S-4

333-148847

10.35

1/25/2008

10.14e

Amendment No. 4 to Amended and Restated Purchase and Sale Agreement, dated January 30, 2009

10-K

001-34568

10.19e

2/28/2012

10.14f

Amendment No. 5 to Amended and Restated Purchase and Sale Agreement, dated April 25, 2011

10-K

001-34568

10.19f

2/28/2012

10.15

Seventh Amended and Restated Receivables Purchase Agreement, dated December 20, 2016, among AFC Funding Corporation, Automotive Finance Corporation, the entities from time to time parties hereto as Purchasers or Purchaser Agents and Bank of Montreal

10.16

Fourth Amended and Restated Receivables Purchase Agreement, dated December 20, 2016, between Automotive Finance Canada Inc., KAR Auction Services, Inc. and BNY Trust Company of Canada

10.17a

Ground Lease, dated September 4, 2008, between ADESA San Diego, LLC and First Industrial L.P. (East 39 Acres at Otay Mesa, California)

8-K

333-148847

10.3

9/9/2008

10.17b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial L.P. (East 39 Acres at Otay Mesa, California)

8-K

333-148847

10.11

9/9/2008

119

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

10.18a

Ground Lease, dated September 4, 2008, between ADESA San Diego, LLC and First Industrial L.P. (West 39 Acres at Otay Mesa, California)

8-K

333-148847

10.4

9/9/2008

10.18b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial L.P. (West 39 Acres at Otay Mesa, California)

8-K

333-148847

10.12

9/9/2008

10.19a

Ground Lease, dated September 4, 2008, between ADESA California, LLC and ADESA San Diego, LLC and First Industrial Pennsylvania, L.P. (Sacramento, California)

8-K

333-148847

10.5

9/9/2008

10.19b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial Pennsylvania, L.P. (Sacramento, California)

8-K

333-148847

10.13

9/9/2008

10.20a

Ground Lease, dated September 4, 2008, between ADESA California, LLC and First Industrial Pennsylvania, L.P. (Tracy, California)

8-K

333-148847

10.6

9/9/2008

10.20b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial Pennsylvania, L.P. (Tracy, California)

8-K

333-148847

10.14

9/9/2008

10.21a

Ground Lease, dated September 4, 2008, between ADESA Washington, LLC and First Industrial, L.P. (Auburn, Washington)

8-K

333-148847

10.7

9/9/2008

10.21b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial, L.P. (Auburn, Washington)

8-K

333-148847

10.15

9/9/2008

10.22a

Ground Lease, dated September 4, 2008, between ADESA Texas, Inc. and First Industrial, L.P. (Houston, Texas)

8-K

333-148847

10.8

9/9/2008

10.22b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial, L.P. (Houston, Texas)

8-K

333-148847

10.16

9/9/2008

10.23a

Ground Lease, dated September 4, 2008, between ADESA Florida, LLC and First Industrial Financing Partnership, L.P. (Bradenton, Florida)

8-K

333-148847

10.10

9/9/2008

10.23b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial Financing Partnership, L.P. (Bradenton, Florida)

8-K

333-148847

10.18

9/9/2008

10.24a

Ground Sublease, dated October 3, 2008, between ADESA Atlanta, LLC and First Industrial, L.P. (Fairburn, Georgia)

10-Q

333-148847

10.21

11/13/2008

10.24b

Guaranty of Lease, dated October 3, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial, L.P. (Fairburn, Georgia)

10-Q

333-148847

10.22

11/13/2008

10.25

Form of Indemnification Agreement

8-K

001-34568

10.1

12/17/2013

120

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

10.26a

KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as Amended June 10, 2014

DEF 14A

001-34568

Appendix A

4/29/2014

10.26b

First Amendment to the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan

10-K

001-34568

10.24b

2/18/2016

10.27a

KAR Auction Services, Inc. Employee Stock Purchase Plan

S-8

333-164032

10.3

12/24/2009

10.27b

Amendment No. 1 to KAR Auction Services, Inc. Employee Stock Purchase Plan dated March 31, 2010

10-Q

001-34568

10.60

8/4/2010

10.27c

Amendment No. 2 to KAR Auction Services, Inc. Employee Stock Purchase Plan dated April 1, 2010

10-Q

001-34568

10.61

8/4/2010

10.28

KAR Auction Services, Inc. Directors Deferred Compensation Plan, effective December 10, 2009

10-Q

001-34568

10.62

8/4/2010

10.29

Form of Director Restricted Share Agreement

10-Q

001-34568

10.63

8/4/2010

10.30

Form of Nonqualified Stock Option Agreement

S-1/A

333-161907

10.65

12/4/2009

10.31

Form of 2015 Restricted Stock Unit Award Agreement for Section 16 Officers

10-Q

001-34568

10.29a

5/6/2015

10.32

Form of 2016 Restricted Stock Unit Award Agreement for Section 16 Officers

10-K

001-34568

10.30

2/18/2016

10.33

Form of 2017 Restricted Stock Unit Award Agreement for Section 16 Officers

10.34

Form of Performance-Based Restricted Stock Unit Agreement (Total Shareholder Return Percentile Rank vs. S&P 500)

8-K

001-34568

10.2

12/17/2013

10.35

Form of Performance-Based Restricted Stock Unit Agreement (Cumulative Adjusted Net Income Per Share)

8-K

001-34568

10.1

3/3/2014

10.36

Form of 2015 Performance-Based Restricted Stock Unit Agreement (Cumulative Adjusted Net Income Per Share)

10-Q

001-34568

10.32

5/6/2015

10.37

Form of 2016 Performance-Based Restricted Stock Unit Agreement (Cumulative Operating Adjusted Net Income Per Share)

10-K

001-34568

10.34

2/18/2016

10.38

Form of 2017 Performance-Based Restricted Stock Unit Agreement (Cumulative Operating Adjusted Net Income Per Share)

21.1

Subsidiaries of KAR Auction Services, Inc.

23.1

Consent of KPMG LLP, Independent Registered Public Accounting Firm

121

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

_______________________________________________________________________________



^	Portions of this exhibit have been redacted pursuant to a request for confidential treatment filed separately with the Secretary of the Securities and Exchange Commission pursuant to Rule 406 under the Securities Act of 1933, as amended.

*	Denotes management contract or compensation plan, contract or arrangement.

122

EXHIBIT 10.9a

EMPLOYMENT AGREEMENT

This Employment Agreement (this “ Agreement ”), dated and effective December 17, 2013 (“ Effective Date ”), is entered into by and between KAR Auction Services, Inc. (“ Employer ”) and Peter Kelly (“ Employee ”).

RECITALS

A. Employer desires to employ Employee as its Chief Technology Officer pursuant to the terms and conditions set forth in this Agreement.

B. Employee desires to accept such employment.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Employment Period . The period of employment of Employee by Employer hereunder shall commence on the Effective Date and continue thereafter until terminated pursuant to Section 4 of this Agreement (the “ Employment Period ”).

2. Title and Duties . During the Employment Period, Employee shall serve as the Chief Technology Officer of Employer and shall perform the duties and responsibilities inherent in such position and any other duties consistent with such position as may be reasonably assigned to Employee from time to time by Employer’s Chief Executive Officer or Board of Directors of Employer (“ Board ”). Employee shall perform the duties of this position in a diligent and competent manner and on a full-time basis during the Employment Period.

3. Compensation and Benefits .

(a) Base Salary . During the Employment Period, Employee shall be paid an annual base salary of $388,640 (“ Base Salary ”), less withholdings and deductions required by law or requested by Employee. Employee’s Base Salary may be adjusted but may not be adjusted downward except in connection with across-the-board base salary reductions, by the Board from time to time.

(b) Business Expenses . Employer shall reimburse Employee for all reasonable business expenses incurred in performing services pursuant to this Agreement upon Employee’s presentation to Employer, on a timely basis, of satisfactory documentation of such expenditures. Such expenses shall be reimbursed as soon as administratively feasible, but in no event later than the end of the calendar year following the calendar year in which the applicable expense was incurred. Notwithstanding the foregoing, all such expenses shall be reimbursed upon any termination of Employee’s employment under this Agreement, including without limitation a termination for Cause.

(c) Annual Bonuses . In addition to Base Salary, Employee shall be eligible to participate in the KAR Auction Services, Inc. Annual Incentive Plan (the “ Bonus Plan ”) (as in effect from time to time). Except as provided in Section 4 and Section 5 below, payment to Employee of any amounts under the Bonus Plan shall be subject to Employee’s continued employment with Employer through December 31 of the calendar year to which such bonus relates. Payment of any bonus pursuant to the Bonus Plan shall be made as soon as practicable but in no event later than March 15 of the year following the calendar year to which such bonus relates.

(d) Equity . Employee shall be eligible to participate in all Employer incentive programs extended to executive-level employees of Employer generally at levels commensurate with Employee’s position, including without limitation the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan.

(e) Employee Benefits . Employee shall be eligible to participate in Employer’s health and welfare benefit programs, 401(k) benefit program, life and disability insurance programs, and any other employee benefits, benefit plans, policies or programs Employer provides to its executive-level employees, in each case, as they may exist from time to time and subject to the terms and conditions thereof. Nothing in this Agreement shall require Employer to maintain any benefit plan, or shall preclude Employer from terminating or amending any benefit plan from time to time.

(f) Vacation and Holidays . During the Employment Period, Employee shall be entitled to annual paid vacation in accordance with Employer’s policy applicable to executive-level employees, but in no event less than four (4) weeks of paid vacation during each full calendar year of employment. Employee shall receive a pro-rated portion of such vacation during Employee’s initial and final partial calendar years of employment under this Agreement. Unused, earned vacation shall not carry over from one calendar year to the next, unless Employer’s written policies otherwise provide for such carry over. Upon termination of Employee’s employment for any reason, Employer shall pay Employee for any unused, earned vacation days based upon Employee’s then current Base Salary. Employee shall also be entitled to all of the paid holidays recognized by Employer generally.

(g) Automobile Allowance . During the Employment Period, Employer shall pay Employee an annual automobile allowance of at least Eighteen Thousand Dollars ($18,000). Such allowance shall be paid in accordance with Employer’s regular payroll practices, as may be in effect from time to time, but in no event less frequently than monthly.

4. Termination .

(a) Termination by Employer for Cause . Employer may terminate Employee’s employment under this Agreement at any time for Cause after the Board, by the majority vote of its members (excluding, for this purpose, any employee member of the Board, if applicable) determines that the actions or inactions of Employee constitute Cause, and Employee’s employment should accordingly be terminated for Cause. In the

event of a termination of Employee by Employer for Cause, Employee or Employee’s estate, if applicable, shall be entitled to receive: (i) Employee’s accrued Base Salary through the termination date, paid within 30 days of the termination date; (ii) an amount for reimbursement, paid within 30 days following submission by Employee to Employer of appropriate supporting documentation for any unreimbursed business expenses properly incurred prior to the termination date by Employee pursuant to Section 3(b) and in accordance with Employer’s policy; (iii) any accrued and unpaid vacation pay, paid within 30 days of the termination date; and (iv) such employee benefits, if any, to which Employee or Employee’s dependents may be entitled under the employee benefit plans or programs of Employer, paid in accordance with the terms of the applicable plans or programs (the amounts described in clauses (i) through (iv) hereof being referred to as “ Employee’s Accrued Obligations ”).

For purposes of this Agreement, “ Cause ” means (A) Employee’s willful, continued and uncured failure to perform substantially Employee’s duties under this Agreement (other than any such failure resulting from incapacity due to medically documented illness or injury) for a period of fourteen (14) days following written notice by Employer to Employee of such failure, (B) Employee engaging in illegal conduct or gross misconduct that is demonstrably likely to lead to material injury to Employer, monetarily or otherwise, (C) Employee’s indictment or conviction of, or plea of nolo contendere to, a crime constituting a felony or any other crime involving moral turpitude, or (D) Employee’s violation of Section 7 of this Agreement or any other covenants owed to Employer by Employee.

(b) Termination by Employer without Cause . Employer may terminate Employee’s employment under this Agreement without Cause at any time upon thirty (30) days’ prior written notice to Employee. In addition to the severance benefits provided in Section 5 , in the event of Employee’s termination by Employer without Cause, Employer shall pay to Employee all of Employee’s Accrued Obligations.

(c) Termination by Employee for Good Reason . Employee may terminate Employee’s employment under this Agreement for Good Reason. For purposes of this Agreement, “ Good Reason ” means the occurrence of any of the following:

(i) Any material reduction of Employee’s authority, duties and responsibilities;

(ii) Any material failure by Employer to comply with any of the terms and conditions of this Agreement;

(iii) Any failure to timely pay or provide Employee’s Base Salary, or any reduction in Employee’s Base Salary, excluding any Base Salary reduction made in connection with across the board salary reductions;

(iv) The requirement by Employer that Employee relocate Employee’s principal business location to a location more than fifty (50) miles from Employee’s principal base of operation as of the Effective Date; or

(v) A Change of Control occurs and, if applicable, Employer fails to cause its successor (whether by purchase, merger, consolidation or otherwise) to assume or reaffirm Employer’s obligations under this Agreement without change. For purposes of this Agreement, “ Change of Control ” shall have the meaning assigned to such term under the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan.

Within ninety (90) days of the occurrence of a Good Reason event, Employee may provide Employer with written notice of Employee’s termination of employment to be effective thirty (30) days after delivery of such notice, during which Employer shall have the opportunity to cure such Good Reason event. In the event of a termination for Good Reason, in addition to the severance benefits provided in Section 5 , Employer shall pay to Employee all of Employee’s Accrued Obligations.

(d) Termination by Employee without Good Reason . Employee may terminate Employee’s employment under this Agreement at any time without Good Reason, upon thirty (30) days’ prior written notice to Employer. In the event of a termination described in this Section 4(d) , Employer shall pay to Employee all of Employee’s Accrued Obligations.

(e) Termination due to Employee’s death or Disability . Employee’s employment under this Agreement shall terminate upon Employee’s (i) death, or (ii) “ Disability ,” which for purposes of this Agreement means a “Total Disability” (or equivalent) as defined under Employer’s Long Term Disability Plan in effect at the time of the Disability. In the event of a termination described in this Section 4(e) , Employer shall pay to Employee all of Employee’s Accrued Obligations. In addition, (i) if Employee is participating in the health plans of Employer at the time of termination, Employer shall pay to Employee the premiums attributable to maintaining Employee’s (and Employee’s qualified beneficiaries’) insurance coverage under the Consolidated Omnibus Budget Reconciliation Act until the earlier of (A) the date that is twelve (12) months following the date of termination and (B) the date Employee is or becomes eligible for comparable coverage under health plans of another employer (the “ Continued Benefits ”), (ii) Employer shall pay to Employee (or Employee’s estate and/or beneficiaries), in a lump sum following effectiveness of the release described in Section 6 and at the same time Employer pays annual bonuses for such calendar year to its other executives, an amount equal to (x) the actual bonus Employee would have received under the Bonus Plan had Employee remained employed by Employer through the remainder of the calendar year in which termination occurred, multiplied by (y) a fraction, the numerator of which is the number of days Employee was employed in the calendar year in which termination occurred and the denominator of which is 365 and (iii) Employer shall pay to Employee (or Employee’s estate and/or beneficiaries) an amount equal to any annual bonus for a prior completed calendar year that is yet to be calculated and/or paid to Employee, paid as soon as practicable following effectiveness of the release described in Section 6 but in no event later than March 15 of the year following the calendar year to which such bonus relates (the “ Earned But Unpaid Bonus ”).

5. Severance Benefits . In the event of a termination of Employee’s employment under Section 4(b) or 4(c) of this Agreement, Employer shall provide Employee with the following severance benefits:

(a) Employer shall pay to Employee an amount equal to the sum of (i) Employee’s annual Base Salary and (ii) Employee’s bonus at target for the year in which termination occurs, which shall be paid by Employer to Employee in a lump sum as soon as practicable following (and subject to) effectiveness of the release described in Section 6 but in no event later than sixty (60) days following the date of termination, provided that if such sixty (60) day period covers two taxable years, payment shall be made in the second taxable year.

(b) The Continued Benefits; and

6. Release of Claims . As a condition to the receipt of any payments or benefits described in Section 5 of this Agreement, subsequent to the termination of the employment of Employee (other than any Accrued Benefits or any payment or benefits payable on account of Employee’s death), Employee shall be required to execute, and not subsequently revoke, within fifty (50) days following the termination of Employee’s employment a release, in a form reasonably satisfactory to Employer, of all claims arising out of or related to Employee’s employment or the termination thereof.

7. Restricted Activities .

(a) Acknowledgements . Employee understands and acknowledges that Employer has invested, and continues to invest, substantial time, money and specialized knowledge into developing its resources, creating a customer base, generating customer and potential customer lists, training its employees, and improving its offerings in the field of wholesale, retail or consumer vehicle remarketing, including but not limited to vehicle auctions (whole car and salvage), online services, or dealer floor-plan financing. Employee understands and acknowledges that as a result of these efforts, Employer has created, and continues to use and create, Confidential Information (as defined below) and that such Confidential Information is integral to providing Employer with a competitive advantage over others in the marketplace. Employee further understands and acknowledges that the nature of Employee’s position gives him access to and knowledge of Confidential Information and places him in a position of trust and confidence with Employer.

(b) Confidential Information . Employee acknowledges and agrees that Confidential Information is the property of Employer, and that Employee shall not acquire any ownership rights in Confidential Information. Employee (i) shall use Confidential Information solely in connection with Employee’s employment with Employer; (ii) shall not directly or indirectly disclose, use or exploit any Confidential Information for Employee’s own benefit or for the benefit of any person or entity, other than Employer, both during and after Employee’s employment with Employer; and

(iii) shall hold Confidential Information in trust and confidence, and use all reasonable means to assure that it is not directly or indirectly disclosed to or copied by unauthorized persons or used in an unauthorized manner, both during and after Employee’s employment with Employer. To the extent that Employee creates or develops any Confidential Information during the course of Employee’s employment with Employer, it shall be the sole and exclusive property of Employer. For purposes of this Agreement, “ Confidential Information ” shall mean any proprietary, confidential and competitively-sensitive information and materials which are the property of Employer, excluding information and materials generally known or available to the public, other than as a result of Employee’s breach of this Section 7 , and including without limitation (A) trade secrets, (B) business and technical information that gives Employer a competitive advantage, and (C) information concerning Employer’s customers, suppliers, vendors, licensors, affiliates, financing sources, profits, revenues, financial condition, pricing, training programs, service techniques, service processes, marketing plans, and business strategies.

(c) Intellectual Property . Employee agrees to promptly disclose to Employer and hereby assigns and agrees to assign, without further compensation, to Employer, Employee’s entire right, title and interest in each and every invention (whether or not patentable), technological innovation, and copyrightable work, in which Employee participates during Employee’s employment with Employer whether or not during working hours, that pertains to Employer’s business or is aided by the use of time, material, or facilities of Employer. Employee further agrees to perform all reasonable acts, including executing necessary documents, requested by Employer to assist it, without further compensation, in obtaining and enforcing its property rights in the above.

(d) Non-Solicitation/Non-Interference . During Employee’s employment with Employer and for a period of one (1) year immediately following the termination of Employee’s employment for any reason, Employee shall not (i) induce or attempt to induce any employee of Employer to leave the employ of Employer, or in any way interfere with the relationship between Employer and any of its employees, or (ii) induce or attempt to induce any customer, client, member, supplier, licensee, licensor or other business relation of Employer to cease doing business with Employer, or otherwise interfere with the business relationship between Employer and any such customer, client, member, supplier, licensee, licensor or business relation of Employer.

8. Section 409A . The payments and benefits under this Agreement and the terms of any release agreement are intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (“ Code ”), and the regulations promulgated thereunder (“ Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement and any release agreement shall be interpreted and administered consistent with such intent. If under this Agreement, an amount is to be paid in two or more installments, for purposes of Section 409A, each installment shall be treated as a separate payments. Without limiting the foregoing, solely to the extent required to avoid the imposition of any additional tax or interest to the Employee under Section 409A, any payments, benefits and other obligations under this Agreement that arise in connection with Employee’s “termination of employment,” “termination” or similar

reference in this Agreement shall be triggered only if such termination of employment qualifies as a “separation from service” within the meaning under Section 409A. Notwithstanding any other provision of this Agreement, if at the time of the termination of Employee’s employment, Employee is a “specified employee,” for purposes of Section 409A, and any payments or benefits upon such termination including but not limited to payments or benefits under this Agreement would otherwise result in additional tax or interest to the employee under Section 409A, Employee will not be entitled to receive such payments or benefits until the date that is six (6) months after the termination of the Employee’s employment for any reason, subject to earlier immediate payment if the employee dies during such six (6) month period. To the extent required to avoid the imposition of any additional tax or interest under Section 409A, amounts reimbursable to under this Agreement shall be paid to Employee on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits provided to Employee) during any one year may not affect amounts reimbursable or provided in any subsequent year. If any provision of this Agreement would subject Employee to any additional tax or interest under Section 409A, then Employer shall use its best efforts to amend such provision; provided that Employer shall not incur any additional expense as a result of such amendment. Notwithstanding any other provision hereof, in no event shall Employer be liable for, or be required to indemnify Employee for, any liability of Employee for taxes or penalties under Section 409A.

9. Arbitration . Any dispute, controversy or claim arising out of or relating to this Agreement, the breach, termination, enforcement, interpretation, or validity thereof (including the determination of the scope or applicability of this arbitration agreement), or its subject matter shall be subject and resolved by binding arbitration administered by a single arbitrator from the American Arbitration Association. The parties acknowledge and agree that Employer is involved in transactions involving interstate commerce and that the Federal Arbitration Act shall govern any arbitration pursuant to this Agreement. Such arbitration shall be conducted in accordance with the commercial rules and regulations promulgated by the American Arbitration Association applying the laws of the State of Indiana. The arbitration shall be conducted in Indianapolis, Indiana. Discovery shall be completed within ninety (90) days of the filing of the complaint and the arbitration shall be held no later than one hundred twenty (120) days after the filing of the complaint. A record of the proceedings shall be kept by a qualified court reporter. The decision of the arbitrator shall contain findings of fact and conclusions of law, and shall be made within thirty (30) days of the arbitration and shall be final and binding on the parties, and shall be unappealable. The decision may be enforced in any court having jurisdiction over the parties and the subject matter. Costs of the arbitrator shall be split equally between Employer and Employee.

10. Miscellaneous Provisions .


(a)	Notices . For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below:

To Employer: KAR Auction Services, Inc.

13085 Hamilton Crossing Blvd.

Carmel, IN 46032

Attention: Rebecca C. Polak, Esq.

Email: becca.polak@karauctionservices.com

To Employee: At Employee’s address on file with Employer

(b) Entire Agreement . This Agreement sets forth the entire agreement between Employer and Employee with respect to the subject matter of this Agreement and fully supersedes all prior negotiations, representations and agreements, whether written or oral, between Employer and Employee with respect to the subject matter of this Agreement, including, but not limited to, that certain Severance and Consulting Agreement, as amended, dated as of August 25, 2011, between ADESA, Inc. and Employee.

(c) Severability . The provisions of this Agreement are severable and shall be separately construed. If any of them is determined to be unenforceable by any court, that determination shall not invalidate any other provision of this Agreement.

(d) Amendment and Waiver . This Agreement may not be modified, amended or waived in any manner except by a written document executed by Employer and Employee. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement (whether or not similar), or a continuing waiver or a waiver of any subsequent breach by such party of a provision of this Agreement.

(e) No Mitigation . In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Employee obtains other employment.

(f) Successors and Assigns . This Agreement and the covenants herein shall extend to and inure to the benefit of the successors and assigns of Employer. Employer shall require any successor (whether by purchase, merger, consolidation or otherwise) to assume or reaffirm, as applicable, Employer’s obligations under this Agreement without change. Failure of Employer to obtain such an assumption shall entitle Employee to terminate Employee’s employment under this Agreement for Good Reason.

(g) Headings . Numbers and titles to Sections hereof are for information purposes only and, where inconsistent with the text, are to be disregarded.

(h) Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together, shall be and constitute one and the same instrument.

(i) Governing Law and Forum . This Agreement shall be governed by and construed according to the internal laws of the State of Indiana, without regard to conflict of law principles.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.



“Employer”	“Employee”

KAR AUCTION SERVICES, INC.



By: /s/ James P. Hallett	/s/ Peter Kelly

Printed: James P. Hallett

Title: Chief Executive Officer

EXHIBIT 10.9b

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment to Employment Agreement (this “Amendment”), dated and effective as of December 31, 2014, is entered into by and between KAR Auction Services, Inc. (“Employer”) and Peter Kelly (“Employee”) (collectively “parties”). This Amendment amends the December 17, 2013 Employment Agreement (the “Agreement”) between Employer and Employee pursuant to Paragraph 10(d) of the Agreement.

RECITALS

A. Employer desires to change its senior management structure by adding a President of Digital Services position;

B. Employee desires to fill this new position, while also maintaining his role as Chief Technology Officer.

NOW, THEREFORE , in consideration of the mutual covenants contained herein and other good and valuable consideration (including, but not limited to, the continued employment of Employee by Employer), the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Paragraph 2 of the Agreement, which currently reads:

Title and Duties . During the Employment Period, Employee shall serve as the Chief Technology Officer of Employer and shall perform the duties and responsibilities inherent in such position and any other duties consistent with such position as may be reasonably assigned to Employee from time to time by Employer’s Chief Executive Officer or Board of Directors of Employer (“ Board ”). Employee shall perform the duties of this position in a diligent and competent manner and on a full-time basis during the Employment Period.

Shall now be amended to read:

Title and Duties. During the Employment Period, Employee shall serve as the Chief Technology Officer of Employer and as the President of Digital Services of Employer reporting to Employer’s Chief Operating Officer. Employee shall perform the duties and responsibilities inherent in such positions and any other duties consistent with such position as may be reasonably assigned to Employee from time to time by Employer’s Chief Executive Officer, Chief Operating Officer or Board of Directors of Employer (“ Board ”). Employee shall perform the duties of these positions in

a diligent and competent manner and on a full-time basis during the Employment Period.

2. Employee agrees that the amendment to his duties and his reporting structure outlined in Paragraph 1 of this Amendment do not constitute a “Good Reason” for termination of the Agreement by Employee as that term is defined in Paragraph 4(c) of the Agreement.

3. Continuation of Agreement. Except as otherwise expressly provided herein, all of the terms and provisions of the Agreement shall remain in full force and effect and this Amendment shall not amend or modify any other rights, powers, duties, or obligations of any party to the Agreement.

4. Complete Agreement. This Amendment and the Agreement contain the entire agreement between the parties hereto with respect to the matters contained herein and supersedes and replaces any prior agreement between the parties with respect to the matters set forth in this Amendment.

5. Counterparts. This Amendment may be executed in any number of counterparts and any such counterparts may be transmitted by electronic or facsimile transmission, and each of such counterparts, whether an original or an electronic or facsimile of an original, shall be deemed to be an original and all of such counterparts together shall constitute a single agreement.

IN WITNESS WHEREOF , the parties hereto have executed this Amendment, on the date first set forth above.

“Employer” “Employee”

KAR AUCTION SERVICES, INC.

By: /s/ Don Gottwald /s/ Peter Kelly

Printed: Don Gottwald Peter Kelly

Title: Chief Operating Officer

EXHIBIT 10.13

KAR Auction Services, Inc.

Annual Incentive Program

Summary of Terms

2017

KAR Auction Services, Inc. Annual Incentive Program

Summary of Terms

The following is a summary of the 2017 KAR Auction Services, Inc. Annual Incentive Program (the “Program”) which is part of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended and restated on June 10, 2014 (the “Omnibus Plan”). Any awards under the Program are subject to the approval of the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of KAR Auction Services, Inc. (the “Company”). The Committee has all final authority with respect to administration and interpretation of the Program. All capitalized terms herein that are not otherwise defined shall have the meanings given to such terms in the Omnibus Plan.

Purpose of the Program

The purpose of the Program is to reward eligible employees of the Company with incentive compensation based on their contributions toward meeting and exceeding overall Company goals.

Eligibility

Key employees of the Company may participate in the Program as determined by the Committee.

Effective Date

This Program is effective January 1, 2017. The Company reserves the right to revise or terminate the Program at any time, with or without advance notice, in accordance with applicable law.

Performance Period

Each performance period under the Program will be one year in duration and will coincide with the Company's fiscal year (January 1 – December 31).

Awards

The award is tied to personal performance as well as the financial performance of the Company or particular business unit, division, region or individual site during the performance period. The award opportunity is expressed as a percentage of base salary, which typically will be determined at the end of the performance period. For executive officers of the Company, the Program constitutes a Cash-Based Award under the Omnibus Plan that is intended to be “qualified performance based compensation” under Section 162(m) of the Code and shall be subject to the terms of the Omnibus Plan related thereto and administered accordingly. As such, awards to executive officers of the Company are subject to the individual annual limit for Other Cash-Based Awards specified in the Omnibus Plan.

The award is tied to specific “threshold,” “target” and “superior” performance goals. The “threshold” is the minimum performance goal that must be met before any award is earned. The “target” opportunity represents the award amount received if the Company meets its targeted financial and, if applicable, non-financial goals. The “superior” opportunity represents the maximum performance goal that must be met for a maximum payout. The actual award opportunities at threshold, target and superior levels of performance are set forth in an individual’s personalized incentive compensation statement. The award is conditioned on satisfactory performance of job responsibilities.

Performance Goals and Targets

Through the annual planning process, performance goals and targets are established. The performance goals and targets chosen for the Company, each business unit, division, region and site reflect the Company’s strategy, competitive situation and market potential. The award may be weighted on a combination of the overall performance of the Company, business unit, division, region or site. Actual performance goals and goal definitions are included with the personalized incentive compensation statement materials.

Calculation of Awards

In calculating your award, actual base salary during the Program year will be utilized. Please note that if your salary or bonus opportunity changes during the Program year your award will be prorated as explained in the examples below.

Example One: Employee is bonus eligible with a base salary of $40,000 with a target opportunity of 20% and receives a merit increase of 2% on 7/1/2017. Bonus calculation would be as follows:

$40,000 x 20% = $8,000 (target award) x performance factor x goal weighting x proration 6/12 ^ths

plus

$40,800 x 20% = $8,160 (target award) x performance factor x goal weighting x proration 6/12 ^ths

Example Two: Employee is bonus eligible with a base salary of $40,000 with a target opportunity of 20% and receives a promotion on 7/1/2017 with a base salary of $45,000 and a target opportunity of 25%. Bonus calculation would be as follows:

$40,000 x 20% = $8,000 (target award) x performance factor x goal weighting x proration 6/12 ^ths

plus

$45,000 x 25% = $11,250 (target award) x performance factor x goal weighting x proration 6/12 ^ths

The performance factor is directly related to financial performance relative to the established threshold, target and superior performance goals. If actual financial results fall between the threshold, target or superior performance levels, straight-line interpolation will be used to determine the performance factor. Multiple goal weightings must add to 100%.

Payment of Awards

Generally, all awards are paid out annually; however, certain non-executive officer positions, if approved by the Committee and the applicable business unit president, may be paid out quarterly or semiannually.

Generally, all awards will be paid out in cash, net of applicable withholding taxes. While awards are generally paid as soon as practicable after the audited financial results are available for the performance period, in the Committee’s sole discretion, payments to participants other than executive officers of the Company may be based on an estimation of the audited financial results. Additionally, awards may be paid in one or more installments, in the Committee’s sole discretion.

In no event will any portion of any awards payable under the Program (including any pro rata awards paid upon certain terminations of employment described below and any installments) be paid later than March 15, 2018.

Discretionary Adjustment of Awards

The Committee retains discretion to adjust payouts up or down on a case-by-case basis; provided, however, that for participants who are executive officers of the Company, the Committee may only reduce payments. Individual award payouts may be adjusted downward or eliminated entirely due to personal performance of job responsibilities and/ornoncompliance with corporate policy or controls .

In addition, consistent with the terms of the Omnibus Plan and Section 162(m) of the Code, each as applicable, the Committee may adjust any or all financial goals during performance period to reflect unforeseen, unusual or extraordinary events or circumstances including but not limited to (i) changes in accounting principles or practices, (ii) extraordinary gains or losses on the sale of assets, (iii) new or amended laws or regulations, and (iv) acquisitions or divestitures.

The Committee also has the authority to impose such other limitations on awards as it may deem necessary or appropriate.

Prorated Awards

In the event that an individual transfers between business units or is promoted during the course of a performance period, a prorated award may be earned based on the time spent in each position.

All eligible employees hired or promoted on or before the 15 ^th of the month will be prorated based on the number of months of Program eligibility, including the month of hire.

All eligible employees hired or promoted on or after the 16 ^th of the month will be eligible to participant in the Program at the beginning of the following month.

All eligible employees hired on or after November 1 ^st of the current year will not be eligible to participate in the Program until the beginning of the next Program year.

Termination of Employment

Forfeiture

Generally, upon termination of employment for any reason, the individual will forfeit any award that has not been paid.

Retirement, Disability or Death

In the event that employment is terminated as a result of retirement (defined below), disability (defined below) or death, the award will be prorated based on the number of months employed during the performance period prior to the termination of employment and based on and subject to actual performance during the performance period, in accordance with the Program. Payment will be paid as soon as practicable in the following year after the audited financial results are available for the performance period, but in no event later than March 15, 2018. In the event of death, the award will be paid to the individual’s beneficiary or, if no beneficiary is named, to their estate.

For purposes of the Program: (i) retirement shall mean a termination of a participant’s employment, other than for Cause, on or after the attainment of age 65, and (ii) disability shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment for the period of time as set forth under the long term disability Program maintained by the Company for the benefit of the participant.

Voluntary Termination or Termination by the Company

In the event that a participant voluntarily terminates from employment or is involuntarily terminated by the Company, the participant will forfeit any award that has not been paid, in accordance with the Program. In other words, a participant must be employed by the Company on the date the award is actually paid by the Company.

Termination or Modification of the Program

The Committee may modify or terminate the Program at any time, effective at such date as the Committee may determine. The Committee or Board will, prior to the end of the Program year, adopt a resolution fixing a minimum aggregate amount, which amount is in the Committee or Board’s discretion (a “Pool”), to be paid to participants under the Program for 2017. After such a Pool is established, (i) the Program may not be modified or terminated and the amount of the Pool may not be reduced after December 31, 2017, and (ii) any amounts forfeited by individual participants hereunder because they are not employed as of the payment date will not reduce the Pool but will be reallocated among other participants in the Program who are not subject to Section 162(m) of the Code, and shall not revert to the Company.

EXHIBIT 10.15

EXECUTION VERSION

Portions of this Exhibit have been omitted based upon a request for confidential treatment. This Exhibit, including the non-public information, has been filed separately with the Securities and Exchange Commission. "[*]" designates portions of this document that have been redacted pursuant to the request for confidential treatment filed with the Securities and Exchange Commission.

SEVENTH AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT

dated as of December 20, 2016

among

AFC FUNDING CORPORATION ,

as Seller,

AUTOMOTIVE FINANCE CORPORATION ,

as Servicer,

The entities from time to time
parties hereto as Purchasers or Purchaser Agents hereunder

and

BANK OF MONTREAL ,

as the Agent

I\11418185.1

TABLE OF CONTENTS

Page



ARTICLE I. AMOUNTS AND TERMS OF THE PURCHASES		1
Section 1.1.	Purchase Facility	1
Section 1.2.	Making Purchases	2
Section 1.3.	Participation Computation	4
Section 1.4.	Settlement Procedures	4
Section 1.5.	Fees	7
Section 1.6.	Payments and Computations, Etc	8
Section 1.7.	Legal Final Maturity Date	8
Section 1.8.	Increased Costs	8
Section 1.9.	Dilutions; Application of Payments	10
Section 1.10.	Requirements of Law	10
Section 1.11.	Inability to Determine Eurodollar Rate	11
Section 1.12.	Additional and Replacement Purchasers, Increase in Maximum Amount	11
ARTICLE II. REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS		13
Section 2.1.	Representations and Warranties; Covenants	13
Section 2.2.	Termination Events	13
ARTICLE III. INDEMNIFICATION		13
Section 3.1.	Indemnities by the Seller	13
Section 3.2.	Indemnities by AFC	16
Section 3.3.	Indemnities by Successor Servicer	17
ARTICLE IV. ADMINISTRATION AND COLLECTIONS		18
Section 4.1.	Appointment of Servicer	18
Section 4.2.	Duties of Servicer; Relationship to Backup Servicing Agreement	19
Section 4.3.	Deposit Accounts; Establishment and Use of Certain Accounts	20
Section 4.4.	Enforcement Rights	22
Section 4.5.	Responsibilities of the Seller	23
Section 4.6.	Servicing Fee	23
Section 4.7.	Specified Ineligible Receivables	23



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TABLE OF CONTENTS

(continued)

Page



ARTICLE V. THE AGENTS		24
Section 5.1.	Appointment and Authorization	24
Section 5.2.	Delegation of Duties	25
Section 5.3.	Exculpatory Provisions	25
Section 5.4.	Reliance by Agents	25
Section 5.5.	Notice of Termination Date	26
Section 5.6.	Non-Reliance on Agent, Purchaser Agents and Other Purchasers	26
Section 5.7.	Agent, Purchaser Agents and Purchasers	27
Section 5.8.	Indemnification	27
Section 5.9.	Successor Agent	27
ARTICLE VI. MISCELLANEOUS		27
Section 6.1.	Amendments, Etc	27
Section 6.2.	Notices, Etc	28
Section 6.3.	Assignability	28
Section 6.4.	Costs, Expenses and Taxes	29
Section 6.5.	No Proceedings; Limitation on Payments	30
Section 6.6.	Confidentiality	31
Section 6.7.	GOVERNING LAW AND JURISDICTION	31
Section 6.8.	Execution in Counterparts	31
Section 6.9.	Survival of Termination	31
Section 6.10.	WAIVER OF JURY TRIAL	31
Section 6.11.	Entire Agreement	32
Section 6.12.	Headings	32
Section 6.13.	Liabilities of the Purchasers	32
Section 6.14.	Tax Treatment	32



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TABLE OF CONTENTS

Page



EXHIBIT I	DEFINITIONS	I-1
EXHIBIT II	CONDITIONS OF PURCHASES	II-1
EXHIBIT III	REPRESENTATIONS AND WARRANTIES	III-1
EXHIBIT IV	COVENANTS	IV-1
EXHIBIT V	TERMINATION EVENTS	V-1
EXHIBIT VI	PORTFOLIO CERTIFICATE	VI-1
EXHIBIT VII	PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS	VII-1

SCHEDULE I	[RESERVED]	I-1
SCHEDULE II	DEPOSIT BANKS AND DEPOSIT ACCOUNTS	II-1
SCHEDULE III	NET RECEIVABLES POOL BALANCE CALCULATION	III-1
SCHEDULE IV	[RESERVED]	IV-1
SCHEDULE V	TAX MATTERS	V-1
SCHEDULE VI	COMPETITOR FINANCIAL INSTITUTIONS	VI-1

ANNEX A	FORM OF PURCHASE NOTICE
ANNEX B	FORM OF SERVICER REPORT
ANNEX C	FORM OF JOINDER AGREEMENT



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SEVENTH AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT

This SEVENTH AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, originally dated as of December 31, 1996, amended and restated as of May 31, 2002, as of June 15, 2004, as of April 20, 2007, as of April 26, 2011, as of June 21, 2013, as of June 16, 2015 and as of December 20, 2016 (as further amended, supplemented or otherwise modified from time to time, the “ Agreement ”) is entered into among AFC FUNDING CORPORATION, an Indiana corporation, as seller (the “ Seller ”), AUTOMOTIVE FINANCE CORPORATION, an Indiana corporation (“ AFC ”), as initial servicer (in such capacity, together with its successors and permitted assigns in such capacity, the “ Servicer ”), the entities from time to time parties hereto as Purchasers or Purchaser Agents and BANK OF MONTREAL, a Canadian chartered bank, as agent for the Purchasers (in such capacity, together with its successors and assigns in such capacity, the “ Agent ”).

PRELIMINARY STATEMENTS. Certain terms that are capitalized and used throughout this Agreement are defined in Exhibit I to this Agreement. References in the Exhibits hereto to “the Agreement” refer to this Agreement, as amended, modified or supplemented from time to time.

Certain of the parties hereto are party to that certain Sixth Amended and Restated Receivables Purchase Agreement, dated as of June 16, 2015 (the “ Prior Agreement ”), pursuant to which the Seller has sold, transferred and assigned an undivided variable percentage interest in a pool of receivables to the Purchasers thereunder.

The parties hereto wish to amend and restate the Prior Agreement in its entirety in order to make certain changes set forth herein.

In consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows:

ARTICLE I.

AMOUNTS AND TERMS OF THE PURCHASES

Section 1.1. Purchase Facility . (a) On the terms and conditions hereinafter set forth, each Purchaser hereby agrees to purchase and make reinvestments of undivided percentage ownership interests with regard to its Participation from the Seller from time to time prior to the Termination Date. Under no circumstances shall any Purchaser make any such purchase or reinvestment, if, after giving effect to such purchase or reinvestment, (A) the aggregate Investment of such Purchaser would exceed its Maximum Commitment; or (B) the aggregate outstanding Investment of all Purchasers would exceed the Maximum Amount.

(b) The Seller may, upon at least 30 days’ notice to the Agent, the Purchaser Agents, the Servicer and the Backup Servicer, terminate the purchase facility provided in Section 1.1(a) in whole or, from time to time, irrevocably reduce in part the unused portion of the Maximum Amount (for purposes of this calculation, any deferred purchase amounts which Purchasers are still obligated to fund prior to any applicable Deferred Purchase Date(s) under Section 1.2(a)

I\11418185.1

shall be treated as funded); provided that each partial reduction shall be in the amount of at least $1,000,000, or an integral multiple of $500,000 in excess thereof and shall not reduce the Maximum Amount below $100,000,000. Any such reductions shall be applied to the Maximum Commitments of the Purchasers on a pro rata basis or as otherwise consented to by the Agent.

(c) On the date hereof, the Seller shall request a purchase hereunder from one or more of Fairway Finance Company, LLC, Fifth Third Bank, Thunder Bay Funding, LLC, PNC Bank, National Association, Bank of Montreal and Chariot Funding, LLC (on a non-pro rata basis) and apply the proceeds thereof to solely realign the aggregate Investments of the Purchasers hereunder such that after giving effect to such payments the aggregate Investment is funded by all Purchaser Groups on a pro rata basis based on their Maximum Commitments as a percentage of the Maximum Amount.

Section 1.2. Making Purchases . (a) Each purchase (but not reinvestment under Section 1.4(c) ) of undivided ownership interests with regard to any Participation of any Purchaser hereunder shall be made upon the Seller’s irrevocable written notice in the form of Annex A (a “ Purchase Notice ”) delivered to the Agent and each Purchaser Agent in accordance with Section 6.2 (which notice must be received by such Purchaser Agents prior to 2:00 p.m., Chicago time) on the Business Day immediately preceding the date of such proposed purchase. Each such notice of any such proposed purchase shall specify the desired amount and date of such purchase. Notwithstanding the foregoing, any Purchaser may, in its sole discretion by written notice to the Seller, Servicer and Agent by 5:00 p.m. on the date of receipt of a Purchase Notice, elect to fund any requested purchase (but not reinvestment under Section 1.4(c) ) no later than the [*] day following the requested purchase date (the “ Deferred Purchase Date ”), rather than on the requested purchase date. Upon receipt of any such notice, the Agent shall forward a copy thereof promptly to all Purchaser Agents. In the event that a Purchaser so elects to defer funding a purchase, subject to the adjustment of the purchase amount payable as described in clause (i) below, the Purchaser shall be obligated to fund such purchase no later than such Deferred Purchase Date so long as all applicable conditions to such purchase pursuant to Exhibit II were satisfied on the related requested purchase date (regardless of whether such conditions to funding are not satisfied thereafter or on the Deferred Purchase Date). A Purchaser which has elected a Deferred Purchase Date and which has not yet funded such purchase in full or otherwise had such unfulfilled purchase reduced to zero pursuant to clause (i) below (a “ Deferring Purchaser ”) may (in its sole discretion) fund such purchase on any Business Day prior to such Deferred Purchase Date. Subject to the adjustment of the purchase amount payable as described in clause (i) below, the Seller shall be obligated to accept the proceeds of any such purchase on the date funded by the applicable Deferring Purchaser in accordance with this paragraph). No non- Deferring Purchaser shall be obligated to fund any amounts required to be funded by a Deferring Purchaser. In addition, if there is a Deferring Purchaser:

(i) all repayments of Investment shall be made on a pro rata basis across all Purchasers (based on each such Purchaser’s Investment (including, for purposes of this calculation, any deferred purchase amounts which such Purchaser is still obligated to fund prior to the applicable Deferred Purchase Date(s)) as a percentage of the aggregate Investment for all Purchasers (including the aggregate of all outstanding deferred purchase amounts); provided , that amounts allocated to any Deferring Purchaser shall first be applied to reduce any applicable unfulfilled purchase amounts of that Deferring



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I\11418185.1

Purchaser (starting with the most recently deferred purchase) without the payment of cash and then, after all such Deferring Purchaser’s unfulfilled purchase amounts have been reduced to zero, applied to reduce such Deferring Purchaser’s Investment through the payment of cash; and

(ii) future purchase requests and reports shall be calculated on a pro forma basis including the unfulfilled purchase of any Deferring Purchasers (e.g., the calculation of the Participation shall include such unfulfilled purchases). For the avoidance of doubt, no unfulfilled purchase shall accrue Discount or be included in the calculation of fees hereunder until funded.

(b) On the date of each purchase (but not reinvestment under Section 1.4(c) ) of undivided ownership interests with regard to the Participation of any Purchaser, such Purchaser shall, subject to Sections 1.1(a), 1.2(a) and the satisfaction of the applicable conditions set forth in Exhibit II hereto, make available to its Purchaser Agent, in same day funds, an amount equal to its pro rata share (based on the Maximum Commitment of such Purchaser as a percentage of the Maximum Amount) of the amount of such purchase. Upon receipt of such funds, each such Purchaser Agent shall make such funds immediately available to the Seller pursuant to the wire instructions provided on the Purchase Notice.

(c) The Seller hereby sells and assigns to the Agent, for the benefit of the Purchasers, an undivided percentage ownership interest equal to the Aggregate Participation in (i) each Pool Receivable then existing and thereafter arising, (ii) Seller’s right, title and interest in, to and under all Related Security with respect to such Pool Receivables, and (iii) all Collections with respect to, and other proceeds of, such Pool Receivables and Related Security.

(d) To secure all of the Seller’s obligations (monetary or otherwise) under the Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent, including to secure the obligation of the Servicer to apply Collections as provided in this Agreement, the Seller hereby grants to the Agent, for the benefit of the Secured Parties, a security interest in all of the Seller’s right, title and interest in, to and under all of the following, whether now or hereafter owned, existing or arising: (A) all Pool Receivables, (B) all Related Security with respect to each such Pool Receivable, (C) all Collections with respect to such Pool Receivables and Related Security, (D) the Deposit Accounts, the Liquidation Account and the Cash Reserve Account and all certificates and instruments, if any, from time to time evidencing the Deposit Accounts, the Liquidation Account and the Cash Reserve Account, all amounts on deposit therein, all investments (including any investment property) made with such funds, all claims thereunder or in connection therewith, and all interest, dividends, moneys, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing, (E) all rights of the Seller under the Purchase and Sale Agreement, and (F) all proceeds of, and all amounts received or receivable under any or all of, the foregoing. The Agent, for the benefit of the Secured Parties, shall have, with respect to the property described in this Section 1.2(d) , and in addition to all the other rights and remedies available under this Agreement, all the rights and remedies of a secured party under any applicable UCC.



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Section 1.3. Participation Computation . Each Participation shall be automatically recomputed (or deemed to be recomputed) on each Business Day other than a Termination Day. Each Participation shall remain constant as computed (or deemed recomputed) as of the day immediately preceding the Termination Date until such date that the aggregate Investment and Discount thereon shall have been paid in full, all the amounts owed by the Seller hereunder and under any other Transaction Document to the Purchasers, the Purchaser Agents, the Agent, and any other Indemnified Party or Affected Person are paid in full and the Servicer shall have received the accrued Servicing Fee.

Section 1.4. Settlement Procedures . (a) Collection of the Pool Receivables shall be administered by the Servicer in accordance with the terms of this Agreement. The Seller shall provide to the Servicer on a timely basis all information needed for such administration, including notice of the occurrence of any Termination Date or Paydown Day and current computations of the Participations. The Servicer shall segregate and hold all Collections in trust for the benefit of the Seller, the Purchasers and the other Secured Parties and, within one Business Day of the receipt of Collections of Pool Receivables by the Seller or Servicer, deposit such Collections into a Deposit Account. On each day that is not a Termination Day, the Servicer shall remit to the Liquidation Account from the Deposit Accounts (other than those amounts identified as “cash collateral” with respect to the Deposit Accounts held at [*] (numbered [*] and [*])) an amount at least equal to the amount needed to make the payments set forth in clause (c) below.

(b) Allocation of Seller’s Share of Collections Prior to Termination Date . If such day is not a Termination Day, the Servicer shall allocate out of the Seller’s Share of Collections and pay or otherwise deposit into the Cash Reserve Account as set forth below the following amounts in the following order:

(1) first , to the Servicer any accrued and unpaid Servicing Fees;

(2) second , deposit into the Cash Reserve Account an amount up to the excess of the Cash Reserve over the amount on deposit in the Cash Reserve Account; and

(3) third , to the Seller.

(c) Daily Purchaser Share Allocation . On each Business Day that is not a Termination Day, the Servicer shall allocate from the Purchasers’ Share of Collections and set aside in the Liquidation Account (unless otherwise specified below) the following amounts in the following order:

(1) first , to the Servicer and the Backup Servicer, the Unaffiliated Servicing Fees and Backup Servicing Fees and Transition Expenses accrued through such day and not previously set aside in the Liquidation Account;

(2) second , to each Purchaser, any applicable Discount and Program Fees accrued through such day and not previously set aside in the Liquidation Account;

(3) third , to the Cash Reserve Account, an amount, if any, sufficient to increase the amount on deposit therein to equal the Cash Reserve;



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(4) fourth , if a voluntary paydown of Investment is being made, for application in reduction of the Investment in accordance with Section 1.4(f);

(5) fifth , if the Aggregate Participation exceeds 100% or if such day is Paydown Day, for application in reduction of the Investment in accordance with Section 1.4(g) ;

(6) sixth , to any Indemnified Party, ratably in proportion to the respective amounts owed to each such Person, any amounts owed to such Indemnified Party;

(7) seventh , to the Backup Servicer, any accrued and unpaid Backup Servicing Fees, after giving effect to the distribution in clause (1) above;

(8) eighth , to the Servicer, any accrued and unpaid Servicing Fees, which in the Servicer’s discretion may be netted monthly from Collections, after giving effect to the distribution in clause (1) above;

(9) ninth , to the reinvestment in Pool Receivables and Related Security; and

(10) tenth , to the Seller, but only to the extent no Paydown Day exists or would result from such distribution.

(d) Distributions from Liquidation Account . Funds set aside and held on deposit in the Liquidation Account pursuant to Section 1.4(c) above shall be distributed as follows:

(1) Distribution of Discount, Program Fees and Investment Prior to Termination Date . On each Settlement Date that is not a Termination Day, amounts set aside in the Liquidation Account for a particular Purchaser with respect to Discount, Program Fees and Investment shall be paid to the applicable Purchaser’s Account of such Purchaser;

(2) Distributions of Indemnified Amounts . On each Settlement Date, Collections held on deposit in the Liquidation Account for the benefit of an Indemnified Party shall be paid to the applicable Indemnified Party as directed by such Indemnified Party;

(3) Distributions of Servicing Fees . On each Settlement Date, Collections held on deposit in the Liquidation Account for the benefit of the Servicer, if any, shall be paid to the Servicer as the Servicer shall direct; and

(4) Distribution of Backup Servicing Fees and Transition Expenses . On each Settlement Date, Collections held on deposit in the Liquidation Account for the benefit of the Backup Servicer shall be paid to the Backup Servicer as the Backup Servicer shall direct.

(e) Settlement Following Termination Date . On each Settlement Date on and after the Termination Date, all Collections (including the Seller’s Share) in the Deposit Accounts (other than those amounts identified as “cash collateral” with respect to the Deposit Accounts



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held at [*] (numbered [*] and [*])) shall be transferred into the Liquidation Account and applied as follows:

(1) first , to the Servicer (if not AFC or an Affiliate thereof) and the Backup Servicer (ratably in proportion to the respective amounts owed to each) the sum of accrued and unpaid Unaffiliated Servicing Fees and Backup Servicing Fees and Transition Expenses for the prior calendar month;

(2) second , to the Agent an amount equal to any accrued and unpaid Enforcement Costs (provided that the amount payable pursuant to this clause (2) shall not exceed $200,000 in the aggregate);

(3) third , pro rata (based on amounts due) to each Purchaser’s Account an amount equal to all accrued and unpaid Discount and Program Fees;

(4) fourth , on a pro rata basis in accordance with the provisions of Section 1.2(a)(i), to the applicable Purchaser’s Account until the aggregate Investment is reduced to zero;

(5) fifth , to the Backup Servicer or any applicable successor Servicer, an amount equal to the sum of the invoiced but unpaid Transition Expenses (if any) and any Backup Servicing Fees (if any) for the prior calendar month to the extent not paid pursuant to clause (1) above;

(6) sixth , (i) first, to the Agent an amount equal to any accrued and unpaid Enforcement Costs to the extent not paid pursuant to clause (2) above and (ii) second, to any Indemnified Party, ratably in proportion to the respective amounts owed to each such Person, any amounts owed to such Indemnified Party;

(7) seventh , to the Servicer any accrued and unpaid Servicing Fees due to the Servicer; and

(8) eighth , to the Seller.

(f) Voluntary Paydown of Investment . If at any time the Seller shall wish to cause the reduction of the aggregate of the Investment of the Participations of the Purchasers, the Seller shall give each Purchaser Agent, the Agent, the Servicer and the Backup Servicer at least two Business Days’ prior written notice thereof (including the amount of such proposed reduction and the proposed date on which such reduction will commence). Following the delivery of such notice, on the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall cause the remainder of the Purchasers’ Share of Collections (after giving effect to allocations of more senior priority items under Section 1.4(c) above) to be transferred to the Liquidation Account and the Agent shall hold therein such amounts for the benefit of the Purchasers until the aggregate amount thereof not so reinvested shall equal the desired amount of reduction, at which time such amount shall be allocated to repay the outstanding Investment of the Purchasers ratably, with such reduction to be applied to the Investment of the Purchasers (on a pro rata basis in accordance with the provisions of Section 1.2(a)(i) ); provided , that upon the occurrence of the Termination Date, all such Collections set aside shall instead be held for



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distribution in accordance with Section 1.4(e) ; and provided , further , that, unless otherwise agreed by the Agent, the amount of any such reduction with respect to each Purchaser shall be not less than $1,000,000 and shall be an integral multiple of $100,000, and the entire Investment (if any) of the Participation after giving effect to such reduction shall be not less than $100,000,000.

(g) Distributions of Investment Upon Paydown Day . On each Paydown Day (including on any day the Aggregate Participation exceeds 100%), the remainder of the Purchasers’ Share of any remaining Collections (after giving effect to allocations of more senior priority items in Section 1.4(c) ), shall be transferred by the Servicer from the Deposit Accounts to the Liquidation Account and held therein by the Agent and allocated to repay the outstanding Investment of the Purchasers (with such reduction to be applied to the Investment of the Purchasers on a pro rata basis in accordance with the provisions of Section 1.2(a)(i) ; provided , that on the first day that is not a Paydown Day or a Termination Day, the Agent shall hold all funds allocated to repay Investment pursuant to this subsection for distribution in accordance with the priorities set forth in Section 1.4(c) ; and, provided , further , that upon the occurrence of the Termination Date, all Collections allocated to repay Investment pursuant to this subsection shall instead be held for distribution in accordance with Section 1.4(e) .

(h) Withdrawals from Cash Reserve Account . If on any Settlement Date (A) insufficient funds are on deposit in the Liquidation Account to make in full all required distributions of Discount and fees and (B) since the prior Settlement Date funds have been released to the Seller and not used by the Seller to acquire Receivables, the Seller shall deposit into the Liquidation Account on or before such Settlement Date the lesser of the shortfall described in clause (A) and the amount described in clause (B) above for the benefit of the applicable Purchasers. If on any Settlement Date insufficient funds are on deposit in the Liquidation Account (after giving effect to any deposits made by the Seller as described in the preceding sentence) to make in full all required distributions of Discount and fees for such Settlement Date, the Agent shall distribute funds from the Cash Reserve Account in payment of such Discount and fees as if such funds were funds on deposit in the Liquidation Account held for the benefit of the applicable Purchaser. On any Termination Day, to the extent directed by the Majority Purchasers, the Agent shall distribute funds from the Cash Reserve Account pursuant to Section 1.4(e) as if such funds were funds on deposit in the Liquidation Account held for the benefit of the applicable Purchasers and, following the payment in full of all outstanding Investment, any remaining amounts on deposit in the Cash Reserve Account shall be distributed as Collections pursuant to Section 1.4(e) . If on any Business Day other than a Termination Day, after giving effect to all distributions on such day pursuant to Section 1.4 , the amount on deposit in the Cash Reserve Account exceeds the Cash Reserve, such excess shall be released from the Cash Reserve Account and treated as Collections for purposes of Section 1.4 for the following Business Day.

Section 1.5. Fees . (a) The Seller shall pay to the Purchaser Agents certain fees in the amounts and on the dates set forth in a letter dated December 20, 2016 between the Seller, AFC and the Purchaser Agents, as such letter agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof (the “ Fee Letter ”).



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(b) The Seller shall pay to the Backup Servicer the Backup Servicing Fees and any Transition Expenses in the amounts and on the dates set forth in the Backup Servicing Fee Letter, as the same may be amended, supplemented or otherwise modified from time to time with the prior written consent of the Agent.

Section 1.6. Payments and Computations, Etc . (a) All amounts to be paid or deposited by the Seller or the Servicer to, or for the benefit of, any Purchaser Agent, any Purchaser, the Agent or the Backup Servicer hereunder shall be paid or deposited no later than 12:00 noon (Chicago time) on the day when due in same day funds to the Liquidation Account. All amounts received after noon (Chicago time) will be deemed to have been received on the immediately succeeding Business Day.

(b) The Seller, AFC or Servicer (as applicable) shall, to the extent permitted by law, pay interest on any amount not paid by the respective party to the applicable Person when due hereunder, at an interest rate equal to 2.0% per annum above the Base Rate, payable on demand.

(c) All computations of interest under subsection (b) above and all computations of Discount, fees and other amounts hereunder shall be made on the basis of a year of 360 days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made no later than the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit.

Section 1.7. Legal Final Maturity Date . All obligations of the Seller hereunder shall be due and payable in full on the Legal Final Maturity Date (unless due and payable earlier than such date in accordance with the provisions hereof).

Section 1.8. Increased Costs . (a) If any Purchaser Agent, any Purchaser, the Agent, any Liquidity Bank, any Related CP Issuer, any other Program Support Provider or any of their respective Affiliates (each an “ Affected Person ”) determines that the existence of or compliance with (i) any law or regulation or any change therein or in the administration, interpretation, application or implementation thereof by any Governmental Authority or Official Body, in each case adopted, issued, taking effect or occurring after the date hereof or (ii) any request, rule, guideline or directive from any central bank or other Official Body (whether or not having the force of law) issued, occurring or first applied after the date of this Agreement (each, a “ Regulatory Change ”) (A) affects or would affect the amount of capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of or otherwise to maintain the investment in Pool Receivables related to this Agreement or any related liquidity facility or credit enhancement facility and other commitments of the same type, or (B) imposes, modifies or deems applicable any reserve, assessment, fee, tax, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or liabilities of any Affected Person, or credit extended by an Affected Person pursuant to this Agreement or any Liquidity Agreement or Program Support Agreement, the result of which is to increase the cost to an Affected Person of performing its obligations under this Agreement or any Liquidity Agreement or Program Support Agreement, or to reduce the rate of return on an Affected Person’s capital or assets as a consequence of its obligations under this Agreement or



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any Liquidity Agreement or Program Support Agreement, or to reduce the amount of any sum received or receivable by an Affected Person under this Agreement or any Liquidity Agreement or Program Support Agreement, or to require any payment calculated by reference to the amount of interests or loans held or interest received by it, under this Agreement or any Liquidity Agreement or Program Support Agreement, then, upon written demand by such Affected Person (with a copy to the Agent and the applicable Purchaser Agent (if any)), the Seller shall immediately pay to the Agent, for the account of such Affected Person, from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital, increase in costs or reduction in sum received or receivable to be allocable to the existence of any of such commitments or maintenance of its investment in the Pool Receivables and such Affected Person requires such compensation from substantially all similarly situated sellers, borrowers or other recipients of credit; provided that within 30 days of an Affected Person’s knowledge of any such circumstance and intent to seek indemnification therefor such Affected Person shall notify the Seller in writing of the same and whether such Affected Person will request that the Seller indemnify it for such circumstance (and the Seller shall not be obligated to indemnify any Affected Person for any period in excess of 30 days prior to receipt of such notice). A certificate as to such amounts shall be submitted to the Seller, the Agent and the applicable Purchaser Agent (if any) by such Affected Person and shall be conclusive and binding for all purposes, absent manifest error. Notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all rules and regulations promulgated thereunder or issued in connection therewith and (ii) all requests, rules, guidelines and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, shall in each case be deemed to have been introduced as of the date after the date hereof, thereby constituting a Regulatory Change hereunder, regardless of the date enacted, adopted or issued.

(b) If, due to Regulatory Change, there shall be any increase in the cost to any Affected Person of agreeing to purchase or purchasing, or maintaining the ownership of the related Participation(s) in respect of which Discount is computed by reference to the Eurodollar Rate, then, upon written demand by such Affected Person, the Seller shall immediately pay to the Agent, for the account of such Affected Person, from time to time as specified, additional amounts sufficient to compensate such Affected Person for such increased costs; provided that within 30 days of an Affected Person’s knowledge of any such circumstance and intent to seek indemnification therefor such Affected Person shall notify the Seller in writing of the same and whether such Affected Person will request that the Seller indemnify it for such circumstance (and the Seller shall not be obligated to indemnify any Affected Person for any period in excess of 30 days prior to receipt of such notice). A certificate as to such amounts shall be submitted to the Seller, the Agent and the applicable Purchaser Agent (if any), by such Affected Person and shall be conclusive and binding for all purposes, absent manifest error.



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Section 1.9. Dilutions; Application of Payments .

(a) If on any day

(i) the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any discount, rebate or other adjustment made by the Originator, Seller or Servicer, or any setoff or dispute between the Seller, Originator or the Servicer and an Obligor, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in the amount of such reduction or adjustment; or

(ii) any of the representations or warranties in paragraphs A.(g) or A.(o) of Exhibit III is not true with respect to any Pool Receivable, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full;

then any such deemed Collections shall be deposited by the Seller into the Liquidation Account on the first Business Day of the calendar week following deemed receipt thereof.

(b) Except as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivable shall be applied in accordance with the Contract with such Obligor and the Credit and Collection Policy.

(c) If and to the extent any Secured Party shall be required for any reason to pay over to an Obligor (or any trustee, receiver, custodian or similar official in any Insolvency Proceeding) any amount received by it hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Seller and, accordingly, such Secured Party shall have a claim against the Seller for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof.

Section 1.10. Requirements of Law . In the event that any Affected Person determines that the existence of or compliance with (i) any law or regulation or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof or (ii) any request, guideline or directive from any central bank or other Governmental Authority (whether or not having the force of law) issued or occurring after the date of this Agreement:

(i) does or shall subject such Affected Person to any tax of any kind whatsoever with respect to this Agreement, any increase in the applicable Participation(s) or in the amount of Investment relating thereto, or does or shall change the basis of taxation of payments to such Affected Person on account of Collections, Discount or any other amounts payable hereunder (excluding taxes imposed on the overall net income of such Affected Person, and franchise taxes imposed on such Affected Person, by the jurisdiction under the laws of which such Affected Person is organized or doing business or a political subdivision thereof);

(ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, purchases, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Affected Person



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which are not otherwise included in the determination of the Eurodollar Rate or the Base Rate hereunder; or

(iii) does or shall impose on such Affected Person any other condition;

and the result of any of the foregoing is (x) to increase the cost to such Affected Person of acting as a Purchaser Agent or Agent or of agreeing to purchase or purchasing or maintaining the ownership of undivided ownership interests with regard to the applicable Participation or any Investment (or interests therein) in respect of which Discount is computed by reference to the Eurodollar Rate or the Base Rate or (y) to reduce any amount receivable hereunder (whether directly or indirectly) funded or maintained by reference to the Eurodollar Rate or the Base Rate, then, in any such case, upon written demand by such Affected Person the Seller shall pay the Agent, for the account of such Affected Person, any additional amounts necessary to compensate such Affected Person for such additional cost or reduced amount receivable. All such amounts shall be payable as incurred. A certificate from such Affected Person to the Seller certifying, in reasonably specific detail, the basis for, calculation of, and amount of such additional costs or reduced amount receivable shall be conclusive in the absence of manifest error; provided , however , that no Affected Person shall be required to disclose any confidential or tax planning information in any such certificate.

Section 1.11. Inability to Determine Eurodollar Rate . In the event that any Purchaser Agent shall have determined prior to the first day of any Yield Period for the Participation of its Purchaser (which determination shall be conclusive and binding upon the parties hereto) by reason of circumstances affecting the interbank Eurodollar market, either (a) Dollar deposits in the relevant amounts and for the relevant Yield Period are not available, (b) adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Yield Period or (c) the Eurodollar Rate determined pursuant hereto does not accurately reflect the cost (as conclusively determined by such Purchaser Agent) to any Purchaser for which such Purchaser Agent acts as agent of maintaining each such Investment of such Purchaser during such Yield Period, such Purchaser Agent shall promptly give telephonic notice of such determination, confirmed in writing, to the Seller prior to the first day of such Yield Period. Upon delivery of such notice (a) no Investment of such Purchaser shall be funded thereafter at the Bank Rate determined by reference to the Eurodollar Rate, unless and until the applicable Purchaser Agent shall have given notice to the Seller that the circumstances giving rise to such determination no longer exist, and (b) with respect to any outstanding Investment then funded at the Bank Rate determined by reference to the Eurodollar Rate, such Bank Rate shall automatically be converted to the Bank Rate determined by reference to the Base Rate for the next Yield Period.

Section 1.12. Additional and Replacement Purchasers, Increase in Maximum Amount . (a) Subject to Section 6.1 , the Seller shall have the right, at any time and from time to time, with the prior written consent of the Agent to add any entity as a Purchaser hereunder (which addition may increase the Maximum Amount if a Purchaser is added) or increase the Maximum Commitment of any existing Purchaser. No increase in the Maximum Commitment of a Purchaser hereunder shall be effective unless, if the increasing Purchaser is a Note Issuer that requires confirmation by the Rating Agencies, such Note Issuer shall have received written confirmation by its related Rating Agencies that such action shall not cause the rating on the then outstanding Notes of such Note Issuer to be downgraded or withdrawn. Each such addition of a



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new Purchaser hereunder shall be effected by delivery to the Seller, the Servicer, the Agent and each Purchaser Agent, of a Joinder Agreement executed by the Seller, the Servicer, the Agent, such new Purchaser and its Purchaser Agent (if different from the Purchaser) in substantially the form of Annex C hereto. Upon receipt of a Joinder Agreement, if such Joinder Agreement has been fully executed and completed and is substantially in the form of Annex C , the Servicer shall, not less than five (5) Business Days prior to the effectiveness of such Joinder Agreement give prompt written notice to all Purchaser Agents, the Agent and Purchasers as to (i) the name, identity and address for receiving notices of the new Purchaser(s) and Purchaser Agent(s) becoming party hereto, (ii) the Maximum Commitment of such new Purchaser, (iii) the change in the Maximum Amount and (iv) the effective date of such Joinder Agreement. Immediately upon the effectiveness of such Joinder Agreement, such additional Purchaser shall purchase, by wire transfer of immediately available funds its Participation. Effective with the payment of such amounts, such new Purchaser and its Purchaser Agent designated in the applicable Joinder Agreement shall each become parties hereto.

(b) By executing and delivering a Joinder Agreement, each new Purchaser and Purchaser Agent confirms to and agrees with the Agent and each other Purchaser and Purchaser Agent party hereto as follows: (A) such new Purchaser has received a copy of this Agreement, and the Purchase and Sale Agreement, together with copies of such financial statements and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Joinder Agreement; (B) such new Purchaser has made and will continue to make, independently and without reliance upon the Agent, any Purchaser Agent or any other Purchaser and based on such documents and information as it shall deem appropriate at the time, its own credit decisions in taking or not taking action under this Agreement; (C) such new Purchaser appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (D) such new Purchaser and its Purchaser Agent agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Purchaser or Purchaser Agent.

(c) In addition to the foregoing, in the event that any Purchaser or Purchaser Agent (i) does not consent to an amendment of clause (ii) of the definition of Termination Date to which the Seller and the Servicer have otherwise consented; or (ii) does not consent to any amendment or modification of this Agreement agreed to by the Seller, the Servicer and the Majority Purchasers but which requires the consent of such Purchaser, then, in any such event, the Seller shall have the right, with the prior written consent of the Agent, to require such Purchaser to assign its interests in its Participation and the Pool Receivables and all of its rights and obligations under this Agreement to a replacement Purchaser acceptable to the Agent and the Seller. Any such assignment shall be without recourse, representation or warranty of any kind on the part of the assigning Purchaser, except that such assignment is free and clear of any Adverse Claims created by such Purchaser, and shall be consummated pursuant to documentation reasonably satisfactory to the assignor and assignee on not less than ten days’ prior written notice, at a purchase price equal to the sum of (w) the aggregate outstanding Investment of the Purchaser being so replaced; (x) all accrued and unpaid Discount on such Investment; (y) all accrued and unpaid Program Fees owed to or on behalf of such Purchaser; and (z) all other accrued and unpaid expenses, indemnities and other amounts owing under this



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Agreement to such Purchaser, including any Termination Fees caused by the above-described assignment. Concurrently with any such assignment, the Seller, the Servicer, such replacement Purchaser and its Purchaser Agent (if different from the Purchaser) shall execute a Joinder Agreement to evidence the terms and conditions under which such replacement Purchaser has agreed to become a Purchaser hereunder.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES; COVENANTS;
TERMINATION EVENTS

Section 2.1. Representations and Warranties; Covenants . Each of the Seller and the Servicer hereby makes the representations and warranties, and hereby agrees to perform and observe the covenants of such Person, set forth in Exhibits III , IV and VII , respectively hereto.

Section 2.2. Termination Events . If any of the Termination Events set forth in Exhibit V hereto shall occur, the Majority Purchasers may, by notice to the Seller, each Purchaser Agent, the Agent and the Backup Servicer, declare the Termination Date to have occurred (in which case the Termination Date shall be deemed to have occurred); provided that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in subsection (g) , (h) , (k) or (m) of Exhibit V , the Termination Date shall occur automatically (without any required delivery of notice). Upon any such declaration, the occurrence or the deemed occurrence of the Termination Date, the Agent (at the direction of the Majority Purchasers) shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. The Agent shall obtain confirmation of the then-current rating of the Facility and any Notes (if required, as determined by the related Purchaser Agent) from the Rating Agencies rating the Facility or rating the Notes of any Purchaser prior to waiving the occurrence of any Termination Event of the type described in clause (j) of Exhibit V hereto.

ARTICLE III.

INDEMNIFICATION

Section 3.1. Indemnities by the Seller . Without limiting any other rights that the Agent, the Purchaser Agents, the Purchasers, the Related CP Issuers, the Backup Servicer or any of their respective Affiliates, employees, agents, successors, transferees or assigns (each, an “ Indemnified Party ”) may have hereunder or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party from and against any and all claims, damages, expenses, losses and liabilities (including Attorney Costs) (all of the foregoing being collectively referred to as “ Indemnified Amounts ”) arising out of or resulting from this Agreement or other Transaction Documents (whether directly or indirectly) or the use of proceeds of purchases or reinvestments or the ownership of any Participation, or any interest therein, or in respect of any Receivable or any Contract regardless of whether any such Indemnified Amounts result from an Indemnified Party’s negligence or strict liability or other acts or omissions of an Indemnified Party, excluding, however, (a) Indemnified Amounts to the extent resulting from gross



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negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables to be written off consistent with the Credit and Collection Policy or (c) any overall net income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof. Without limiting or being limited by the foregoing, and subject to the exclusions set forth in the preceding sentence, the Seller shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following:

(i) the failure of any Receivable included in the calculation of the Net Receivables Pool Balance as an Eligible Receivable to be an Eligible Receivable, the failure of any information contained in a Servicer Report or a Portfolio Certificate to be true and correct, or the failure of any other information provided to any Purchaser, any Purchaser Agent or the Agent with respect to Receivables or this Agreement to be true and correct;

(ii) the failure of any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement to have been true and correct in all respects when made;

(iii) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract; or the failure of any Pool Receivable or the related Contract to conform to any such applicable law, rule or regulation;

(iv) the failure (A) to vest in the Agent (for the benefit of the Secured Parties) a valid and enforceable perfected undivided percentage ownership interest, to the extent of the Aggregate Participation, in the Pool Receivables and Collections with respect thereto and in Seller’s right, title and interest in, to and under the Related Security, and (B) to vest in the Agent (for the benefit of the Secured Parties) a first priority perfected security interest in all of Seller’s right, title and interest in, to and under the items described in Section 1.2(d)(A) – (F) , in each case, free and clear of any Adverse Claim;

(v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Pool Receivables and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time;

(vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Pool Receivables (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from or relating to the transaction giving rise to such Receivable or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as



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Servicer or by any agent or independent contractor retained by the Seller or any of its Affiliates);

(vii) any failure of the Seller to perform its duties or obligations in accordance with the provisions hereof;

(viii) any products liability or other claim, investigation, litigation or proceeding arising out of or in connection with goods, insurance or services that are the subject of or secure any Contract;

(ix) the commingling of Collections of Pool Receivables at any time with other funds;

(x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or reinvestments or the ownership of any Participation or in respect of any Receivable, Related Security or Contract;

(xi) any reduction in Investment as a result of the distribution of Collections pursuant to Section 1.4 , in the event that all or a portion of such distributions shall thereafter be rescinded or otherwise must be returned for any reason;

(xii) any tax or governmental fee or charge (other than any tax upon or measured by net income or gross receipts), all interest and penalties thereon or with respect thereto, and all reasonable out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of any Participation or other interests in the Pool Receivables or in any Related Security or Contract;

(xiii) the failure by the Seller or the Servicer to pay when due any taxes payable by it, including, without limitation, the franchise taxes and sales, excise or personal property taxes payable in connection with the Receivables;

(xiv) the failure by the Seller or the Servicer to be duly qualified to do business, to be in good standing or to have filed appropriate fictitious or assumed name registration documents in any jurisdiction; or

(xv) the failure of any Deposit Bank to remit any amounts held in its Deposit Account pursuant to the instructions of the Servicer whether by reason of the exercise of setoff rights or otherwise.

If for any reason the indemnification provided above in this Section 3.1 is unavailable to an Indemnified Party or is insufficient to hold such Indemnified Party harmless, then the Seller shall contribute to such Indemnified Party the amount otherwise payable by such Indemnified Party as a result of such loss, claim, damage or liability to the maximum extent permitted under applicable law (but subject to the exclusions set forth in clauses (a) through (c) above).



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The obligations of the Seller under this Section 3.1 are limited recourse obligations payable solely from the Collections, the Receivables and Related Security in accordance with the priority of payments set forth in Section 1.4 .

Section 3.2. Indemnities by AFC . Without limiting any other rights that the Agent, any Purchaser, any Purchaser Agent or any other Indemnified Party may have hereunder or under applicable law, AFC hereby agrees to indemnify each Indemnified Party, forthwith on demand, from and against any and all Indemnified Amounts, awarded against or incurred by any of them, regardless of whether any such Indemnified Amounts result from an Indemnified Party’s negligence or strict liability or other acts or omissions of an Indemnified Party excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables to be written off consistent with the Credit and Collection Policy or (c) any overall net income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof, arising out of or relating to:

(i) the failure of any Receivable included in the calculation of the Net Receivables Pool Balance as an Eligible Receivable at any time to be an Eligible Receivable at such time, the failure of any information contained in a Servicer Report or a Portfolio Certificate to be true and correct, or the failure of any other information provided (directly or indirectly) by AFC or the Seller to the Purchasers, the Agent, the Backup Servicer or any Purchaser Agent with respect to Receivables or this Agreement to be true and correct;

(ii) any representation or warranty made by AFC under or in connection with any Transaction Document in its capacity as Servicer or any information or report delivered by or on behalf of AFC in its capacity as Servicer pursuant hereto, which shall have been false, incorrect or misleading in any material respect when made or deemed made;

(iii) the failure by AFC, in its capacity as Servicer, to comply with any applicable law, rule or regulation (including truth in lending, fair credit billing, usury, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) with respect to any Pool Receivable or other related contract;

(iv) any failure of AFC to perform its duties, covenants and obligations in accordance with the applicable provisions of this Agreement or to perform its duties or obligations, if any, under the Contracts;

(v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Pool Receivable resulting from or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Servicer or by any agent or independent contractor retained by the Seller or any of its Affiliates);



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(vi) the commingling of Collections of Pool Receivables at any time with other funds; or

(vii) any investigation, litigation or proceeding related to AFC’s activities as Servicer under this Agreement.

If for any reason the indemnification provided above in this Section 3.2 is unavailable to an Indemnified Party or is insufficient to hold such Indemnified Party harmless, then AFC shall contribute to such Indemnified Party the amount otherwise payable by such Indemnified Party as a result of such loss, claim, damage or liability to the maximum extent permitted under applicable law (but subject to the exclusions set forth in clauses (a) through (c) above).

Section 3.3. Indemnities by Successor Servicer . Without limiting any other rights that the Agent, any Purchaser, any Purchaser Agent or any other Indemnified Party may have hereunder under applicable law, each successor Servicer hereby agrees to indemnify each Indemnified Party, forthwith on demand, from and against any and all Indemnified Amounts, other than Indemnified Amounts resulting from gross negligence or willful misconduct on the part of such Indemnified Party, awarded against or incurred by any of them arising out of or relating to:

(i) any representation or warranty made by such successor Servicer under or in connection with any Transaction Document in its capacity as Servicer or any information or report delivered by such successor Servicer pursuant hereto, which shall have been false, incorrect or misleading in any material respect when made or deemed made;

(ii) the failure by such successor Servicer to comply with any applicable law, rule or regulation (including truth in lending, fair credit billing, usury, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) with respect to any Pool Receivable or other related contract;

(iii) any failure of such successor Servicer to perform its duties, covenants and obligations in accordance with the applicable provisions of this Agreement;

(iv) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Pool Receivables resulting from or relating to collection activities with respect to such Receivable (if such collection activities were performed by such successor Servicer or by any agent or independent contractor retained by such successor Servicer); or

(v) any investigation, litigation or proceeding related to such successor Servicer’s activities as Servicer under this Agreement.

If for any reason the indemnification provided above in this Section 3.3 is unavailable to an Indemnified Party or is insufficient to hold such Indemnified Party harmless, then such successor Servicer shall contribute to such Indemnified Party the amount otherwise payable by such Indemnified Party as a result of such loss, claim, damage or liability to the maximum extent permitted under applicable law.



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Notwithstanding anything to the contrary herein, in no event shall any successor Servicer be liable to any Person for any act or omission of any predecessor Servicer.

ARTICLE IV.

ADMINISTRATION AND COLLECTIONS

Section 4.1. Appointment of Servicer . (a) The servicing, administering and collection of the Pool Receivables shall be conducted by the Person so designated from time to time as Servicer in accordance with this Section 4.1 . Until the Majority Purchasers give notice to the Seller, the Agent and the Servicer (in accordance with the following sentence) of the designation of a new Servicer, AFC is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. Upon the occurrence of a Termination Event, the Majority Purchasers may designate the Backup Servicer or any other Person (including the Agent) to succeed the Servicer, on the condition that any such Person so designated (other than the Backup Servicer, except to the extent specified in the Backup Servicing Agreement) shall agree in writing to perform the duties and obligations of the Servicer pursuant to the terms hereof unless otherwise consented to by the Majority Purchasers.

(b) Upon the designation of a successor Servicer as set forth in Section 4.1(a) hereof, the Servicer agrees that it will terminate its activities as Servicer hereunder in a manner which the Agent determines will facilitate the transition of the performance of such activities to the new Servicer, and the Servicer shall cooperate with and assist such new Servicer. Such cooperation shall include (without limitation) access to and transfer of all records and use by the new Servicer of all licenses, hardware or software necessary or desirable to collect the Pool Receivables and the Related Security. Without limiting the foregoing, the Servicer agrees that, at any time following the occurrence of a Termination Event, the Servicer shall, at the request of the Agent (i) promptly identify all branch offices, loan processing offices or other locations at which the Pool Receivable Documents are then being held, (ii) allow the Agent or its designee full access to all such locations and all Pool Receivable Documents, (iii) promptly arrange, at the Servicer’s expense, the transfer of possession of all such Pool Receivable Documents to the Backup Servicer, any successor Servicer or other third-party custodian specified by the Agent and (iv) instruct the Servicer’s agents and any person with whom the Servicer or its agents have contracted to hold any such Pool Receivable Documents to provide full access to, and/or transfer possession of, any Pool Receivable Documents held by such agent or contractor. The Servicer agrees to take no action which would impede or impair the ability of the Agent or its designees to gain access to the Pool Receivable Documents or to obtain possession thereof in accordance with the provisions hereof. The parties hereto agree that the covenants contained in the foregoing sentence are reasonable and necessary for the protection of the legitimate interests of the Secured Parties in the Pool Receivables. Accordingly, in addition to other remedies provided at law or equity, upon any breach by the Servicer of the covenants contained in the second preceding sentence, the Agent shall be entitled to seek specific performance and injunctive relief by and against the Servicer prohibiting any further breach of such covenants, without the necessity of proving irreparable injury or posting bond.

(c) The Servicer acknowledges that, in making its decision to execute and deliver this Agreement, the Purchaser Agents, the Agent and the Purchasers have relied on the Servicer’s



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agreement to act as Servicer hereunder. Accordingly, the Servicer agrees that it will not voluntarily resign as Servicer.

(d) The Servicer may delegate its duties and obligations hereunder to any subservicer (each, a “ Sub-Servicer ”); provided that , in each such delegation, (i) such Sub-Servicer shall agree in writing to perform the duties and obligations of the Servicer pursuant to the terms hereof, (ii) the Servicer shall remain primarily liable to the Secured Parties for the performance of the duties and obligations so delegated, (iii) the Secured Parties shall have the right to look solely to the Servicer for such performance and (iv) the terms of any agreement with any Sub-Servicer shall provide that the Majority Purchasers may terminate such agreement upon the termination of the Servicer hereunder in accordance with Section 4.1(a) above by giving notice of its desire to terminate such agreement to the Servicer (and the Servicer shall provide appropriate notice to such Sub-Servicer); provided further , no such delegation shall be effective without the prior written consent of the Majority Purchasers.

Section 4.2. Duties of Servicer; Relationship to Backup Servicing Agreement . (a) The Servicer shall take or cause to be taken all such action as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with this Agreement, accepted industry standards and all applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. Servicer may sue to collect upon Pool Receivables or enforce or recover Related Security, in its own name, if possible. If Servicer elects to commence a legal proceeding to collect a Pool Receivable or enforce or recover Related Security, the act of commencement shall be deemed to be an automatic assignment of the Pool Receivable or Seller’s and Purchasers’ rights in, to and under the Related Security to Servicer, for purposes of collection only. The Servicer shall set aside for the accounts of the Seller, the Backup Servicer and the Purchasers the amount of the Collections to which each is entitled in accordance with Section 1.4 . The Seller shall deliver to the Servicer and the Servicer shall hold for the benefit of the Secured Parties in accordance with their respective interests, all records and documents (including without limitation computer tapes or disks) with respect to each Pool Receivable and all Pool Receivable Documents. The Servicer (if the Servicer is AFC or one of its Affiliates) shall stamp each page of each Contract related to a Pool Receivable with the following legend “This Receivable has been sold to AFC Funding Corporation and an interest therein has been granted to Bank of Montreal, as Agent”; provided , that any Contract executed prior to June 16, 2015 may be stamped with the following legend “This Receivable has been sold to AFC Funding Corporation and an interest therein has been granted to BMO Capital Markets Corp., as Agent” (and, for the avoidance of doubt, shall not be required to be restamped). During such period as a Backup Servicer is required to be maintained hereunder, the Servicer agrees to provide the Backup Servicer with an electronic (scanned) copy of each Contract related to a Pool Receivable and with monthly updates thereafter upon receipt of which the Backup Servicer shall perform a reconciliation of the Receivables data and recalculate the Servicer Report. Notwithstanding anything to the contrary contained herein, the Agent may direct the Servicer to commence or settle any legal action to enforce collection of any Pool Receivable or to foreclose upon or repossess any Related Security; provided , however , that no such direction may be given unless a Termination Event has occurred. AFC is hereby appointed the custodian of the Pool Receivable Documents for the benefit of the Agent on behalf of the Secured Parties; provided , however , that such appointment may be terminated pursuant to the terms hereof. AFC, or an affiliate on its behalf, will maintain fidelity and forgery insurance



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and adequate insurance to replace all Pool Receivable Documents due to casualty loss or theft of such documents. In performing its duties as servicer and custodian, AFC shall act with reasonable care, using that degree of skill and attention that AFC exercises with respect to the files relating to all comparable contracts that AFC owns or services for itself or others. AFC shall (i) maintain the Pool Receivable Documents in such a manner as shall enable the Agent and the Purchaser Agents to verify the accuracy of AFC’s recordkeeping; and (ii) promptly report to the Agent and the Purchaser Agents any failure on its part or the part of its agents to hold the Pool Receivable Documents and promptly take appropriate action to remedy any such failure. Upon termination of AFC’s appointment as custodian hereunder and the delivery of the Pool Receivable Documents to the successor custodian, the successor custodian shall review such documents to determine whether it is missing any documents, and AFC shall cooperate with the successor custodian and use its best efforts to assist the successor custodian to obtain the missing documents. AFC shall maintain continuous custody of the Pool Receivable Documents in secure facilities in accordance with customary standards for such custody.

(b) In the event the Backup Servicer becomes the successor Servicer hereunder, any applicable terms and conditions of the Backup Servicing Agreement relating to its performance as successor Servicer shall be deemed to be incorporated herein, and the obligations and liabilities of the successor Servicer (as such obligations and liabilities apply to the Backup Servicer acting in such capacity) shall be deemed to be modified in accordance with the provisions thereof. To the extent that any conflict exists between the terms of this Agreement and the Backup Servicing Agreement, the terms of the Backup Servicing Agreement shall control.

(c) The Servicer’s obligations hereunder shall terminate on the Final Payout Date. After such termination, the Servicer shall promptly deliver to the Seller all books, records and related materials that the Seller previously provided to the Servicer in connection with this Agreement.

(d) During such period as a Backup Servicer is required to be maintained hereunder, the Servicer shall provide to the Backup Servicer and the Agent and each Purchaser Agent (if requested) all such information (by the times and in the form) specified to be delivered by the Servicer under the Backup Servicing Agreement.

(e) Following the occurrence and during the continuation of a Termination Event or a Level One Trigger, the Servicer shall provide to the Agent and each Purchaser Agent (if requested) on a daily basis a Portfolio Certificate (including information with respect to all Collections received and all Receivables acquired by the Seller).

Section 4.3. Deposit Accounts; Establishment and Use of Certain Accounts .

(i) Deposit Accounts . On or prior to the date hereof, the Servicer agrees to transfer ownership and control of each Deposit Account to the Seller. Seller has granted a valid security interest in each Deposit Account to the Agent (for the benefit of the Secured Parties) pursuant to Section 1.2(d) and shall take all actions reasonably requested by the Agent to cause the security interest to be perfected under the applicable UCC.



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(ii) Cash Reserve Account . The Agent has established and will maintain in existence the Cash Reserve Account. The Cash Reserve Account shall be used to hold the Cash Reserve and for such other purposes described in the Transaction Documents.

(iii) Liquidation Account . The Agent has established and will maintain in existence the Liquidation Account. The Liquidation Account shall be used to receive Collections from the Deposit Accounts pursuant to Section 1.4(b) and to hold amounts set aside for the Purchasers, the Backup Servicer and (if the Servicer is not AFC or an Affiliate of AFC) the Servicer out of the Collections of Pool Receivables prior to the applicable Settlement Dates and for such other purposes described in the Transaction Documents. No funds other than those transferred in accordance with Section 1.4 shall be intentionally transferred into the Liquidation Account.

(iv) Permitted Investments . Any amounts in the Liquidation Account or the Cash Reserve Account, as the case may be, may be invested by the Liquidation Account Bank or the Cash Reserve Account Bank, respectively, prior to the occurrence of a Termination Event at the Servicer’s direction and following the occurrence of a Termination Event at the Agent’s direction, in Permitted Investments, so long as the Agent’s interest (for the benefit of the Secured Parties) in such Permitted Investments is perfected in a manner satisfactory to the Agent and such Permitted Investments are subject to no Adverse Claims other than those of the Agent provided hereunder.

(v) Control of Accounts . The Agent may (with written notice to the Purchaser Agents) and shall (at the direction of the Majority Purchasers) following any Termination Event (or an Unmatured Termination Event of the type described in paragraph (g) of Exhibit V ) at any time give notice to any Deposit Bank that the Agent is exercising its rights under the applicable Deposit Account Agreement to do any or all of the following: (i) to have the exclusive ownership and control of such Deposit Account transferred to the Agent (or such other party designated by the Majority Purchasers) and to exercise exclusive dominion and control over the funds deposited therein and (ii) to take any or all other actions permitted under the applicable Deposit Account Agreement. The Seller hereby agrees that if the Agent (or such other party designated by the Majority Purchasers) at any time takes any action set forth in the preceding sentence, the Agent (or such other party designated by the Majority Purchasers) shall have exclusive control of the proceeds (including Collections) of all Pool Receivables and the Seller hereby further agrees to take any other action that the Majority Purchasers may reasonably request to transfer such control. Any proceeds of Pool Receivables received by the Seller, the Servicer or AFC (as Servicer or otherwise), thereafter shall be sent immediately to an account designated by the Majority Purchasers and held by the Agent (or such other party designated by the Majority Purchasers) for the benefit of the Secured Parties.

(vi) Location of Liquidation Account and Cash Reserve Account . If at anytime BMO Harris Bank is rated below A-1 by S&P or P-1 by Moody’s, the Agent shall promptly establish a new Liquidation Account and a new Cash Reserve Account at a financial institution which is rated at least A-1 by S&P and P-1 by Moody’s and transfer all amounts on deposit in such accounts at BMO Harris Bank to such new accounts at such financial institution, until such time as BMO Harris Bank is rated at least A-1 by S&P and P-1 by Moody’s.



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Section 4.4. Enforcement Rights . (a) At any time following the occurrence of a Termination Event:

(i) the Majority Purchasers may (with the consent of the Agent) direct the Obligors that payment of all amounts payable under any Pool Receivable be made directly to the Backup Servicer or such other party designated by the Majority Purchasers, in each case, for the benefit of the Secured Parties;

(ii) the Majority Purchasers may with the consent of the Agent instruct the Seller or the Servicer to give notice of the Agent’s interest (for the benefit of the Secured Parties) in Pool Receivables to each Obligor, which notice shall direct that payments be made directly to the Backup Servicer or such other party designated by the Majority Purchasers (for the benefit of the Secured Parties), and upon such instruction from the Majority Purchasers, the Seller or the Servicer, as applicable, shall give such notice at the expense of the Seller; provided , that if the Seller or the Servicer fails to so notify each Obligor, the Agent or its designee may so notify the Obligors; and

(iii) the Majority Purchasers may with the consent of the Agent request the Seller or the Servicer to, and upon such request the Seller or the Servicer, as applicable, shall, (A) assemble all of the records necessary or desirable to collect the Pool Receivables and the Related Security and all Pool Receivable Documents, and transfer or license to any new Servicer the use of all software necessary or desirable to collect the Pool Receivables and the Related Security, and make the same available to the Backup Servicer or other third-party custodian specified by, and at a place selected by, the Agent and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections with respect to the Pool Receivables in a manner acceptable to the Agent and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Agent or the Backup Servicer (or such other party designated by the Majority Purchasers) (for the benefit of the Secured Parties).

(b) The Seller hereby authorizes the Agent (for the benefit of the Secured Parties), and irrevocably appoints the Agent (acting on behalf of the Secured Parties) as its attorney-in-fact with full power of substitution and with full authority in the place and stead of the Seller, which appointment is coupled with an interest, to take any and all steps in the name of the Seller and on behalf of the Seller necessary or desirable, in the determination of the Agent, to collect any and all amounts or portions thereof due under any and all Pool Receivables or Related Security, including, without limitation, endorsing the name of the Seller on checks and other instruments representing Collections and enforcing such Pool Receivables, Related Security and the related Contracts. The Agent shall only exercise the powers conferred by this subsection (b) after the occurrence of a Termination Event. Notwithstanding anything to the contrary contained in this subsection (b) , none of the powers conferred upon such attorney-in-fact pursuant to the immediately preceding sentence shall subject such attorney-in-fact to any liability if any action taken by it shall prove to be inadequate or invalid, nor shall they confer any obligations upon such attorney-in-fact in any manner whatsoever.



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Section 4.5. Responsibilities of the Seller . Anything herein to the contrary notwithstanding, the Seller shall (i) perform all of its obligations, if any, under the Contracts related to the Pool Receivables to the same extent as if interests in such Pool Receivables had not been transferred hereunder, and the exercise by any Secured Party of its rights hereunder shall not relieve the Seller from such obligations and (ii) pay when due any taxes, including, without limitation, any sales taxes payable in connection with the Pool Receivables and their creation and satisfaction. The Agent, the Purchaser Agents, the Purchasers, the Backup Servicer and any successor Servicer shall not have any obligation or liability with respect to any Pool Receivable, any Related Security or any related Contract, nor shall any of them be obligated to perform any of the obligations of the Seller or AFC under any of the foregoing.

Section 4.6. Servicing Fee . The Servicer shall be paid a monthly fee in arrears, through distributions contemplated by Section 1.4 , equal to (a) at any time AFC or an Affiliate of AFC is the Servicer, [*], (b) at any time the Backup Servicer has become the Servicer hereunder, [*], and (c) at any time a Person other than AFC, an Affiliate of AFC or the Backup Servicer is the Servicer, the Unaffiliated Servicing Fees or such other amount as the Agent and such successor Servicer shall agree. The Servicing Fee shall not be payable to the extent funds are not available to pay the Servicing Fee pursuant to Section 1.4 .

Section 4.7. Specified Ineligible Receivables . On or prior to the initial date of purchase of a Receivable under the Purchase and Sale Agreement, the Servicer (so long as the Originator is the Servicer) may designate such Receivable as a “Specified Ineligible Receivable” (which designation may take the form of a specification that a certain class or category of Receivables to be transferred from the Originator to the Seller after such designation will be treated as “Specified Ineligible Receivables”). In addition, the Servicer (so long as the Originator is the Servicer) may, on behalf of the Seller, (i) designate an existing Receivable then owned by the Seller as a “Specified Ineligible Receivable” or (ii) designate an existing Specified Ineligible Receivable then owned by the Seller as a Receivable (i.e., no longer a “Specified Ineligible Receivable”), in each of cases (i) and (ii) with the prior written consent of the Majority Purchasers. For the avoidance of doubt, any Receivable which was treated as an Eligible Receivable hereunder at any time may not be treated as a “Specified Ineligible Receivable” without the prior written consent of the Majority Purchasers. The Servicer (so long as the Originator is the Servicer) shall identify the aggregate Outstanding Balance of all such “Specified Ineligible Receivables” on the Servicer Report. To the extent the Servicer has from time to time identified a Receivable as a “Specified Ineligible Receivable” in accordance with this Section , for so long as such Receivable is a Specified Ineligible Receivable, (i) such Receivable shall not be included as an Eligible Receivable by the Seller or the Servicer hereunder, (ii) such Receivable shall not be included in any calculations of the Delinquency Ratio or the Default Ratio or other Pool Receivables information (other than a statement of the aggregate Outstanding Balance of such Specified Ineligible Receivables) hereunder and (iii) such Receivable shall not be considered a Receivable for purposes of clause (o) of Exhibit V hereof.



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ARTICLE V.

THE AGENTS

Section 5.1. Appointment and Authorization . Each Purchaser and Purchaser Agent (including each Purchaser and Purchaser Agent that may from time to time become a party hereto) hereby irrevocably designates and appoints Bank of Montreal as the “Agent” hereunder and authorizes the Agent to take such actions and to exercise such powers as are delegated to the Agent hereby and to exercise such other powers as are reasonably incidental thereto. The Agent shall hold, in its name, for the benefit of the Secured Parties, a security interest in the Liquidation Account and the Cash Reserve Account pursuant to an account control agreement. The Agent shall not have any duties other than those expressly set forth herein or any fiduciary relationship with any Indemnified Party, and no implied obligations or liabilities shall be read into this Agreement or any other Transaction Document or otherwise exist against the Agent. The Agent does not assume, nor shall it be deemed to have assumed, any obligation to, or relationship of trust or agency with, the Seller or Servicer. Notwithstanding any provision of this Agreement or any other Transaction Document to the contrary, in no event shall the Agent ever be required to take any action which exposes the Agent to personal liability (unless indemnified in advance in a manner determined satisfactory to the Agent in its sole and absolute discretion) or which is contrary to the provision of any Transaction Document or applicable law.

(a) Each Purchaser hereby irrevocably designates and appoints the respective institution identified as the Purchaser Agent for such Purchaser on the signature pages hereto or in any agreement pursuant to which such Purchaser becomes a party hereto, and each authorizes such Purchaser Agent to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to such Purchaser Agent by the terms of this Agreement, if any, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Purchaser Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Purchaser or other Purchaser Agent or the Agent, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of such Purchaser Agent shall be read into this Agreement or otherwise exist against such Purchaser Agent.

(b) Except as otherwise specifically provided in this Agreement, the provisions of this Article V are solely for the benefit of the Purchaser Agents, the Agent and the Purchasers, and none of the Seller or Servicer shall have any rights as a third‑party beneficiary or otherwise under any of the provisions of this Article V , except that this Article V shall not affect any obligations which any Purchaser Agent, the Agent or any Purchaser may have to the Seller or the Servicer under the other provisions of this Agreement. Furthermore, no Purchaser shall have any rights as a third-party beneficiary or otherwise under any of the provisions hereof in respect of a Purchaser Agent which is not the Purchaser Agent for such Purchaser.

(c) In performing its functions and duties hereunder, the Agent shall act solely as the agent of the Secured Parties, and the Agent does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Seller or Servicer or any of their successors and assigns. In performing its functions and duties hereunder, each Purchaser



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Agent shall act solely as the agent of its respective Purchasers and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Seller, the Servicer, any other Purchaser, any other Purchaser Agent or the Agent, or any of their respective successors and assigns.

Section 5.2. Delegation of Duties . The Agent may, with the prior written consent of the Majority Purchasers, execute any of its duties through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to the Purchaser Agents or any Purchaser for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

Section 5.3. Exculpatory Provisions . None of the Purchaser Agents, the Agent or any of their directors, officers, agents or employees shall be liable for any action taken or omitted (i) with the consent or at the direction of the Majority Purchasers (or in the case of any Purchaser Agent, the Purchaser relating to such Purchaser Agent) or (ii) in the absence of such Person’s gross negligence or willful misconduct. The Agent shall not be responsible to any Purchaser or Purchaser Agent for (i) any recitals, representations, warranties or other statements made by the Seller, Servicer, the Originator or any of their Affiliates, (ii) the value, validity, effectiveness, genuineness, enforceability or sufficiency of any Transaction Document, (iii) any failure of the Seller, the Servicer, the Originator or any of their Affiliates to perform any obligation it may have under any Transaction Document to which it is a party or (iv) the satisfaction of any condition specified in Exhibit II . The Agent shall not have any obligation to any Purchaser or any Purchaser Agent to ascertain or inquire about the observance or performance of any agreement contained in any Transaction Document or to inspect the properties, books or records of the Seller, Servicer, the Originator or any of their Affiliates.

Section 5.4. Reliance by Agents . Each Purchaser Agent and the Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document or other writing or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person and upon advice and statements of legal counsel (including counsel to the Seller or Servicer), independent accountants and other experts selected by the Agent or any such Purchaser Agent. Each Purchaser Agent and the Agent shall in all cases be fully justified in failing or refusing to take any action under any Transaction Document unless it shall first receive such advice or concurrence of the Majority Purchasers (or in the case of any Purchaser Agent, the Purchaser relating to such Purchaser Agent) and it shall first be indemnified to its satisfaction against any and all liability and expense which may be incurred by reason of taking or continuing to take any such action.

(a) With regard to the Purchasers and the Purchaser Agents, the Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Purchasers and the Purchaser Agents, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Purchasers and Purchaser Agents.

(b) Purchasers that have a common Purchaser Agent and that have a majority of the Investment of all such related Purchasers shall be entitled to request or direct the related Purchaser Agent to take action, or refrain from taking action, under this Agreement on behalf of



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such Purchasers. With regard to the Purchasers and the Purchaser Agents, such Purchaser Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of such Purchasers, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of such Purchaser Agent’s related Purchasers.

(c) Unless otherwise advised in writing by a Purchaser Agent or by any Purchaser on whose behalf such Purchaser Agent is purportedly acting, each party to this Agreement may assume that (i) such Purchaser Agent is acting for the benefit of each of the Purchasers for which such Purchaser Agent is identified herein (or in any Joinder Agreement or assignment agreement) as being the Purchaser Agent, as well as for the benefit of each assignee or other transferee from any such Person, and (ii) each action taken by such Purchaser Agent has been duly authorized and approved by all necessary action on the part of the Purchasers on whose behalf it is purportedly acting. Each Purchaser Agent and its Purchaser(s) shall agree amongst themselves as to the circumstances and procedures for removal, resignation and replacement of such Purchaser Agent.

Section 5.5. Notice of Termination Date . Neither any Purchaser Agent nor the Agent shall be deemed to have knowledge or notice of the occurrence of any Termination Event or Unmatured Termination Event unless such Person has received notice from any Purchaser, Purchaser Agent, the Servicer or the Seller stating that a Termination Event or Unmatured Termination Event has occurred hereunder and describing such Termination Event or Unmatured Termination Event. If the Agent receives such a notice, it shall promptly give notice thereof to each Purchaser Agent whereupon each such Purchaser Agent shall promptly give notice thereof to its Purchasers. If a Purchaser Agent receives such a notice (other than from the Agent), it shall promptly give notice thereof to the Agent. The Agent shall take such action concerning a Termination Event or Unmatured Termination Event as may be directed by the Majority Purchasers (unless such action is otherwise specified herein as requiring the consent of all Purchasers), but until the Agent receives such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, as the Agent deems advisable and in the best interests of the Secured Parties.

Section 5.6. Non-Reliance on Agent, Purchaser Agents and Other Purchasers . Each Purchaser expressly acknowledges that none of the Agent, the Purchaser Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent or any Purchaser Agent hereafter taken, including any review of the affairs of the Seller, Servicer or the Originator, shall be deemed to constitute any representation or warranty by the Agent or such Purchaser Agent, as applicable. Each Purchaser represents and warrants to the Agent and the Purchaser Agents that, independently and without reliance upon the Agent, Purchaser Agents or any other Purchaser and based on such documents and information as it has deemed appropriate, it has made and will continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Seller, Servicer and the Originator, and the Receivables and its own decision to enter into this Agreement and to take, or omit, action under any Transaction Document. Except for items specifically required to be delivered hereunder, the Agent shall not have any duty or responsibility to provide any Purchaser Agent with any information concerning the Seller, Servicer or the Originator or any of their



	26

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Affiliates or the Receivables that comes into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.

Section 5.7. Agent, Purchaser Agents and Purchasers . Each of the Purchasers, the Agent, the Purchaser Agents and their Affiliates may extend credit to, accept deposits from and generally engage in any kind of banking, trust, debt or other business with the Seller, KAR, Servicer or the Originator or any of their Affiliates. With respect to the acquisition of the Eligible Receivables pursuant to this Agreement, any of the Purchaser Agents and the Agent shall, to the extent they become Purchasers hereunder, have the same rights and powers under this Agreement as any Purchaser and may exercise the same as though it were not such an agent, and the terms “Purchaser” and “Purchasers” shall, in such case, include such Purchaser Agent or the Agent in their individual capacities.

Section 5.8. Indemnification . Each Purchaser shall indemnify and hold harmless the Agent (but solely in its capacity as Agent) and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Seller or Servicer and without limiting the obligation of the Seller or Servicer to do so), ratably in accordance with their respective Investment from and against any and all liabilities, obligations, losses, damages, penalties, judgments, settlements, costs, expenses and disbursements of any kind whatsoever (including in connection with any investigative or threatened proceeding, whether or not the Agent or such Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Agent or such Person as a result of, or related to, any of the transactions contemplated by the Transaction Documents or the execution, delivery or performance of the Transaction Documents or any other document furnished in connection therewith (but excluding any such liabilities, obligations, losses, damages, penalties, judgments, settlements, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Agent or such Person as finally determined by a court of competent jurisdiction). The obligations of any Note Issuer under this Section 5.8 shall be subject to the restrictions of Section 6.5 .

Section 5.9. Successor Agent . The Agent may, upon at least thirty (30) days notice to the Seller, the Servicer, the Backup Servicer, each Purchaser and Purchaser Agent, resign as Agent. Such resignation shall not become effective until a successor Agent is appointed by the Majority Purchasers and has accepted such appointment. Upon such acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Transaction Documents. After any retiring Agent’s resignation hereunder, the provisions of Sections 3.1 , 3.2 , 3.3 and this Article V shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent.

ARTICLE VI.

MISCELLANEOUS

Section 6.1. Amendments, Etc . No waiver of any provision of this Agreement or consent to any departure by the Seller or Servicer therefrom shall be effective unless in writing



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signed by the Majority Purchasers. No amendment of any provisions of this Agreement shall be effective unless in writing signed by each Purchaser Agent, the Agent, the Seller and the Servicer; provided , further , that other than an amendment to extend the Termination Date, no amendment shall be effective unless (i) each Purchaser (or the applicable Purchaser Agent on its behalf) shall have received written confirmation by any Rating Agency rating the Agreement that such amendment shall not cause their rating to be downgraded or withdrawn, and (ii) each Note Issuer that is a Purchaser (or the applicable Purchaser Agent on its behalf), if required, shall have received written confirmation by the Rating Agencies that such amendment shall not cause the rating on the then outstanding Notes of such Note Issuer to be downgraded or withdrawn. Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Agent, any Purchaser, or any Purchaser Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

Section 6.2. Notices, Etc . All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile and electronic mail communication) and sent or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or, in the case of the Backup Servicer, at its notice address designated in the Backup Servicing Agreement or, in any case, at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile or electronic mail shall be effective when sent (and shall, unless such delivery is waived by the recipient by electronic mail or other means, be followed by hard copy sent by first class mail), and notices and communications sent by other means shall be effective when received.

Section 6.3. Assignability . (a) This Agreement and any Purchaser’s rights and obligations herein (including ownership of its Participation) shall be assignable, in whole or in part, by such Purchaser and its successors and assigns with the prior written consent of the Seller and the Agent; provided , however , that such consent shall not be unreasonably withheld; and provided , further , that no such consent shall be required if the assignment is made to (i) any Affiliate of such Purchaser, (ii) any Liquidity Bank (or any Person who upon such assignment would be a Liquidity Bank) of such Purchaser or (iii) any Program Support Provider (or any Person who upon such assignment would be a Program Support Provider) of such Purchaser. Each assignor may, in connection with the assignment, disclose to the applicable assignee any information relating to the Seller or the Pool Receivables furnished to such assignor by or on behalf of the Seller, the Agent, the Purchasers or the Purchaser Agents.

Upon the assignment by a Purchaser in accordance with this Section 6.3 , the assignee receiving such assignment shall have all of the rights of such Purchaser with respect to the Transaction Documents and the Investment (or such portion thereof as has been assigned).

(b) Each Purchaser may at any time grant to one or more banks or other institutions (each a “ Liquidity Bank ”) party to a Liquidity Agreement or to any other Program Support Provider participating interests or security interests in its Participation. In the event of any such grant by a Purchaser of a participating interest to a Liquidity Bank or other Program Support Provider, the Purchaser shall remain responsible for the performance of its obligations hereunder.



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The Seller agrees that each Liquidity Bank or other Program Support Provider shall be entitled to the benefits of Sections 1.8 and 1.10 .

(c) This Agreement and the rights and obligations of any Purchaser Agent hereunder shall be assignable, in whole or in part, by such Purchaser Agent and its successors and assigns; provided , however , that if such assignment is to any Person that is not an Affiliate of the assigning Purchaser Agent, such Purchaser Agent must receive the prior written consent (which consent in each case shall not be unreasonably withheld) of the Agent and the Seller.

(d) Except as provided in Section 4.1(d) , neither the Seller nor the Servicer may assign its rights or delegate its obligations hereunder or any interest herein without the prior written consent of the Majority Purchasers.

(e) Without limiting any other rights that may be available under applicable law, the rights of any Purchaser may be enforced by it directly or by its Purchaser Agent or its other agents.

(f) [*]

(g) Notwithstanding any other provision of this Section 6.3 , (i) any Purchaser may at any time pledge or grant a security interest in all or any portion of its rights (including, without limitation, any interests in its Participation and any rights to payment of Investment and Discount) under this Agreement to secure obligations of such Purchaser to a Federal Reserve Bank and (ii) any Note Issuer may at any time pledge or grant a security interest in all or any portion of its rights (including, without limitation, any Participation and any rights to payment of Investment and Discount) under this Agreement to a collateral trustee in order to comply with Rule 3a-7 under the Investment Company Act of 1940 (as amended), in each case without notice to or consent of any Seller Party, the Agent, any Purchaser Agent or any Purchaser; provided that no such pledge or grant of a security interest shall release a Purchaser from any of its obligations hereunder, or substitute any such pledgee or grantee for such Purchaser as a party hereto.

Section 6.4. Costs, Expenses and Taxes . (a) In addition to the rights of indemnification granted under Section 3.1 hereof, the Seller agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing of Pool Receivables) of this Agreement, any Liquidity Agreement, the other Transaction Documents and the other documents and agreements to be delivered hereunder or in connection herewith, including all reasonable costs and expenses relating to the amending, amending and restating, modifying or supplementing any such documents or agreements and the waiving of any provisions thereof, and including in all cases, without limitation, Rating Agency fees (including in connection with the execution hereof and any amendments hereto) and Attorney Costs for the Agent, each Purchaser, each Program Support Provider, each Purchaser Agent, the Backup Servicer, any successor Servicer and their respective Affiliates and agents with respect thereto and with respect to advising the Agent, the Purchaser, each Program Support Provider and their respective Affiliates and agents as to their rights and remedies under this Agreement and the other Transaction Documents, and all reasonable costs and expenses, if any (including Attorney Costs), of each Purchaser Agent, each Purchaser, each Program Support Provider, the Agent, the Backup Servicer, any successor Servicer and their respective Affiliates



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and agents in connection with the enforcement of this Agreement and the other Transaction Documents.

(b) In addition, the Seller shall pay on demand any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees.

Section 6.5. No Proceedings; Limitation on Payments . (a) Each of the Seller, the Servicer, the Agent, the Purchaser Agents, the Purchasers, the Backup Servicer, each assignee of a Participation or any interest therein, and each Person which enters into a commitment to purchase or does purchase a Participation or interests therein hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, any Note Issuer or Related CP Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the latest maturing Note issued by any such Note Issuer or Related CP Issuer is paid in full.

(b) Notwithstanding any provisions contained in this Agreement to the contrary, no Note Issuer shall, nor shall it be obligated to, pay any amount pursuant to this Agreement unless such Note Issuer has excess cash flow from operations or has received funds with respect to such obligation which may be used to make such payment and which funds or excess cash flow are not required to repay its Notes when due. Any amounts which a Note Issuer does not pay pursuant to the operation of the preceding sentence shall not constitute a claim against such Note Issuer for any such insufficiency unless and until the condition described in the preceding sentence is satisfied. Nothing in this subsection (b) shall be construed to forgive or cancel any obligations of such Note Issuer hereunder.

(c) Each of the Servicer, the Agent, the Purchaser Agents, the Purchasers, the Backup Servicer, each assignee of a Participation or any interest therein, and each Person which enters into a commitment to purchase or does purchase a Participation or interests therein hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, the Seller any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after all amounts payable by the Seller hereunder are paid in full.

(d) Notwithstanding any provisions contained in this Agreement to the contrary, the Seller shall not be obligated to pay any amount pursuant to this Agreement unless the Seller has property or other assets which may be used to make such payment. Any amounts which the Seller does not pay pursuant to the operation of the preceding sentence shall not constitute a claim against the Seller for any such insufficiency unless and until the conditions described in the preceding sentence are satisfied. Nothing in this subsection (d) shall be construed to forgive or cancel any obligations of the Seller hereunder.

Section 6.6. Confidentiality . Unless otherwise required by applicable law or already known by the general public or the third party to which it is disclosed, the Seller agrees to



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maintain the confidentiality of this Agreement and the other Transaction Documents (and all drafts thereof) in communications with third parties and otherwise; provided that this Agreement may be disclosed to (a) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Agent and (b) the Seller’s legal counsel and auditors if they agree to hold it confidential.

Section 6.7. GOVERNING LAW AND JURISDICTION . (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF INDIANA (WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, EXCEPT TO THE EXTENT THAT THE PERFECTION (OR THE EFFECT OF PERFECTION OR NON-PERFECTION) OF THE INTERESTS OF THE PURCHASERS IN THE POOL RECEIVABLES AND THE OTHER ITEMS DESCRIBED IN SECTION 1.2(d) IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF INDIANA.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS COOK COUNTY AND CHICAGO OR NEW YORK NEW YORK COUNTY, NEW YORK CITY OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS OR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PURCHASERS, THE SELLER, THE SERVICER, THE PURCHASER AGENTS AND THE AGENT CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE PURCHASERS, THE SELLER, THE SERVICER, THE PURCHASER AGENTS AND THE AGENT IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.

Section 6.8. Execution in Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

Section 6.9. Survival of Termination . The provisions of Sections 1.8 , 1.10 , 3.1 , 3.2 , 6.4 , 6.5 , 6.6 , 6.7 , 6.10 and 6.13 shall survive any termination of this Agreement.

Section 6.10. WAIVER OF JURY TRIAL . THE PURCHASERS, THE SELLER, THE SERVICER, THE PURCHASER AGENTS, THE AGENT AND THE BACKUP SERVICER (BY ACCEPTING THE BENEFIT HEREOF) EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY



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OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THE PURCHASERS, THE SELLER, THE SERVICER, THE PURCHASER AGENTS, THE AGENT AND THE BACKUP SERVICER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.

Section 6.11. Entire Agreement . This Agreement (together with the other Transaction Documents) embodies the entire agreement and understanding between the Purchasers, the Seller, the Servicer, the Purchaser Agents and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof.

Section 6.12. Headings . The captions and headings of this Agreement and in any Exhibit hereto are for convenience of reference only and shall not affect the interpretation hereof or thereof.

Section 6.13. Liabilities of the Purchasers . The obligations of each Purchaser under this Agreement are solely the corporate obligations of such Purchaser. No recourse shall be had for any obligation or claim arising out of or based upon this Agreement against any stockholder, employee, officer, director or incorporator of any Purchaser; and provided , however , that this Section 6.13 shall not relieve any such Person of any liability it might otherwise have for its own gross negligence or willful misconduct. The agreements provided in this Section 6.13 shall survive termination of this Agreement.

Section 6.14. Tax Treatment . The Participations shall be treated and reported as indebtedness of the Seller for all income and franchise tax purposes. The Seller, the Servicer, the Agent and Fairway and each Purchaser, by its agreement to make a purchase (and to make reinvestments, if applicable) with regard to its Participation, agrees, and shall cause its assignees to agree, to treat and report the Participations as indebtedness of the Seller for all income and franchise tax purposes.



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IN WITNESS WHEREOF , the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

AFC FUNDING CORPORATION ,

as Seller

    By: /s/ Amy Wirges
    Name: Amy Wirges
    Title: Vice President of Finance & Treasurer

    AFC Funding Corporation

13085 Hamilton Crossing Blvd., Suite 310
    Carmel, Indiana 46032
    Attention: Amy Wirges
    Telephone: 317-843- 4795
    Facsimile: 317- 360-3766
    E-mail: awirges@autofinance.com

AUTOMOTIVE FINANCE CORPORATION ,

as Servicer

    By: /s/ Amy Wirges
    Name: Amy Wirges
    Title: Vice President of Finance & Treasurer

    Automotive Finance Corporation

13085 Hamilton Crossing Blvd., Suite 300
    Carmel, Indiana 46032
    Attention: Amy Wirges
    Telephone: 317-843- 4795
    Facsimile: 317- 360-3766
    E-mail: awirges@autofinance.com



	S-1	Seventh Amended and Restated Receivables Purchase Agreement

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BMO CAPITAL MARKETS CORP. ,

as Purchaser Agent for Fairway

    By: /s/ John Pappano
    Name: John Pappano
    Title: Managing Director

BMO Capital Markets Corp.
    115 S. LaSalle, 25th Floor West
    Chicago, Illinois 60603
    Attention: Conduit Administration
    Telephone: (312) 461-5640
    Facsimile: (312) 293-4908

E-mail: fundingdesk@bmo.com

FAIRWAY FINANCE COMPANY, LLC ,

as a Purchaser

    By: /s/ Denise Veidt
    Name: Denise Veidt
    Title: Vice President

    Fairway Finance Company, LLC

c/o Lord Securities Corp.
    48 Wall Street, 27th Floor
    New York, New York 10005
    Attention: Irina Khaimova
    Telephone: (212) 346-9008
Facsimile: (212) 346-9012

Email: Irina.Khaimova@tmf-group.com

Maximum Commitment:

[*]



	S-2	Seventh Amended and Restated Receivables Purchase Agreement

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BANK OF MONTREAL ,

as Purchaser and Purchaser Agent for itself

By: /s/ Christopher L. Clark

Name: Christopher L. Clark
Title: Vice President

Bank of Montreal
115 S. LaSalle, 25th Floor West
Chicago, Illinois 60603
Attention: Christopher L. Clark
Telephone: (312) 461-5546
Facsimile: (312) 293-4948
E-mail: christopherl.clark@bmo.com

Maximum Commitment:

[*]



	S-3	Seventh Amended and Restated Receivables Purchase Agreement

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PNC BANK, NATIONAL ASSOCIATION ,

as Purchaser and Purchaser Agent for itself

By: /s/ Yan Lipovetskiy

Name: Yan Lipovetskiy
Title: Vice President

PNC Bank, National Association

300 Fifth Avenue

Pittsburgh, PA 15222

Attention: ABF Administration

Telephone: (412) 768-3090

Facsimile: (412) 762-9184
E-mail: abfadmin@pnc.com / robyn.reeher@pnc.com

Maximum Commitment:

[*]



	S-4	Seventh Amended and Restated Receivables Purchase Agreement

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THUNDER BAY FUNDING, LLC , as a Purchaser

By: Royal Bank of Canada,
its attorney-in-fact

By: /s/ Thomas C. Dean

Name: Thomas C. Dean
Title: Authorized Signatory

Thunder Bay Funding, LLC

c/o Global Securitization Services, LLC

68 South Service Road, Suite 120

Melville, New York 11747

Tel: (631) 930-7207

Fax: (212) 302-8767

Attn: Tony Wong

with a copy to:

RBC Capital Markets

Two Little Falls Center

2751 Centerville Road, Suite 212

Wilmington, DE 19808

Attn: Securitization Finance

Email: conduit.management@rbccm.com

Maximum Commitment:

[*]

ROYAL BANK OF CANADA ,

as Purchaser Agent for Thunder Bay Funding, LLC

By: /s/ Thomas C. Dean

Name: Thomas C. Dean
Title: Authorized Signatory

By: /s/ Austin J. Meier

Name: Austin J. Meier
Title: Authorized Signatory

Royal Bank of Canada

200 Vesey Street

New York, NY 10281-8098

Attn: Securitization Finance

Email: conduit.management@rbccm.com

With a copy to:

RBC Capital Markets

Two Little Falls Center

2751 Centerville Road

Suite 212

Wilmington, DE 19808

Attn: Securitization Finance

Email: conduit.management@rbccm.com



	S-6	Seventh Amended and Restated Receivables Purchase Agreement

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FIFTH THIRD BANK ,

as Purchaser and as Purchaser Agent for itself

By: /s/ Andrew D. Jones

Name: Andrew D. Jones
Title: Director

Fifth Third Bank

38 Fountain Square Plaza, MD 109046

Cincinnati, OH 45263
Attention: Asset Securitization Group

Telephone: (513) 534-0836

Facsimile: (513) 534-0319
E-mail: andrew.jones@53.com/
53.Securitizationl.Bancorp@53.com

Maximum Commitment
[*]



	S-6	Seventh Amended and Restated Receivables Purchase Agreement

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CHARIOT FUNDING LLC , as a Purchaser

By: JPMorgan Chase Bank, N.A.,
its attorney-in-fact

By: /s/ Cameron Milligan

Name: Cameron Milligan
Title: Vice President

Chariot Funding LLC

c/o JPMorgan Chase Bank, N.A.

10 South Dearborn Street, 13th Floor

Chicago, IL 60603

Attention: Alan English
Tel: (312) 732-7985
Fax: (312) 377-0490

Email: alan.p.english@jpmorgan.com; kyle.b.sneed@jpmorgan.com; cameron.milligan@jpmorgan.com; ABS.Treasury.Dept@jpmorgan.com

Maximum Commitment

[*]

JPMORGAN CHASE BANK N.A. ,

as Purchaser Agent for Chariot Funding LLC

By: /s/ Cameron Milligan

Name: Cameron Milligan
Title: Vice President

c/o JPMorgan Chase Bank, N.A.

10 South Dearborn Street, 13th Floor

Chicago, IL 60603

Attention: Alan English
Tel: (312) 732-7985
Fax: (312) 377-0490

Email: alan.p.english@jpmorgan.com; kyle.b.sneed@jpmorgan.com; cameron.milligan@jpmorgan.com; ABS.Treasury.Dept@jpmorgan.com



	S-7	Seventh Amended and Restated Receivables Purchase Agreement

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BANK OF MONTREAL ,

as Agent

    By: /s/ Christopher L. Clark
    Name: Christopher L. Clark
    Title: Vice President

Bank of Montreal
    115 S. LaSalle, 25th Floor West
    Chicago, Illinois 60603
    Attention: Christopher L. Clark
    Telephone: (312) 461-5546
    Facsimile: (312) 293-4948
    Email: christopherl.clark@bmo.com



	S-8	Seventh Amended and Restated Receivables Purchase Agreement

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Acknowledged and Agreed:

KAR AUCTION SERVICES, INC.,
as provider of the Performance Guaranty

By: /s/ Rebecca C. Polak _________________________________________
Name: Rebecca C. Polak
Title: Executive Vice President, General Counsel and Secretary



	S-9	Seventh Amended and Restated Receivables Purchase Agreement

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STATE OF INDIANA        )
                )    SS
COUNTY OF HAMILTON    )

Before me the undersigned, a Notary Public in and for the said County and State, personally appeared Amy Wirges, an officer of AFC FUNDING CORPORATION , personally known to me who acknowledged the execution of the foregoing this 16 ^th day of December, 2016.



/s/ Francesca C. York _________ Signature	My Commission Expires: 12-05-24 ____________
Francesca C. York ___________ Printed Name	My County of Residence: Hamilton ____________

STATE OF INDIANA        )
                )    SS
COUNTY OF HAMILTON    )

Before me the undersigned, a Notary Public in and for the said County and State, personally appeared Amy Wirges, an officer of AUTOMOTIVE FINANCE CORPORATION , personally known to me who acknowledged the execution of the foregoing this 16 ^th day of December, 2016.



/s/ Francesca C. York __________ Signature	My Commission Expires: 12-05-24 _____________
___________________________ Printed Name	My County of Residence: Hamilton _____________



	S-10	Seventh Amended and Restated Receivables Purchase Agreement

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EXHIBIT I

DEFINITIONS

As used in the Agreement (including its Exhibits), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). Unless otherwise indicated, all Section, Annex, Exhibit and Schedule references in this Exhibit are to Sections of and Annexes, Exhibits and Schedules to the Agreement.

“ Adverse Claim ” means a lien, security interest or other charge or encumbrance, or any other type of preferential arrangement, it being understood that a lien, security interest or other charge or encumbrance, or any other type of preferential arrangement, in favor of the Agent for the benefit of the Secured Parties contemplated by the Agreement shall not constitute an Adverse Claim.

“ AFC ” has the meaning set forth in the preamble to this Agreement.

“ Affected Person ” has the meaning set forth in Section 1.8 .

“ Affiliate ” means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person, except that with respect to a Purchaser, Affiliate shall mean the holder(s) of its capital stock.

“ Agent ” has the meaning set forth in the preamble to this Agreement.

“ Aggregate Participation ” means, at any time, the sum of the Participations expressed as a percentage.

“ Agreement ” has the meaning set forth in the preamble to this Agreement.

“ Anti-Corruption Laws ” means all laws, rules, and regulations of any jurisdiction applicable to the Seller Parties or their respective Subsidiaries from time to time concerning or related to bribery or corruption.

“ Attorney Costs ” means and includes all reasonable fees and reasonable disbursements of any law firm or other external counsel, and all reasonable disbursements of internal counsel.

“ Auction Credit ” means a Receivable pursuant to which a wholesale auction has granted credit for the purposes of a float sale arrangement with dealers, provided that the wholesale auction shall be considered the “Obligor” of such Receivable and shall be subject to the Normal Concentration Percentage or Special Concentration Percentage, as applicable.

“ Backup Servicer ” means the Person appointed to act as backup servicer pursuant to the Backup Servicing Agreement.



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“ Backup Servicing Agreement ” means (i) the Backup Servicing Agreement, dated as of January 19, 2011, among the Servicer, Wells Fargo Bank, National Association, the Agent and the other parties thereto; and (ii) any replacement backup servicing agreement entered into from time to time with the prior written consent of the Majority Purchasers; in each case as such agreements may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof.

“ Backup Servicing Fee Letter ” means (i) the fee letter, dated October 20, 2010, setting forth the Backup Servicing Fees payable to the Backup Servicer; and (ii) any replacement backup servicing fee letter entered into from time to time with the prior written consent of the Majority Purchasers; in each case as such letters may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof.

“ Backup Servicing Fees ” means all fees and reimbursable expenses (excluding Transition Expenses) payable to the Backup Servicer (for the avoidance of doubt, prior to Backup Servicer assuming the role of Servicer) pursuant to the Backup Servicing Agreement or the Backup Servicing Fee Letter.

“ Bank Rate ” means, for any Purchaser for any Yield Period, an interest rate per annum equal to the Eurodollar Rate for such Purchaser for such Yield Period; provided , that in the case of any Yield Period on or after the first day of which the applicable Purchaser Agent shall have been notified by a Liquidity Bank or the related Purchaser that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other Governmental Authority asserts that it is unlawful, for such Liquidity Bank or such Purchaser to fund its Investment based on the Eurodollar Rate set forth above (and such Liquidity Bank or such Purchaser, as applicable, shall not have subsequently notified such Purchaser Agent that such circumstances no longer exist), the “ Bank Rate ” for each such Yield Period shall be an interest rate per annum equal to the Base Rate in effect on each day of such Yield Period. Notwithstanding the foregoing, the “Bank Rate” for each day in a Yield Period occurring during the continuance of a Termination Event shall be an interest rate equal to 2% per annum above the Base Rate in effect on such day.

“ Bankruptcy Code ” means the United States Bankruptcy Reform Act of 1978 (11U.S.C. § 101, et seq .), as amended and in effect from time to time.

“ Base Rate ” means, for any Purchaser for any day, a fluctuating interest rate per annum equal to the higher of: (a) the rate of interest most recently announced by the applicable Reference Bank as its prime commercial rate for loans made in Dollars in the United States or (b) 0.50% per annum above the latest Federal Funds Rate. The rate referred to in clause (a) is not necessarily intended to be the lowest rate of interest determined by the applicable Reference Bank in connection with extensions of credit.

“ BMO Harris Bank ” means BMO Harris Bank N.A.

“ Business Day ” means any day on which (i) (A) the Agent at its branch office in Chicago, Illinois is open for business and (B) commercial banks in New York City are not authorized or required to be closed for business, and (ii) if this definition of “Business Day” is



	EX-I- 2

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utilized in connection with the Eurodollar Rate, dealings are carried out in the London interbank market.

“ Buyer’s Fees ” means the fees paid by an Obligor to an auction or other commercial inventory source in connection with a purchase of a vehicle by such dealer.

“ Carry Costs ” means, with respect to any calendar month, the sum of the amounts of the following items that accrued or were incurred during such calendar month: (a) all Discount, (b) the Program Fee, (c) the Servicing Fee, (d) the Backup Servicing Fee and (e) all other expenses and fees of the Seller under the Agreement.

“ Cash Reserve ” means (i) at any time after the occurrence and during the continuation of a Level One Trigger, [*] of the aggregate Investment at such time and (ii) at any other time, an amount equal to 1% of the aggregate Investment at such time.

“ Cash Reserve Account ” means that certain bank account numbered 181-445-8 maintained at BMO Harris Bank subject to the security interest of Bank of Montreal as Agent and maintained for the benefit of the Secured Parties.

“ Cash Reserve Account Bank ” means the bank holding the Cash Reserve Account.

“ Change in Control ” means

(a) AFC shall fail to own, free and clear of all Adverse Claims, 100% of the outstanding shares of voting stock of the Seller, except as otherwise provided by the Pledge Agreement; or

(b) KAR shall fail to own, directly or indirectly, free and clear of all Adverse Claims (other than the KAR Credit Facility Pledge), at least 80% of the outstanding shares of voting stock of AFC, on a fully diluted basis.

“ Closing Date ” means December 20, 2016.

“ Collection Accounts ” means, collectively, the Deposit Accounts held at Wells Fargo Bank, National Association.

“ Collections ” means, with respect to any Pool Receivable, (a) all funds which are received by the Seller, the Originator or the Servicer (including amounts paid directly to an Originating Lender and subsequently forwarded to the Seller, the Originator or the Servicer) in payment of any amounts owed in respect of such Receivable (including, without limitation, principal payments, finance charges, floorplan fees, curtailment fees, interest and all other charges), or applied (or to be applied) to amounts owed in respect of such Receivable (including, without limitation, insurance payments and net proceeds of the sale or other disposition of vehicles or other collateral or property of the related Obligor or any other Person directly or indirectly liable for the payment of such Pool Receivable applied (or to be applied) thereto), (b) all Collections deemed to have been received pursuant to Section 1.9 and (c) all other proceeds of such Receivable.



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“ Company Note ” has the meaning set forth in Section 3.2 of the Purchase and Sale Agreement.

“ Contract ” means, with respect to any Obligor, collectively, the Dealer Note issued by such Obligor, or similar agreement between such Obligor and AFC or an Originating Lender, as applicable, any guaranty issued in connection therewith and each other agreement or instrument executed by an Obligor pursuant to or in connection with any of the foregoing, the purpose of which is to evidence, secure or support such Obligor’s obligations to AFC or each Originating Lender, as applicable, under such Dealer Note or other similar agreement.

“ CP Rate ” means, for any Purchaser for any Yield Period, to the extent such Purchaser funds any portion of its Investment for such Yield Period by the issuance of Notes, the rate equivalent to the weighted average cost (as determined by the applicable Purchaser Agent and which shall include dealer fees, incremental carrying costs incurred with respect to Notes maturing on dates other than those on which corresponding funds are received by the Purchaser, other borrowings by the Purchaser or its related commercial paper issuer if the Purchaser does not itself issue commercial paper to fund any Investment hereunder (other than under any Program Support Agreement), actual costs of swapping foreign currencies into Dollars to the extent the Notes are issued in a market outside the U.S. and any other costs associated with the issuance of Notes) of or related to the issuance of Notes that are allocated, in whole or in part, by the Purchaser or the applicable Purchaser Agent to fund or maintain such portion of the Investment (and which may be also allocated in part to the funding of other assets of the Purchaser); provided , however , that if the rate (or rates) is a discount rate, then the rate (or if more than one rate, the weighted average of the rates) shall be the rate resulting from converting such discount rate (or rates) to an interest -bearing equivalent rate per annum. It is understood and agreed that any Purchaser or Purchaser Agent may either “match fund” Notes or “pool fund” Notes to maintain any Investment and may select the duration of Notes maintaining the Investment in its discretion.

“ Credit and Collection Policy ” means those receivables credit and collection policies and procedures of the Servicer in effect on the date of the Agreement and provided to the Agent and the Purchaser Agents (including the core policies and procedures manuals and the credit policy manual), as modified in compliance with the Agreement.

“ Curtailment Date ” means, with respect to any Receivable, the date defined as such in the Contract for such Receivable.

“ Dealer Note ” means a note and security agreement in the form of the Originator’s form Demand Promissory Note and Security Agreement and any other promissory note issued by an Obligor in favor of AFC or the applicable Originating Lender.

“ Debt ” means (i) indebtedness for borrowed money (which shall not include, in the case of the Seller or AFC, accounts payable to any Affiliate in the ordinary course of business arising from the provision of goods and services by such Affiliate), (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases, (v)



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obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of kinds referred to in clauses (i) through (iv) above, and (vi) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA.

“ Default Ratio ” means the ratio (expressed as a percentage and rounded upward to the nearest 1/100th of 1%) computed as of the last day of each calendar month by dividing (i) the aggregate Outstanding Balance of all Pool Receivables that became Defaulted Receivables during such month plus the aggregate amount of non-cash adjustments that reduced the Outstanding Balance of any Pool Receivable during such month (other than a Pool Receivable that became a Defaulted Receivable during such month) by (ii) the aggregate amount of Pool Receivables that were generated by the Originator (including those acquired by the Originator from any Originating Lender) during the calendar month that occurred five calendar months prior to the calendar month ending on such day.

“ Defaulted Receivable ” means a Pool Receivable:

(i) as to which any payment, or part thereof, remains unpaid for more than 90 days after the due date for such payment;

(ii) which, consistent with the Credit and Collection Policy, would be written off the Seller’s books as uncollectible; or

(iii) which is converted to a long term payment plan in the form of a note or other similar document.

“ Deferred Purchase Date ” has the meaning specified in Section 1.2(a) .

“ Deferring Purchaser ” has the meaning specified in Section 1.2(a) .

“ Delinquency Ratio ” means the ratio (expressed as a percentage and rounded upward to the nearest 1/100 of 1%) computed as of the last day of each calendar month by dividing (i) the aggregate Outstanding Balance of all Pool Receivables (net of all miscellaneous credits) that were Delinquent Receivables on such day by (ii) the aggregate Outstanding Balance of all Pool Receivables on such day.

“ Delinquent Receivable ” means a Pool Receivable which is not a Defaulted Receivable (i) as to which any payment, or part thereof, remains unpaid for more than 30 days after the due date for such payment or (ii) which, consistent with the Credit and Collection Policy, would be classified as delinquent by the Seller.

“ Deposit Account ” means an account listed on Schedule II hereto and maintained at a bank or other financial institution for the purpose of receiving Collections.

“ Deposit Account Agreement ” means a letter agreement, in form and substance acceptable to the Agent, among the Seller, the Agent and the applicable Deposit Bank, as the



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same may be amended, supplemented, amended and restated, or otherwise modified from time to time in accordance with the Agreement.

“ Deposit Bank ” means any of the banks or other financial institutions at which one or more Deposit Accounts are maintained.

“ Discount ” means, with respect to each Purchaser:

(i) for the portion of Investment of its Participation for any Yield Period to the extent such Purchaser will be funding such portion of the Investment through the issuance of Notes and such Purchaser has elected by notice to the Servicer to charge its cost of funds,

CPR x I x ED + TF

360

(ii) for the portion of Investment of its Participation for any Yield Period to the extent such Purchaser will not be funding such portion of the Investment at the rate specified in clause (i) (a “Eurodollar Funding”),

BR x I x 360 + TF

where:



BR	=	the Bank Rate for the applicable portion of the Investment for such Yield Period
I	=	the applicable portion of Investment during such Yield Period
CPR	=	the CP Rate of such Purchaser (or its Related CP Issuer) for the applicable portion of the Investment for such Yield Period
ED	=	the actual number of days during such Yield Period
TF	=	the Termination Fee, if any, for such portion of Investment of the Participation for such Yield Period;

provided , that no provision of the Agreement shall require the payment or permit the collection of Discount in excess of the maximum permitted by applicable law; and provided , further , that Discount for any Investment of any Participation shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason.

“ Dividends ” means any dividend or distribution (in cash or obligations) on any shares of any class of Seller’s capital stock or any warrants, options or other rights with respect to shares of any class of Seller’s capital stock.

“ Dollars ” means, and the conventional “ $ ” signifies, the lawful currency of the United States.



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“ Eligible Contract ” means a Contract in one of the forms delivered to and approved by the Purchaser Agents with such variations as AFC shall approve in its reasonable business judgment that shall not materially adversely affect the rights of the Originator or the Originating Lender, the Seller or the Purchasers.

“ Eligible Receivable ” means, at any time, any Receivable:

(a) which is denominated and payable only in Dollars, was originated by an Originating Lender and acquired by the Originator pursuant to an Originating Lender Sale Agreement or originated by the Originator in the ordinary course of business, was sold to the Seller pursuant to the Purchase and Sale Agreement and is either a general intangible, a payment intangible, an account or chattel paper;

(b) the Obligor of which is a resident of the United States and is not a government or a governmental subdivision or agency, provided personal guarantees are permitted to be provided by Canadian residents;

(c) in which the Agent (for the benefit of the Secured Parties) has a first priority, perfected security interest free from any Adverse Claim, and with respect to which the Agent has (i) a first priority perfected security interest in the vehicles financed thereby (except to the extent of any Permitted Liens), and (ii) a perfected security interest in all other Related Security with respect to such Receivable (to the extent that a security interest in such other Related Security can be perfected by the filing of a financing statement);

(d) in which Seller has a first priority, perfected ownership interest, free from any Adverse Claim, and with respect to which the Seller has (i) a first priority perfected security interest in the vehicles financed thereby (except to the extent of any Permitted Liens), and (ii) a perfected security interest in all other Related Security with respect to such Receivable (to the extent that a security interest in such other Related Security can be perfected by the filing of a financing statement);

(e) which arises from the making of a loan to finance the purchase of (i) an automobile or light duty truck, the ownership of which is evidenced by a certificate of title or electronic title, driven or drawn by mechanical power, manufactured primarily for use on the public streets, roads or highways with two axles, or (ii) a Specialty Vehicle;

(f) that is guaranteed by the related dealer’s parent, general partner or owners, provided that, in the Servicer’s discretion, guarantees shall not be required from (i) public companies, (ii) private equity firms or other similar entities, or (iii) passive partners or minority partners when an operating partner has provided a guarantee;

(g) which arises under an Eligible Contract that has been duly authorized and executed by the parties thereto and that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of



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equity, regardless of whether such enforceability is considered in a proceeding in equity or at law;

(h) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy);

(i) the sale of which pursuant to the Purchase and Sale Agreement, and the transfer of an undivided interest in which pursuant to this Agreement, do not contravene or conflict with any law, or require the consent of the Obligor or any other Person;

(j) with respect to which the Majority Purchasers have not given Seller at least five (5) Business Days’ notice that such Receivable will not be an Eligible Receivable hereunder, provided that such designation is in good faith and based on a reasonable business judgment by the Majority Purchasers that such Receivable should not be considered an Eligible Receivable;

(k) the Obligor of which is not an Affiliate of AFC, an Excluded Obligor or a father, mother, son or daughter (or any Affiliate thereof) of any officer or director of AFC or its Affiliates;

(l) for which AFC has taken (or caused to be taken) all commercially reasonable action to ensure that (i) the Obligor of such Receivable does not hold physical possession of the certificate of title or certificate of origin with respect to such Receivable (except for any Receivable originated in the State of Michigan), and (ii) in the case where there is only an electronic title (and not a physical title), the Seller (or the Originator or Originating Lender) is identified as lienholder in the electronic title records;

(m) which is not an Excluded Receivable, a Specified Ineligible Receivable, or a Title Attached Receivable;

(n) (i) which satisfies all applicable requirements of the Credit and Collection Policy, (ii) other than with respect to any Rental Receivable, whose terms require a minimum principal payment of not less than [*] plus accrued interest and fees on each Curtailment Date, provided that, subject to a Special Concentration Percentage, such minimum principal payment for a Receivable may be less than [*] so long as it is at least [*], (iii) for which all payments required to be made pursuant to the related Contract in connection with any Curtailment Date extension have not been waived and have been made within [*] of each such extension, (iv) whose terms (including the due date thereof) have not otherwise been amended or modified in any material respect and [*];

(o) which is payable on demand and which the related Contract requires to be repaid on the earlier of (i) [*] following the sale of the vehicle such Receivable financed, and (ii) the Curtailment Date for such Receivable;



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(p) which is not a Defaulted Receivable and which is not a Delinquent Receivable;

(q) from an Obligor not more than [*] of whose aggregate Outstanding Balance of all Receivables of such Obligor and its Affiliates are Defaulted Receivables;

(r) for which the Obligor has not “short-paid” the Receivable or paid with non-sufficient funds;

(s) from an Obligor that, to the knowledge of the Servicer or the Seller, has not admitted in writing its inability to pay its debts generally or made a general assignment for the benefit of creditors; and no proceeding has been instituted (and is continuing) by or against such Obligor seeking to adjudicate it bankrupt or insolvent, or seeking the liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property;

(t) if the Receivable is an Auction Credit, then (i) the wholesale auction is not fronting for a government or a governmental subdivision or agency, (ii) the Servicer has received a bill of sale evidencing the transaction between the wholesale auction and the purchasing dealer, (iii) the wholesale auction has been underwritten in accordance with the Credit and Collection Policy’s requirements for platinum dealers, (iv) a UCC has been filed against the wholesale auction, and (v) clauses (f) and (g) above shall be deemed to be satisfied if the wholesale auction, rather than the applicable dealer, signs the applicable Eligible Contract; and

(u) (i) except for any Contract which has been executed electronically, there is only one original, executed copy of such Contract held by the Servicer and (ii) for any Contract which has been executed electronically, such Contact has been executed in compliance with all applicable e-sign laws and the Servicer has access to an electronic copy of such Contract executed by all parties thereto which can be printed and used to enforce such Contract.

“ Enforcement Costs ” means, at any time, all unpaid costs and expenses incurred by the Agent in enforcing its rights and the rights of the other Indemnified Parties hereunder.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections.

“ ERISA Affiliate ” shall mean, with respect to any Person, at any time, each trade or business (whether or not incorporated) that would, at the time, be treated together with such Person as a single employer under Section 4001 of ERISA or Sections 414(b), (c), (m) or (o) of the Internal Revenue Code.



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“ Eurodollar Funding ” means any funding the Discount with respect to which is determined pursuant to clause (ii) of the definition of Discount.

“ Eurodollar Rate ” means, with respect to any day, the interest rate per annum determined by the applicable Purchaser Agent (which determination shall be conclusive absent manifest error) by dividing (the resulting quotient rounded upwards, if necessary, to the fourth decimal place) (i) the three (3)-month Eurodollar Rate for Dollar deposits as reported on the Reuters Screen LIBOR01 Page or any other page that may replace such page from time to time for the purpose of displaying offered rates or prices comparable to such rates (as determined by the applicable Purchaser Agent from time to time in accordance with such Purchaser Agent’s customary practices), as of 11:00 a.m. (London time) on such date, or if such day is not a Business Day, then the immediately preceding Business Day (or, if not so reported, then as determined by such Purchaser Agent from another recognized source for interbank quotation), in each case, changing when and as such rate changes, by (ii) a number equal to 1.00 minus the Eurodollar Reserve Percentage; provided that if the Eurodollar Rate calculated as set forth above shall be less than zero, the Eurodollar Rate shall be deemed to be zero for the purposes of this Agreement. The Eurodollar Rate determined for any day may also be expressed by the following formula:

applicable quoted Eurodollar Rate


Eurodollar Rate =	(pursuant to clause (i) above) for such day

1.00-Eurodollar Reserve Percentage

As used in this definition, “Eurodollar Reserve Percentage” means, for any Yield Period, the maximum reserve percentage (expressed as a decimal, rounded upwards, if necessary, to the fourth decimal place) in effect on the date the Eurodollar Rate for such Yield Period is determined under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to “Eurocurrency” funding (currently referred to as “Eurocurrency liabilities”) having a term comparable to such Yield Period.

“ Excluded Obligor ” means an Obligor so designated in writing as such by the Agent or the Majority Purchasers in a notice to the Seller in good faith and in the Agent’s or the Majority Purchasers’ reasonable judgment relating to credit considerations from time to time, it being understood that from time to time such designation may be revoked by written notice to the Seller.

“ Excluded Receivable ” means any Receivable that the Originator determines (prior to or concurrently with origination) (i) is clearly not contemplated by the Transaction Documents due to size, terms, ineligibility or commingling concerns and (ii) is not to be transferred to the Seller pursuant to the Purchase and Sale Agreement. The Seller and the Purchasers have no ownership or other interest in any Excluded Receivables. For the avoidance of doubt, as required by Exhibit IV(l)(xv) , the Seller and the Servicer shall maintain a complete list of Excluded Receivables at all times and shall provide notice to the Purchaser Agents promptly following any changes thereto.

“ Facility ” means the purchase facility established by the Agreement.



	EX-I- 10

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“ Fairway ” means Fairway Finance Company, LLC.

“ Federal Funds Rate ” means, for any period, a fluctuating interest rate per annum equal (for each day during such period) to: (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the preceding Business Day) by the Federal Reserve Bank of New York, or (b) if such rate is not so published for any Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it.

“ Federal Reserve Board ” means the Board of Governors of the Federal Reserve System, or any entity succeeding to any of its principal functions.

“ Fee Letter ” means, as to any Purchaser, the fee letter entered into by such Purchaser’s Purchaser Agent and the Seller as described more particularly in Section 1.5 .

“ Final Payout Date ” means the date following the Termination Date on which no Investment or Discount in respect of any Participation under the Agreement shall be outstanding and all other amounts payable by the Originator, the Seller or the Servicer to the Purchasers, the Purchaser Agents, the Agent, the Backup Servicer, any successor Servicer or any other Affected Person under the Transaction Documents shall have been paid in full.

“ Finance Charge and Floorplan Fee Collections ” means, with respect to any calendar month, any Collections applied by the Servicer in such calendar month to the payment of interest and finance charges and all other amounts (other than principal) owed under a Contract.

“ GAAP ” means generally accepted accounting principles and practices in the United States, consistently applied.

“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any body or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation any court, and any Person owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

“ Heavy Duty Truck ” means [*]

“ Indemnified Amounts ” has the meaning set forth in Section 3.1 .

“ Indemnified Party ” has the meaning set forth in Section 3.1 .

“ Insolvent ” or “ Insolvency ” means, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.

“ Insolvency Proceeding ” means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general



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assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in each case (a) and (b) undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code.

“ Investment ” means, with respect to any Purchaser, the aggregate of the amounts paid to the Seller in respect of the Participation of such Purchaser pursuant to the Agreement, reduced from time to time by amounts actually distributed and applied on account of such Investment pursuant to Section 1.4 ; provided , that if such Investment shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Investment shall be increased by the amount of such rescinded or returned distribution, as though it had not been made.

“ Joinder Agreement ” means a Joinder Agreement substantially in the form of Annex C and executed pursuant to Section 1.12 .

“ KAR ” means KAR Auction Services, Inc., a Delaware corporation.

“ KAR Credit Facility ” means that certain Amended and Restated Credit Agreement, originally dated as of March 11, 2014, as amended by the Incremental Commitment Agreement and First Amendment, dated as of March 9, 2016, by and among KAR, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and agents party thereto, as the same may be amended, supplemented, restated or otherwise modified from time to time.

“ KAR Credit Facility Pledge ” means the pledge of AFC stock to secure the obligations under the KAR Credit Facility.

“ KAR Financial Covenant ” means the financial covenant regarding KAR’s maximum consolidated senior secured leverage ratio as set forth in Section 8.1 of the KAR Credit Facility. Such covenant (including all defined terms incorporated therein) will survive the termination of the KAR Credit Facility and can only be amended, modified, added or terminated from time to time with the prior written consent of the Majority Purchasers; provided , however , that as long as KAR’s senior secured debt shall be rated at least “BBB- (stable)” by S&P and at least “Baa3 (stable)” by Moody’s, the financial covenant will conform with the financial covenants required by KAR’s Credit Facility or any replacement facility without the consent of the Majority Purchasers. “ KAR Financial Covenant Event ” means any breach of the KAR Financial Covenant.

“ KAR Financial Covenant Termination Event ” means, following the occurrence of a KAR Financial Covenant Event, the earliest to occur of (i) if a Majority Purchasers Notice Event has occurred, 120 days following the occurrence of such Majority Purchasers Notice Event, (ii) any KAR Restricted Amendment and (iii) the occurrence of a Majority Purchasers Notice Event resulting in the KAR Credit Facility being accelerated.

“ KAR Restricted Amendment ” means any action under or amendment to the KAR Credit Facility which, in the sole and absolute discretion of the Majority Purchasers, results in or may result in (i) an acceleration (in whole or in part) of principal or interest or the amount



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of principal or interest due under the KAR Credit Facility, (ii) the pledge of any additional collateral by AFC under the KAR Credit Facility (other than newly-acquired collateral of the same type as that already pledged thereunder, e.g., a newly-acquired additional trademark is pledged where all trademarks of the relevant entity had previously been pledged), (iii) any amendment to any provisions or the addition of any provision to the KAR Credit Facility regarding the Seller or its assets or AFC as Originator or Servicer hereunder, (iv) any change, amendment or modification to AFC’s guaranty under the KAR Credit Facility or (v) any action by any party to the KAR Credit Facility against AFC’s guaranty under the KAR Credit Facility or the assets of AFC.

“ Legal Final Maturity Date ” means the first Settlement Date on or after the date that is two years after the Termination Date.

“ Level One Trigger ” means the occurrence of any of the following (i) as of the last day of any calendar month, the arithmetic average of the Net Spread [*], (ii) the Delinquency Ratio is greater than [*] or (iii) as of the last day of any calendar month, the arithmetic average of the Payment Rate [*]; provided , however , that following each occurrence of a Level One Trigger, such trigger shall remain in effect until [*]

“ Liquidation Account ” means that certain bank account numbered 181-446-6 maintained at BMO Harris Bank in Chicago, Illinois or such other account at such other bank approved by the Agent, with the Purchasers and their respective Purchaser Agents receiving notice that such account is maintained at such bank, in either case, which is in the name of “Liquidation Account, Bank of Montreal as Agent,” and pledged, on a first-priority basis, by the Seller to the Agent pursuant to Section 1.2(d) .

“ Liquidation Account Bank ” means the bank holding the Liquidation Account.

“ Liquidity Agreement ” means any loan or asset purchase agreement or similar agreement whereby a Note Issuer party hereto as a Purchaser obtains commitments from financial institutions to support its funding obligations hereunder and/or to refinance any Notes issued to fund the Note Issuer’s Investment hereunder.

“ Liquidity Bank ” has the meaning set forth in Section 6.3(b) .

“ Loss Percentage ” means, on any date, the greatest of [*]

“ Loss Reserve ” means, for any date and any Participation, an amount equal to the product of [*]

“ Lot Check ” means, with respect to any Obligor, a physical inspection of such Obligor’s financed vehicles and which may include a review of such Obligor’s books and records related thereto.

“ Majority Purchasers ” means Purchasers having a share of the Aggregate Participation equal to or greater than [*]



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“ Majority Purchasers Notice Event ” means, following the occurrence of a KAR Financial Covenant Event, the Majority Purchasers have provided the Agent and Seller with written notice of the Majority Purchasers’ declaration of a KAR Financial Covenant Termination Event.

“ Marine Craft ” means [*]

“ Material Adverse Effect ” means, with respect to any event or circumstance, a material adverse effect on:

(a) the business, operations, property or financial condition of the Seller or the Servicer;

(b) the ability of the Seller or the Servicer to perform its obligations under this Agreement or any other Transaction Document to which it is a party or the performance of any such obligations;

(d) the status, existence, perfection, priority or enforceability of the Agent’s interest (for the benefit of the Secured Parties) in the Pool Receivables or Related Security; or

(e) the collectibility of the Pool Receivables.

“ Maximum Amount ” means the lesser of (i) $1,500,000,000 or (ii) the sum of the Maximum Commitments of all Purchasers.

“ Maximum Commitment ” means, with respect to a Purchaser, the maximum Dollar amount of Investment that such Purchaser is willing to fund, as set forth on the signature pages of this Agreement, any Joinder Agreement or any assignment entered into pursuant to Section 6.3 , as applicable, which amount may, following the written request of the Seller, be increased at any time with the written consent of such Purchaser.

“ Moody’s ” means Moody’s Investor Services, Inc.

“ Motorcycle ” means [*]

“ Multiemployer Plan ” means a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“ Net Receivables Pool Balance ” means, at any time, the amount determined pursuant to the calculation in Schedule III .

“ Net Spread ” means the annualized percentage equivalent of a fraction (computed as of the last day of each calendar month), the numerator of which is the excess of (x) all Finance Charge and Floorplan Fee Collections received and applied during such calendar month



	EX-I- 14

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(including recoveries) over (y) the sum of, without duplication, (i) the Carry Costs for such calendar month, (ii) the aggregate amount of Receivables that became Defaulted Receivables during such calendar month, and (iii) the aggregate amount of non-cash adjustments that reduced the Outstanding Balance of any Pool Receivable during such calendar month (but excluding any Receivable that was included in the calculation of Net Spread pursuant to clause (ii) above in any previous calendar month); and the denominator of which is the average aggregate Outstanding Balances of the Pool Receivables during such calendar month.

“ New Car ” means [*]

“ Normal Concentration Percentage ” for any Obligor (other than Obligors subject to Special Concentration Percentages) means at any time [*]

“ Note Issuer ” means Fairway and any other Purchaser which funds its Investment and other investments by issuing short or medium term promissory notes either directly or by means of a Related CP Issuer.

“ Notes ” means (a) in the case of any Note Issuer, the short-term promissory notes issued or to be issued by such Note Issuer to fund its investments in accounts receivable or other financial assets, (b) in the case of any Purchaser with a Related CP Issuer, the short-term promissory notes issued by its Related CP Issuer to indirectly fund the investments of such Purchaser, and (c) in the case of any other Note Issuer, as set forth in the applicable Joinder Agreement.

“ Obligor ” means, with respect to any Receivable, a Person obligated to make payments pursuant to the Contract relating to such Receivable; provided that Receivables generated by Affiliates of any Obligor shall be treated as if generated by such Obligor.

“ Official Body ” means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of any such government or political subdivision, or any court, tribunal, grand jury or arbitrator, or any accounting board or authority (whether or not a part of government) which is responsible for the establishment or interpretation of national or international accounting principles, in each case whether foreign or domestic.

“ Originating Lender ” means AFC Cal, LLC, a California limited liability company and each other entity approved in writing by the Purchaser Agents as an Originating Lender hereunder in their sole discretion.

“ Originating Lender Sale Agreement ” means each transfer agreement between an Originating Lender and the Originator; prior to the Receivables of any Originating Lender being treated as Eligible Receivables hereunder, the Majority Purchasers shall have consented to the form of Originating Lender Sale Agreement and each Rating Agency rating the Facility shall have received a copy thereof at least 5 Business Days prior to such Receivables receiving such treatment.

“ Originator ” has the meaning set forth in the Purchase and Sale Agreement.



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“ Outstanding Balance ” means, with respect to any Receivable, the then unpaid principal amount of all advances or loans made to the related Obligor pursuant to the related Contract by AFC or the Originating Lender, as applicable, to the extent that (a) for auction purchases, such amount does not exceed 100% of the auction costs, including (i) Buyer’s Fees, (ii) inspection fees, (iii) reconditioning costs inclusive of light body work, light mechanical work or replacement parts not to exceed $500, (iv) transportation fees, [*] or (b) for non-auction purchases, such amount does not exceed the wholesale cost, including any applicable Buyer’s Fees as set forth on the related bill of sale or other similar document, for the related vehicles.

“ Participation ” means, with respect to any Purchaser at any time, the undivided percentage ownership interest of such Purchaser in (i) each and every Pool Receivable now existing or hereafter arising, other than any Pool Receivable that arises on or after the Termination Date, (ii) all of Seller’s right, title and interest in, to and under all Related Security with respect to such Pool Receivables, and (iii) all Collections with respect to, and other proceeds of, such Pool Receivables and Related Security. Such undivided percentage interest shall be computed as

I + DP + LR
NRPB + LA

where:

= the Investment of such Participation at the time of computation as reduced by the amount of cash in the Collection Accounts at the end of business on either (i) with respect to any Servicer Report, the last Business Day of the prior calendar month, or (ii) with respect to any Portfolio Certificate, the last Business Day of the prior calendar week, in each case that was wired to the respective Purchaser on the immediately following Business Day to pay down that Purchaser’s Investment.

= the Loss Reserve of such Participation at the time of computation (calculated after reducing the Purchaser’s Investment by the amount of cash in the Collection Accounts at the end of business on either (i) with respect to any Servicer Report, the last Business Day of the prior calendar month, or (ii) with respect to any Portfolio Certificate, the last Business Day of the prior calendar week, in each case that was wired to the respective Purchaser on the second immediately following Business Day to pay down that Purchaser’s Investment).


DP	= the aggregate unfulfilled purchase amounts of all Deferring Purchasers at such time.


NRPB	= the Net Receivables Pool Balance at the time of computation.


LA	= the amount on deposit in the Liquidation Account (other than amounts transferred thereto from the Deposit Accounts to pay



	EX-I- 16

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Discount, the Servicing Fee, Unaffiliated Servicing Fees, Backup Servicing Fees, Transition Expenses and Program Fees and Indemnified Amounts to the Indemnified Parties), and, for the avoidance of doubt, those amounts identified as “cash collateral” with respect to the Deposit Accounts held at [*] (numbered [*] and [*]) shall not be deposited into the Liquidation Account or taken into consideration for the calculation of the Participation.

Each Participation shall be determined from time to time pursuant to the provisions of Sections 1.2(a) and 1.3 .

“ Paydown Day ” means any day that is not a Termination Day on which the conditions set forth in Section 3 of Exhibit II are not either satisfied or waived.

“ Payment Rate ” means the ratio (expressed as a percentage and rounded upward to the nearest 1/100 ^th of 1%) computed as of the last day of each calendar month by dividing [*]

“ Perfection Representation ” means the representations, warranties and covenants set forth in Exhibit VII attached hereto.

“ Performance Guaranty ” means the Performance Guaranty, dated as of April 20, 2007, made by KAR in favor of the Agent for the benefit of the Secured Parties, as the same may be amended, supplemented or otherwise modified from time to time with the prior written consent of the Majority Purchasers.

“ Permitted Investments ” means (i) overnight obligations of the United States of America, (ii) time deposits or AAAm or AAAm-G rated money market accounts maintained at financial institutions rated at the time of investment not less than A-1 by S&P and P-1 by Moody’s, (iii) certificates of deposit that are not represented by instruments, have a maturity of one week or less and are issued by financial institutions rated at the time of investment not less than A-1 by S&P and P-1 by Moody’s and (iv) commercial paper rated at the time of investment not less than A-1 by S&P and P-1 by Moody’s and, in the cases of clauses (ii) , (iii) and (iv) , having a maturity date not later than (A) with respect to amounts on deposit in the Cash Reserve Account, the immediately succeeding Settlement Date and (B) with respect to amounts on deposit in the Liquidation Account, the earlier of (x) the next Settlement Date and (y) one week from the date of investment; provided , however , that the Majority Purchasers may, from time to time, upon three Business Days’ prior written notice to Servicer, remove from the scope of “Permitted Investments” any such obligations, certificates of deposit or commercial paper and specify to be within such scope, other investments.

“ Permitted Lien ” means (i) any mechanic’s lien, supplier’s lien, materialman’s lien, landlord’s lien or similar lien arising by operation of law with respect to the Related Security and (ii) and liens for taxes, assessments or similar governmental charges or levies incurred in the ordinary course of business that are not yet due and payable or as to which any applicable grace period shall not have expired, or that are being contested in good faith by proper proceedings and for which adequate reserves have been established, but only so long as



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foreclosure with respect to such a lien is not imminent and the use and value of the property to which the Adverse Claim attaches is not impaired during the pendency of such proceeding.

“ Person ” means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof.

“ Plan ” means, at a particular time, any employee benefit plan or other plan established, maintained or contributed to by the Seller or any ERISA Affiliate thereof that is covered by Title IV of ERISA.

“ Pledge Agreement ” means the Pledge Agreement dated May 31, 2002 between AFC and the Agent, as the same may be amended or modified with the prior written consent of the Majority Purchasers.

“ Pool Receivable ” means a Receivable conveyed to the Seller pursuant to the Purchase and Sale Agreement and not reconveyed to the Originator in accordance with the terms of the Purchase and Sale Agreement.

“ Pool Receivable Documents ” has the meaning set forth in paragraph (l)(iii) of Exhibit IV to the Agreement.

“ Portfolio Certificate ” means a certificate substantially in the form of Exhibit VI to the Agreement.

“ Prior Agreement ” has the meaning set forth in the Preliminary Statements.

“ Program Fee ” means, as to any Purchaser, the periodic fees set forth in the applicable Fee Letter.

“ Program Support Agreement ” means, as to any applicable Note Issuer party hereto as a Purchaser, the Liquidity Agreement and any other agreement (if any) entered into by any Program Support Provider providing for the issuance of one or more letters of credit for the account of the Purchaser, the issuance of one or more surety bonds for which the Purchaser is obligated to reimburse the applicable Program Support Provider for any drawings thereunder, the sale by the Purchaser to any Program Support Provider of the Participation (or portions thereof) and/or the making of loans and/or other extensions of credit to the Purchaser in connection with the Purchaser’s securitization program, together with any letter of credit, surety bond or other instrument issued thereunder.

“ Program Support Provider ” as to any Note Issuer (and/or Related CP Issuers) means and includes any Liquidity Bank and any other or additional Person (other than any customer of a Purchaser (and/or Related CP Issuers)) now or hereafter extending credit or having a commitment to extend credit to or for the account of, or to make purchases from, a Purchaser (and/or Related CP Issuers) or issuing a letter of credit, surety bond or other instrument to support any obligations arising under or in connection with any Note Issuer’s (and/or Related CP Issuer’s) securitization program.



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“ Purchase and Sale Agreement ” means the Amended and Restated Purchase and Sale Agreement, dated as of May 31, 2002, among the Originator and the Seller, as the same has been and may be modified, supplemented, amended and amended and restated from time to time in accordance with the Transaction Documents and with prior written consent of the Majority Purchasers.

“ Purchase Notice ” has the meaning set forth in Section 1.2(a) .

“ Purchaser ” means Fairway, Fifth Third Bank, Thunder Bay Funding, LLC, PNC Bank, National Association, Bank of Montreal, Chariot Funding LLC and each other Person which becomes a “Purchaser” hereunder in accordance with the provisions of Section 1.12 or Section 6.3(a) .

“ Purchaser Agent ” means, as to any Purchaser, the financial institution designated by such Purchaser as responsible for administering this Agreement on behalf of such Purchaser, together with any successors or permitted assigns acting in such capacity; if any Purchaser does not so designate another institution as its Purchaser Agent, such Purchaser shall be deemed to have designated itself as its Purchaser Agent and all references herein to such Purchaser’s Purchaser Agent shall mean and be references to such Purchaser.

“ Purchaser Group ” means each Purchaser Agent and the Purchasers and Related CP Issuers (if any) for which such Purchaser Agent acts hereunder.

“ Purchaser’s Account ” means (i) as to Fairway, the special account (account number [*] maintained at the office of BMO Harris Bank, or such other account as may be so designated in writing by its Purchaser Agent to the Seller and (ii) as to any other Purchaser, such account as may be so designated in writing by the applicable Purchaser Agent to the Seller and the Servicer.

“ Purchasers’ Share ” means the share of Collections deposited into the Deposit Accounts represented by the Aggregate Participation.

“ Rating Agencies ” means Moody’s and S&P, as applicable.

“ Receivable ” means any right to payment from any Person, whether constituting an account, chattel paper, instrument, payment intangible or a general intangible, arising from the providing of financing and other services by the Originator or the applicable Originating Lender to (i) new, used and wholesale automobile, light truck or other Specialty Vehicle dealers or to (ii) wholesale auctions under an Auction Credit, and includes the right to payment of any interest or finance charges and other obligations of such Person with respect thereto.

“ Recreational Vehicle ” means [*]

“ Reference Bank ” means Bank of Montreal, provided that if so agreed by the Seller, the Servicer and the Agent, each Purchaser which becomes a party hereto by virtue of Section 1.12 may designate a different Reference Bank for purposes of calculating the Base Rate applicable to such Purchaser’s Investment.



	EX-I- 19

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“ Regulatory Change ” has the meaning set forth in Section 1.8 .

“ Related CP Issuer ” shall mean, with respect to any Purchaser, any commercial paper conduit approved by the Servicer which advances funds to such Purchaser for the purpose of funding or maintaining its interest in the Investment, together with their successors and permitted assigns.

“ Related Security ” means, with respect to any Pool Receivable:

(a) all right, title and interest in and to all Contracts and other Pool Receivable Documents that relate to such Receivable;

(b) all security interests or liens and rights in property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, including all rights in vehicles securing or purporting to secure such payment and any insurance or other proceeds arising therefrom;

(d) all guarantees and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise;

(e) all rights in any power of attorney delivered by the related Obligor; and

(f) all rights and claims of the Seller with respect to such Receivable pursuant to the Purchase and Sale Agreement.

“ Rental Receivable ” means a Receivable which satisfies all of the requirements of the definition of Eligible Receivable except clause [*], provided [*], (ii) such Receivable must have a current maturity of [*], (iii) the applicable terms thereof must require [*], (iv) the Obligor thereof must be otherwise current on its obligations under the related Contract, (v) if applicable, [*]

“ Reorganization ” means, with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.

“ Reportable Event ” means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .22, .27 or .28 of PBGC Reg. §4043.

“ Restricted Payments ” has the meaning set forth in paragraph (o)(i) of Exhibit IV of the Agreement.



	EX-I- 20

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“ Salvage Vehicle ” means any vehicle [*] provided that such vehicle [*] For purposes of the Net Receivables Pool Balance calculation, the value of Receivables that are originated for the purpose of financing Salvage Vehicles is limited to [*]

“ Sanctioned Country ” means, at any time, a country or territory which is the subject or target of any Sanctions.

“ Sanctioned Person ” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, the United Nations Security Council, the European Union or any EU member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.

“ Sanctions ” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.

“ S&P ” means Standard and Poor’s Ratings Services.

“ Secured Parties ” means, collectively, the Purchasers, the Purchaser Agents, the Agent and the Program Support Providers.

“ Seller ” has the meaning set forth in the preamble to this Agreement.

“ Seller Parties ” means the Seller, the Originator and the Servicer.

“ Seller’s Share ” means the Seller’s share of Collections deposited into the Deposit Accounts, calculated as 100% minus the Aggregate Participation.

“ Servicer ” has the meaning set forth in the preamble to this Agreement.

“ Servicer Report ” means a report, in substantially the form of Annex B hereto.

“ Servicer Report Date ” means the 15th day of each month, or if such day is not a Business Day, the next Business Day.

“ Servicing Fee ” shall mean the fee referred to in Section 4.6 .

“ Settlement Date ” means the 20 ^th day of each calendar month or, if such day is not a Business Day, the following Business Day.

“ Single Employer Plan ” means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan.

“ Special Concentration Percentage ” means, as a percentage of the aggregate Eligible Receivables [*] at such time, without duplication:



	EX-I- 21

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(i) [*]

(ii) [*]

(iii) [*]

(iv) [*]

(v) [*]

(vi) [*]

(vii) [*]

(viii) [*]

(ix) [*]

(x) [*]

“ Special Obligor ” means any Obligors, together with their Affiliates, identified as a Special Obligor on the most recent Servicer Report by the Servicer.

“ Specialty Vehicles ” means [*]

“ Specified Ineligible Receivables ” means those Pool Receivables that the Servicer has identified as “Specified Ineligible Receivables” pursuant to Section 4.7 .

“ Subsidiary ” means, with respect to any Person, a corporation, partnership or other entity of which such Person and/or its other Subsidiaries own, directly or indirectly, such number of outstanding shares as have more than 50% of the ordinary voting power for the election of directors.

“ Tangible Net Worth ” means, with respect to any Person, the net worth of such Person calculated in accordance with GAAP after subtracting therefrom the aggregate amount of such Person’s intangible assets, including, without limitation, goodwill, franchises, licenses, patents, trademarks, tradenames, copyrights, service marks and brand names and capitalized software.

“ Termination Date ” means the earliest of (i) the Business Day which the Seller so designates by notice to the Agent at least 30 days in advance pursuant to Section 1.1(b) , (ii) January 31, 2020, and (iii) the date determined pursuant to Section 2.2 .

“ Termination Day ” means each day which occurs on or after the Termination Date, unless the occurrence of the Termination Date (if declared by the Majority Purchasers pursuant to Section 2.2 ) is waived in accordance with Section 6.1 .

“ Termination Event ” has the meaning specified in Exhibit V .



	EX-I- 22

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“ Termination Fee ” means, with respect to any portion of the Investment of any Purchaser and any Yield Period during which any reduction of such portion of the Investment occurs on a date other than the date on which the Notes or Eurodollar Funding supporting such portion of Investment matures, the amount, if any, by which (i) the additional Discount (calculated without taking into account any Termination Fee) which would have accrued during the remainder of such period on the reductions of Investment had such reductions remained as Investment, exceeds (ii) the income, if any, received by the applicable Purchaser from investing the proceeds of such reductions of Investment, as determined by the related Purchaser Agent, which determination shall be binding and conclusive for all purposes, absent manifest error.

“ Title Attached Receivable ” means a Receivable which satisfies all of the requirements of the definition of Eligible Receivable and for which AFC has recorded an account payable subject to the receipt of the certificate of title for the vehicle securing or purporting to secure such Receivable, but has not authorized the release of funds for such vehicle.

“ Tractors ” means [*]

“ Transaction Documents ” means the Agreement, the Deposit Account Agreements, the Purchase and Sale Agreement, each Originating Lender Sale Agreement, the Performance Guaranty, the Pledge Agreement, the Company Note, each Joinder Agreement, the Backup Servicing Agreement, the Backup Servicing Fee Letter (if any) and all other certificates, instruments, UCC financing statements, reports, notices, agreements and documents executed or delivered under or in connection with any of the foregoing, in each case as the same may be amended, supplemented or otherwise modified from time to time in accordance with the Agreement.

“ Transition Expenses ” means all reasonable cost and expenses (including Attorney Costs) incurred by the Backup Servicer in connection with transferring servicing obligations under this Agreement, which shall not exceed the cap established in the Backup Servicing Agreement or the Backup Servicing Fee Letter.

“ UCC ” means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction.

“ Unaffiliated Servicing Fees ” means all Servicing Fees payable to an entity, that is not AFC, any Affiliate thereof, or the Backup Servicer, engaged as Servicer hereunder, as such entity and the Agent shall agree.

“ Unmatured Termination Event ” means an event which, with the giving of notice or lapse of time, or both, would constitute a Termination Event.

“ USA PATRIOT Act ” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended.

“ Yield Period ” means, with respect to each portion of Investment of any Purchaser:



	EX-I- 23

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(a) initially the period commencing on the date of a purchase pursuant to Section 1.2 and ending on the last day of the calendar month of such purchase; and

(b) thereafter each calendar month; provided that the final Yield Period shall extend to the date of reduction of the Investment in full.

Other Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of Indiana, and not specifically defined herein, are used herein as defined in such Article 9. Unless the context otherwise requires, “or” means “and/or,” and “including” (and with correlative meaning “include” and “includes”) means including without limiting the generality of any description preceding such term.



	EX-I- 24

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EXHIBIT II

CONDITIONS OF PURCHASES

1. Conditions Precedent to the Effectiveness of this Agreement . The effectiveness of the Agreement is subject to the condition precedent that the Agent shall have received on or before the date hereof the following, each in form and substance satisfactory to the Agent:

(a) A counterpart of the Agreement and the other Transaction Documents duly executed by the parties thereto.

(b) Certified copies of (i) the resolutions of the board of directors of each of the Seller and AFC authorizing the execution, delivery, and performance by the Seller and AFC of the Agreement and the other Transaction Documents, (ii) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Agreement and (iii) the articles of incorporation and by-laws of the Seller and AFC (to the extent such documents have been modified since they were last delivered to the Agent).

(c) A certificate of the secretary or assistant secretary of the Seller and AFC certifying the names and true signatures of the officers of the Seller and AFC authorized to sign the Agreement and the other Transaction Documents.

(d) Favorable opinions of Ice Miller LLP, special counsel for the Seller and AFC, as to corporate, enforceability and such other matters as the Agent may reasonably request.

(e) Evidence of payment by the Seller of all fees, costs and expenses then due and payable to the Purchasers or the Agent (including, without limitation, any such fees payable under the Fee Letter), together with Attorney Costs of the Agent to the extent invoiced prior to or on such date, plus such additional amounts of Attorney Costs as shall constitute the Agent’s reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings.

(f) Such confirmations from the Rating Agencies as shall be required by any Purchaser in its sole discretion.

(g) Such other approvals, opinions or documents as the Agent may reasonably request.

2. Conditions Precedent to All Purchases and Reinvestments . Each purchase (including the initial purchase) and each reinvestment shall be subject to the further conditions precedent that:

(a) in the case of each purchase, the Servicer shall have delivered to the Agent on or prior to such purchase, in form and substance satisfactory to the Agent, (i) a completed Servicer Report with respect to the immediately preceding calendar month, dated within 30 days prior to the date of such purchase (or a completed Portfolio Certificate, dated as of the last Business Day of the immediately preceding calendar week) and (ii) a completed Portfolio



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Certificate to the extent a daily Portfolio Certificate is required in accordance with Section 4.2(e) of the Agreement, and shall have delivered to the Agent such additional information as may reasonably be requested by the Agent.

(b) on the date of such purchase or reinvestment the following statements shall be true (and acceptance of the proceeds of such purchase or reinvestment shall be deemed a representation and warranty by the Seller that such statements are then true):

(i) the representations and warranties contained in Exhibit III are true and correct on and as of the date of such purchase or reinvestment as though made on and as of such date; and

(ii) no event has occurred and is continuing, or would result from such purchase or reinvestment, that constitutes a Termination Event or an Unmatured Termination Event; and

(iii) the sum of the aggregate of the Participations does not exceed 100%; and

(iv) the amount on deposit in the Cash Reserve Account is equal to or greater than the Cash Reserve; and



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EXHIBIT III

REPRESENTATIONS AND WARRANTIES

A. Representations and Warranties of the Seller . The Seller represents and warrants as follows:

(a) The Seller is a corporation duly incorporated and in existence under the laws of the State of Indiana, and is duly qualified to do business, and is in good standing, as a foreign corporation in every jurisdiction where the nature of its business requires it to be so qualified except where the failure to so qualify has not had and could not reasonably be expected to have a Material Adverse Effect.

(b) The execution, delivery and performance by the Seller of the Agreement and the other Transaction Documents to which it is a party, including the Seller’s use of the proceeds of purchases and reinvestments, (i) are within the Seller’s corporate powers, (ii) have been duly authorized by all necessary corporate action of the Seller, (iii) do not contravene or result in a default under or conflict with (1) the Seller’s charter or by-laws, (2) any law, rule or regulation applicable to the Seller, (3) any contractual restriction binding on or affecting the Seller or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Seller or its property, and (iv) do not result in or require the creation of any Adverse Claim upon or with respect to any of the Seller’s properties, where, in the cases of items (2) , (3) and (4), such contravention, default or conflict has had or could reasonably be expected to have a Material Adverse Effect. The Agreement and the other Transaction Documents to which it is a party have been duly executed and delivered by the Seller.

(c) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other Person is required for the due execution, delivery and performance by the Seller of the Agreement or any other Transaction Document to which it is a party other than those previously obtained or UCC filings.

(d) Each of the Agreement and the other Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity, regardless of whether enforceability is considered in a proceeding in equity or at law.

(e) Since December 31, 2015 there has been no material adverse change in the business, operations, property or financial condition of the Seller or AFC, the ability of the Seller or AFC to perform its obligations under the Agreement or the other Transaction Documents to which it is a party or the collectibility of the Pool Receivables, or which affects the legality, validity or enforceability of the Agreement or the other Transaction Documents.

(f) (i) There is no action, suit, proceeding or investigation pending or, to the knowledge of the Seller, threatened against the Seller before any Government Authority or arbitrator and (ii) the Seller is not subject to any order, judgment, decree, injunction, stipulation



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or consent order of or with any Government Authority or arbitrator, that, in the case of each of foregoing clauses (i) and (ii) , could reasonably be expected to have a Material Adverse Effect.

(g) The Seller is the legal and beneficial owner of the Pool Receivables free and clear of any Adverse Claim, excepting only Permitted Liens; and has acquired all of the Originator’s right, title and interest in, to and under the Related Security. Upon each purchase or reinvestment, the Agent (for the benefit of the Secured Parties) shall acquire a valid and enforceable perfected undivided percentage ownership interest, to the extent of the Aggregate Participation, in each Pool Receivable then existing or thereafter arising, free and clear of any Adverse Claim, excepting only Permitted Liens, in the Collections with respect thereto and in the Seller’s right, title and interest in, to and under the Related Security and proceeds thereof. The Agreement creates a security interest in favor of the Agent (for the benefit of the Secured Parties) in the items described in Section 1.2(d) , and the Agent (for the benefit of the Secured Parties) has a first priority perfected security interest in such items. No effective financing statement or other instrument similar in effect naming AFC or the Seller as debtor or seller and covering any Contract or any Pool Receivable or the Related Security or Collections with respect thereto or any Deposit Account is on file in any recording office, except those filed in favor of the Agent (for the benefit of the Secured Parties) relating to the Agreement.

(h) [Reserved].

(i) Each Servicer Report, Portfolio Certificate, information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Seller to the Agent or any Purchaser Agent in connection with the Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Agent and any such Purchaser Agent at such time) as of the date so furnished, and no such item contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading.

(j) The principal place of business and chief executive office (as such terms are used in the UCC) of the Seller and the office(s) where the Seller keeps its records concerning the Pool Receivables are located at the address set forth under its signature to this Agreement.

(k) The names and addresses of all the Deposit Banks, together with the account numbers of the Deposit Accounts of the Seller at such Deposit Banks, are specified in Schedule II to the Agreement.

(l) The Seller is not in violation of any order of any court, arbitrator or Governmental Authority.

(m) Neither the Seller nor any Affiliate of the Seller has any direct or indirect ownership or other financial interest in any Purchaser, the Agent or any Purchaser Agent.

(n) No proceeds of any purchase or reinvestment will be used for any purpose that violates any applicable law, rule or regulation, including, without limitation, Regulations T, U and X of the Federal Reserve Board.



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(o) Each Pool Receivable included as an Eligible Receivable in the calculation of the Net Receivables Pool Balance is an Eligible Receivable as of the date of such calculation.

(p) No event has occurred and is continuing, or would result from a purchase in respect of, or reinvestment in respect of, any Participation or from the application of the proceeds therefrom, which constitutes a Termination Event.

(q) The Seller and the Servicer have complied in all material respects with the Credit and Collection Policy with regard to each Pool Receivable.

(r) The Seller has complied with all of the terms, covenants and agreements contained in the Agreement and the other Transaction Documents and applicable to it.

(s) The Seller’s complete corporate name is set forth in the preamble to the Agreement, and the Seller does not use and has not during the last six years used any other corporate name, trade name, doing-business name or fictitious name, and except for names first used after the date of the Agreement and set forth in a notice delivered to the Agent pursuant to paragraph (l)(vi) of Exhibit IV .

(t) The authorized capital stock of Seller consists of 1,000 shares of common stock, no par value, 100 shares of which are currently issued and outstanding. All of such outstanding shares are validly issued, fully paid and nonassessable and are owned (beneficially and of record) by AFC.

(u) The Seller has filed all federal and other tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing.

(v) The Seller is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(w) The Seller is not (i) a country, territory, organization, person or entity named on an Office of Foreign Asset Control (OFAC) list; (ii) a Person that resides or has a place of business in a country or territory named on such lists or which is designated as a “Non-Cooperative Jurisdiction” by the Financial Action Task Force on Money Laundering, or whose subscription funds are transferred from or through such a jurisdiction; (iii) a “Foreign Shell Bank” within the meaning of the USA PATRIOT Act, i.e., a foreign bank that does not have a physical presence in any country and that is not affiliated with a bank that has a physical presence and an acceptable level of regulation and supervision; or (iv) a person or entity that resides in or is organized under the laws of a jurisdiction designated by the United States Secretary of the Treasury under Sections 311 or 312 of the USA PATRIOT Act as warranting special measures due to money laundering concerns.

(x) No “accumulated funding deficiency” (within the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA) exists with respect to any Single Employer Plan, and each Single Employer Plan has complied in all material respects with the applicable provisions of ERISA and the Internal Revenue Code. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans)



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did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits. Neither the Seller nor any ERISA Affiliate has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Seller nor any ERISA Affiliate would become subject to any liability under ERISA if the Seller or any such ERISA Affiliate were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.

(y) During the preceding 12 calendar months, the aggregate principal balance of receivables in the Seller’s receivables portfolio that do not represent either (A) part or all of the sales price of merchandise (including automobiles, light duty trucks or Specialty Vehicles) or services or (B) loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance or services (including loans to finance the purchase of an automobile, light duty truck or Specialty Vehicle) was less than [*] of the aggregate principal balance of receivables held by the Seller.

(z) The Seller (or the Servicer on its behalf) has implemented and maintains in effect policies and procedures designed to ensure compliance by the Seller and its directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Seller and its officers and employees and, to the knowledge of the Seller, its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. Neither (a) the Seller or, to the knowledge of the Seller, any of its directors, officers or employees, nor (b) to the knowledge of the Seller, any agent of the Seller that will act in any capacity in connection with or benefit from the facility established hereby, is a Sanctioned Person. No purchase of a Participation, use of proceeds thereof or other transaction contemplated by this Agreement will violate Anti-Corruption Laws or applicable Sanctions.

B. Representations and Warranties of the Servicer . The Servicer represents and warrants as follows:

(a) The Servicer is a corporation duly organized and in existence under the laws of the State of Indiana, and is duly qualified to do business, and is in good standing, as a foreign corporation in every jurisdiction where the nature of its business requires it to be so qualified except where the failure to so qualify has not had and could not reasonably be expected to have a Material Adverse Effect.

(b) The execution, delivery and performance by the Servicer of the Agreement and the other Transaction Documents to which it is a party, (i) are within the Servicer’s corporate powers, (ii) have been duly authorized by all necessary corporate action on the part of the Servicer, (iii) do not contravene or result in a default under or conflict with (1) the Servicer’s charter or by-laws, (2) any law, rule or regulation applicable to the Servicer, (3) any contractual restriction binding on or affecting the Servicer or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Servicer or its property, and (iv) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties, where, in the cases of items (2), (3) and (4), such contravention, default or conflict has had or could reasonably be expected to have a Material Adverse Effect. The Agreement and



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the other Transaction Documents to which it is a party have been duly executed and delivered by the Servicer.

(c) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other Person is required for the due execution, delivery and performance by the Servicer of the Agreement or any other Transaction Document to which it is a party.

(d) Each of the Agreement and the other Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of the Servicer enforceable against the Servicer in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity, regardless of whether enforceability is considered in a proceeding in equity or at law.

(e) There is no pending or threatened action or proceeding affecting the Servicer before any Governmental Authority or arbitrator which could have a Material Adverse Effect.

(f) The Servicer has complied in all material respects with the Credit and Collection Policy with regard to each Pool Receivable.

(g) the Servicer is not subject to any order, judgment, decree, injunction, stipulation or consent order of or with any Governmental Authority or arbitrator, that, could reasonably be expected to have a Material Adverse Effect.

(h) Each Servicer Report, Portfolio Certificate, information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Seller to the Agent or any Purchaser Agent in connection with the Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Agent and any such Purchaser Agent at such time) as of the date so furnished, and no such item contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading.

(i) The principal place of business and chief executive office (as such terms are used in the UCC) of the Servicer and the office(s) where the Servicer keeps its records concerning the Pool Receivables are located at the address set forth under its signature to this Agreement or the Backup Servicing Agreement, as applicable.

(j) The Servicer is not in violation of any order of any court, arbitrator or Governmental Authority.

(k) Neither the Servicer nor any Affiliate of the Servicer has any direct or indirect ownership or other financial interest in any Purchaser, the Agent or any Purchaser Agent.



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(l) The Servicer is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(m) The Servicer is not (i) a country, territory, organization, person or entity named on an OFAC list; (ii) a Person that resides or has a place of business in a country or territory named on such lists or which is designated as a “Non-Cooperative Jurisdiction” by the Financial Action Task Force on Money Laundering, or whose subscription funds are transferred from or through such a jurisdiction; (iii) a “Foreign Shell Bank” within the meaning of the USA PATRIOT Act, i.e., a foreign bank that does not have a physical presence in any country and that is not affiliated with a bank that has a physical presence and an acceptable level of regulation and supervision; or (iv) a person or entity that resides in or is organized under the laws of a jurisdiction designated by the United States Secretary of the Treasury under Sections 311 or 312 of the USA PATRIOT Act as warranting special measures due to money laundering concerns.

(n) The Servicer has implemented and maintains in effect policies and procedures designed to ensure compliance by the Seller Parties and their respective Subsidiaries, directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and each of the Seller Parties, their respective Subsidiaries and their respective officers and employees and, to the knowledge of such Seller Party, its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Seller Parties, any Subsidiary or, to the knowledge of the applicable Seller Party, any of their respective directors, officers or employees, or (b) to the knowledge of the applicable Seller Party, any agent of such Seller Party or any Subsidiary that will act in any capacity in connection with or benefit from the facility established hereby, is a Sanctioned Person. No purchase of a Participation, use of proceeds therof or other transaction contemplated by this Agreement will violate Anti-Corruption Laws or applicable Sanctions.



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EXHIBIT IV

COVENANTS

Covenants of the Seller and the Servicer . Until the latest of the Termination Date, the date on which no Investment of or Discount in respect of any Participation shall be outstanding or the date all other amounts owed by the Seller under the Agreement to the Purchasers, the Purchaser Agents, the Agent and any other Indemnified Party or Affected Person shall be paid in full:

(a) Compliance with Laws, Etc. Each of the Seller and the Servicer shall comply in all material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Receivables or the enforceability of any related Contract or the ability of the Seller or the Servicer to perform its obligations under any related Contract or under the Agreement.

(b) Offices, Records and Books of Account, Etc. The Seller shall provide the Agent with at least 60 days’ written notice prior to making any change in the Seller’s name or jurisdiction of organization or making any other change in the Seller’s identity or corporate structure (including a merger) which could impair or otherwise render any UCC financing statement filed in connection with this Agreement “seriously misleading” as such term is used in the applicable UCC; each notice to the Agent pursuant to this sentence shall set forth the applicable change and the proposed effective date thereof. The Seller and Servicer will also maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records, computer tapes and disks and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each Pool Receivable and all Collections of and adjustments to each existing Pool Receivable).

(c) Performance and Compliance with Contracts and Credit and Collection Policy . Each of the Seller and the Servicer shall, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy with regard to each Pool Receivable and the related Contract.

(d) Ownership Interest, Etc . The Seller shall, at its expense, take all action necessary or desirable to establish and maintain a valid and enforceable undivided ownership interest, to the extent of the Aggregate Participation, in the Pool Receivables (free and clear of any Adverse Claim excepting only Permitted Liens) and the Collections with respect thereto and the Seller’s right, title and interest in, to and under the Related Security and the proceeds thereof, and a first priority perfected security interest in the items described in Section 1.2(d) , in favor of



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the Agent (for the benefit of the Secured Parties), including, without limitation, taking such action to perfect, protect or more fully evidence the interest of the Agent (for the benefit of the Secured Parties) under the Agreement as the Agent may request.

(e) Sales, Liens, Etc. The Seller shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim (excepting only Permitted Liens) upon or with respect to, any or all of its right, title or interest in, to or under, any item described in Section 1.2(d) (including without limitation the Seller’s undivided interest in any Receivable, Related Security, or Collections, or upon or with respect to any account to which any Collections of any Receivables are sent), or assign any right to receive income in respect of any items contemplated by this paragraph (e) ; provided that the Seller or Servicer may sell any Defaulted Receivables (including any Contracts and Related Security with respect thereto and any judgment obtained thereon) to any Person who is not an Affiliate of the Seller or the Servicer (and does not own 5% or more of any equity interest in the Servicer or any Affiliate thereof and in which the Servicer, directly or indirectly, does not own, directly or indirectly, 5% or more of the equity of such Person) on arm’s-length terms in order to maximize collections thereon.

(f) Extension or Amendment of Receivables . After the occurrence and during the continuance of a Termination Event or an Unmatured Termination Event or after the Termination Date (or if a Termination Event or Unmatured Termination Event would result therefrom), neither the Seller nor the Servicer shall extend the maturity or adjust the Outstanding Balance or otherwise modify the terms of any Pool Receivable in any material respect, or amend, modify or waive any term or condition of any related Contract in any material respect.

(g) Change in Business or Credit and Collection Policy . Without the prior written consent of the Majority Purchasers, neither the Seller nor the Servicer shall make any material change in the character of its business or in the Credit and Collection Policy, or any change in the Credit and Collection Policy that would adversely affect the collectibility of the Pool Receivables or the enforceability of any related Contract or the ability of the Seller or Servicer to perform its obligations under any related Contract or under the Agreement; provided that prior written consent shall not be required for changes to standard operating practices or procedures (excluding any changes to credit underwriting criteria), however, any Purchaser Agent can prevent a change, or require that a change be reversed, by notifying the Servicer that such Purchaser Agent reasonably believes such change would have a material adverse impact on the Pool Receivables.

(h) Audits . Each of the Seller and the Servicer shall, from time to time during regular business hours, upon reasonable prior notice as requested by the Agent, permit the Agent or its agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Seller or the Servicer relating to Pool Receivables and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of the Seller and the Servicer for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Pool Receivables and the Related Security or the Seller’s or Servicer’s performance hereunder or under the Contracts with any of the officers, employees, agents or contractors of the Seller having knowledge of such matters;



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provided , however , that the Agent shall not be reimbursed for more than two such examinations in any year (including any examinations conducted pursuant to any other Transaction Document but excluding any audit conducted pursuant to Section 4.2(a) ) unless (x) a Level One Trigger has occurred and is continuing, in which case the Agent shall be reimbursed for four such examinations per year in addition to any audits conducted pursuant to Section 4.2(a) or (y) a Termination Event or Unmatured Termination Event has occurred, in which case the Agent shall be reimbursed for all such examinations.

(i) Change in Deposit Banks, Deposit Accounts and Payment Instructions to Obligors . Neither the Seller nor the Servicer shall add or terminate any bank as a Deposit Bank or any account as a Deposit Account from those listed in Schedule II to the Agreement without (i) the prior written consent of the Agent and (ii) in the case of a new Deposit Account and/or Deposit Bank, the applicable Deposit Bank has executed, and the applicable Deposit Account is subject to, a Deposit Account Agreement consented to in writing by the Agent.

(j) Deposit Accounts . Each Deposit Account shall at all times be subject to a Deposit Account Agreement. Neither the Seller nor the Servicer will deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Deposit Account, the Liquidation Account or the Cash Reserve Account cash or cash proceeds other than Collections of Pool Receivables; provided that, with respect to the Deposit Accounts held at [*] (numbered [*] and [*]), only cash attributable to “cash collateral” (as such term is defined in the applicable Contract) shall be deposited into such account. In addition, any such “cash collateral” amounts so set aside with respect to a particular Obligor shall be held in the aforementioned Deposit Account until such amounts are either (i) transferred to the Liquidation Account, if such amounts are being applied to such Obligor’s related Receivables (in such event, the “cash collateral” so applied shall be deemed Collections) or (ii) returned to such Obligor, if such Obligor has paid its related Receivables in full or as specified in the related Contract documentation.

(k) Marking of Records . At its expense, the Seller (or the Servicer on its behalf) shall mark its master data processing records relating to Pool Receivables and related Contracts, including with a legend evidencing that the undivided percentage ownership interests with regard to the Aggregate Participation related to such Receivables and related Contracts have been sold in accordance with the Agreement.

(l) Reporting Requirements . The Seller will provide to the Agent and each Purchaser Agent (in multiple copies, if requested by the Agent) (except that with respect to paragraphs (i), (ii), (iii) and (iv) , the Seller will cause AFC (or, with respect to paragraph (iv) , the Servicer), to provide to the Agent, each Purchaser Agent, the Backup Servicer (in the case of paragraph (iii)) and (in the case of items (iii)(a), (iv) and (xiv)) each Rating Agency rating the Facility, the following:

(i) (I) as soon as available and in any event within 45 days after the end of each fiscal quarter of AFC (including the end of each fiscal year) in a format acceptable to the Agent the consolidating balance sheet of AFC and its consolidated Subsidiaries as of the end of such quarter and statements of income of AFC and its consolidated Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the



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chief financial officer of such Person and (II) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of KAR, the unaudited consolidated balance sheet of KAR and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter;

(ii) (I) as soon as available and in any event within 90 days after the end of each fiscal year of KAR, a copy of the audited consolidated balance sheet of KAR and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, reported on by KPMG LLP or other independent certified public accountants of nationally recognized standing; (II) as soon as available and in any event within 90 days after the end of each fiscal year of KAR (A) audited financial statements for KAR which include a consolidating income statement and consolidating balance sheet showing the consolidation of AFC and its Subsidiaries into KAR’s audited financial statements and (B) an opinion of KPMG LLP or other independent certified public accountants acceptable to the Agent addressing such consolidating information either in an explanatory paragraph following the KAR audit opinion or in a separate report; and (III) if any Purchaser Agent provides AFC written notice on or prior to the 150th day before the end of any fiscal year of AFC that such Purchaser Agent desires the separate annual financial statements of AFC, as soon as available and in any event within 90 days after the end of each fiscal year of AFC, (A) a copy of the annual report for AFC and its consolidated Subsidiaries, containing financial statements for such year audited by KPMG LLP or other independent certified public accountants acceptable to the Agent, and (B) the consolidating balance sheet of AFC and the income statement of AFC for such year certified by the chief financial officer of AFC;

(iii) (a) as soon as available and in any event not later than the Servicer Report Date, a Servicer Report as of the calendar month ended immediately prior to such Servicer Report Date and (b) unless the Agent has otherwise agreed in writing, a Portfolio Certificate as of each Friday, delivered on the first Business Day of the next calendar week (or as of each Business Day to the extent required by Section 4.2(e) ). Each Servicer Report shall contain a current list of all branch offices, loan processing offices or other locations at which records and documents relating to the Pool Receivables (including, without limitation, any related Contracts and vehicle certificates of title) (collectively, the “ Pool Receivable Documents ”) are held by the Servicer. The Servicer shall provide each Rating Agency rating the Facility with prior notice of any material change to the form of Servicer Report and get their consent thereto prior to implementing any such change.

(iv) as soon as possible and in any event within three days after the occurrence of each Termination Event and Unmatured Termination Event, a statement of the chief financial officer of the Seller setting forth details of such Termination Event or event and the action that the Seller has taken and proposes to take with respect thereto;



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(v) promptly after the filing or receiving thereof, copies of all reports and notices that the Seller or any ERISA Affiliate files with respect to a Plan under ERISA or the Internal Revenue Code with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that the Seller or any ERISA Affiliate receives from any of the foregoing or from any Multiemployer Plan to which the Seller or any ERISA Affiliate is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Seller and/or any such ERISA Affiliate in excess of $250,000;

(vi) at least 60 days prior to any change in the Seller’s name or any other change requiring the amendment of UCC financing statements, a notice setting forth such changes and the effective date thereof;

(vii) such other information respecting the Pool Receivables, the Related Security (including inventory reports by branch, Obligor, vehicle identification number, and other descriptions sufficient to identify the Related Security) or the condition of operations, financial or otherwise, of the Seller or AFC as the Agent or any Purchaser Agent may from time to time reasonably request;

(viii) promptly after the Seller obtains knowledge thereof, notice of any litigation, regulatory ruling, default under any Originating Lender Sale Agreement or other event which could reasonably be expected to prevent any Originating Lender from originating Receivables or transferring Receivables to the Originator following origination;

(ix) promptly after the Seller obtains knowledge thereof, notice of the commencement of any proceedings instituted by or against any of the Seller, the Servicer or the Originator, as applicable, in any federal, state or local court or before any governmental body or agency, or before any arbitration board, in which the amount involved, in the case of the Servicer or Originator, is $500,000 or more and not covered by insurance or in which injunctive or similar relief is sought or any litigation or proceeding relating to any Transaction Document;

(x) promptly after the occurrence thereof, notice of any event or circumstance that could reasonably be expected to have a Material Adverse Effect;

(xi) notice of any material change to the Credit and Collection Policy or material change to the standard operation practices or procedures;

(xii) any amendment, waiver, extension, termination or replacement of the KAR Credit Facility (with a copy thereof) and an execution copy of the underlying credit agreement with respect to the KAR Credit Facility, in each case, upon execution thereof;

(xiii) as soon as possible and in any event within 30 days after the Seller knows or has reason to know of: (i) the occurrence or expected occurrence of any



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Reportable Event with respect to any Plan that is a Single Employer Plan, a failure to make any required contribution to a Plan, the creation of any lien in favor of the Pension Benefit Guaranty Corporation or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the Pension Benefit Guaranty Corporation or the Seller or any ERISA Affiliate or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of any Plan;

(xiv) as soon as available and in any event upon the earlier to occur of (x) 45 days following the end of a fiscal quarter (90 days, in the case of the fourth fiscal quarter in any fiscal year) and (y) the day a compliance certificate is delivered pursuant to the KAR Credit Facility, a compliance certificate setting forth computations in reasonable detail satisfactory to the Majority Purchasers demonstrating compliance with the financial covenants of KAR thereunder; and

(xv) promptly after any changes, the current list of Excluded Receivables.

(m) Separate Corporate Existence . Each of the Seller and AFC hereby acknowledges that the Purchasers, the Agent and the Purchaser Agents are entering into the transactions contemplated by the Agreement and the Transaction Documents in reliance upon the Seller’s identity as a legal entity separate from AFC. Therefore, from and after the date hereof, the Seller and AFC shall take all reasonable steps to continue the Seller’s identity as a separate legal entity and to make it apparent to third Persons that the Seller is an entity with assets and liabilities distinct from those of AFC, the Originator and any other Person, and is not a division of AFC or any other Person. Without limiting the generality of the foregoing and in addition to and consistent with the covenant set forth in paragraph (a) of this Exhibit IV , the Seller and AFC shall take such actions as shall be required in order that:

(i) The Seller will be a limited purpose corporation whose primary activities are restricted in its articles of incorporation to purchasing Receivables from the Originator, entering into agreements for the servicing of such Receivables, selling undivided interests in such Receivables and conducting such other activities as it deems necessary or appropriate to carry out its primary activities;

(ii) Not less than one member of Seller’s Board of Directors (the “ Independent Directors ”) shall be individuals who are not direct, indirect or beneficial stockholders, officers, directors, employees, affiliates, associates, customers or suppliers of the Originator or any of its Affiliates. The Seller’s Board of Directors shall not approve, or take any other action to cause the commencement of a voluntary case or other proceeding with respect to the Seller under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law, or the appointment of or taking possession by, a receiver, liquidator, assignee, trustee, custodian, or other similar official for the Seller unless in each case the Independent Directors shall approve the taking of such action in writing prior to the taking of such action. The Independent Directors’ fiduciary duty shall be to the Seller (and creditors) and not to the Seller’s shareholders in respect of any decision of the type described in the preceding sentence.



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In the event an Independent Director resigns or otherwise ceases to be a director of the Seller, there shall be selected a replacement Independent Director who shall not be an individual within the proscriptions of the first sentence of this clause (ii) or any individual who has any other type of professional relationship with the Originator or any of its Affiliates or any management personnel of any such Person or Affiliate and who shall be (x) a tenured professor at a business or law school, (y) a retired judge or (z) an established independent member of the business community, having a sound reputation and experience relative to the duties to be performed by such individual as an Independent Director;

(iii) No Independent Director shall at any time serve as a trustee in bankruptcy for Originator or any Affiliate thereof;

(iv) Any employee, consultant or agent of the Seller will be compensated from the Seller’s own bank accounts for services provided to the Seller except as provided herein in respect of the Servicing Fee. The Seller will engage no agents other than a Servicer for the Receivables, which Servicer will be fully compensated for its services to the Seller by payment of the Servicing Fee;

(v) The Seller will contract with the Servicer to perform for the Seller all operations required on a daily basis to service its Receivables. The Seller will pay the Servicer a monthly fee based on the level of Receivables being managed by the Servicer. The Seller will not incur any material indirect or overhead expenses for items shared between the Seller and the Originator or any Affiliate thereof which are not reflected in the Servicing Fee. To the extent, if any, that the Seller and the Originator or any Affiliate thereof share items of expenses not reflected in the Servicing Fee, such as legal, auditing and other professional services, such expenses will be allocated to the extent practical on the basis of actual use or the value of services rendered, and otherwise on a basis reasonably related to the actual use or the value of services rendered, it being understood that Originator shall pay all expenses relating to the preparation, negotiation, execution and delivery of the Transaction Documents, including, without limitation, legal and other fees;

(vi) The Seller’s operating expenses will not be paid by Originator or any Affiliate thereof unless the Seller shall have agreed in writing with such Person to reimburse such Person for any such payments;

(vii) The Seller will have its own separate mailing address and stationery;

(viii) The Seller’s books and records will be maintained separately from those of the Originator or any Affiliate thereof;

(ix) Any financial statements of the Originator or KAR which are consolidated to include the Seller will contain detailed notes clearly stating that the Seller is a separate corporate entity and has sold ownership interests in the Seller’s accounts receivable;



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(x) The Seller’s assets will be maintained in a manner that facilitates their identification and segregation from those of the Originator and any Affiliate thereof;

(xi) The Seller will strictly observe corporate formalities in its dealings with the Originator and any Affiliate thereof, and funds or other assets of the Seller will not be commingled with those of the Originator or any Affiliate thereof. The Seller shall not maintain joint bank accounts or other depository accounts to which the Originator or any Affiliate thereof (other than AFC in its capacity as Servicer) has independent access and shall not pool any of the Seller’s funds at any time with any funds of the Originator or any Affiliate thereof;

(xii) The Seller shall pay to the Originator the marginal increase (or, in the absence of such increase, the market amount of its portion) of the premium payable with respect to any insurance policy that covers the Seller and any Affiliate thereof, but the Seller shall not, directly or indirectly, be named or enter into an agreement to be named, as a direct or contingent beneficiary or loss payee, under any such insurance policy, with respect to any amounts payable due to occurrences or events related to the Originator or any Affiliate thereof (other than the Seller); and

(xiii) The Seller will maintain arm’s length relationships with the Originator and any Affiliate thereof. The Originator or any Affiliate thereof that renders or otherwise furnishes services to the Seller will be compensated by the Seller at market rates for such services. Neither the Seller nor the Originator or any Affiliate thereof will be or will hold itself out to be responsible for the debts of the other or the decisions or actions respecting the daily business and affairs of the other.

(n) Mergers, Acquisitions, Sales, etc .

(i) The Seller shall not:

(A) be a party to any merger or consolidation, or directly or indirectly purchase or otherwise acquire, whether in one or a series of transactions, all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, or sell, transfer, assign, convey or lease any of its property and assets (including, without limitation, any Pool Receivable or any interest therein) other than pursuant to this Agreement;

(B) make, incur or suffer to exist an investment in, equity contribution to, loan, credit or advance to, or payment obligation in respect of the deferred purchase price of property from, any other Person, except for obligations incurred pursuant to the Transaction Documents; or

(C) create any direct or indirect Subsidiary or otherwise acquire direct or indirect ownership of any equity interests in any other Person.



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(o) Restricted Payments .

(i) General Restriction . Except in accordance with subparagraph (ii) , the Seller shall not (A) purchase or redeem any shares of its capital stock, (B) declare or pay any Dividend or set aside any funds for any such purpose, (C) prepay, purchase or redeem any subordinated indebtedness of the Seller, (D) lend or advance any funds or (E) repay any loans or advances to, for or from the Originator. Actions of the type described in this clause (i) are herein collectively called “ Restricted Payments ”.

(ii) Types of Permitted Payments . Subject to the limitations set forth in clause (iii) below, the Seller may make Restricted Payments so long as such Restricted Payments are made only to the Originator and only in one or more of the following ways:

(A) Seller may make cash payments (including prepayments) on the Company Note in accordance with its terms; and

(B) if no amounts are then outstanding under the Company Note, the Seller may declare and pay Dividends.

(iii) Specific Restrictions . The Seller may make Restricted Payments only out of Collections paid or released to the Seller pursuant to Section 1.4(b) . Furthermore, the Seller shall not pay, make or declare:

(A) any Dividend if, after giving effect thereto, Seller’s Tangible Net Worth would be less than [*]; or

(B) [*]

(p) Use of Seller’s Share of Collections . Subject to clause (o) above, the Seller shall apply its share of Collections to make payments in the following order of priority: first , the payment of its expenses (including, without limitation, the obligations payable to Purchasers, the Affected Persons, the Agent, the Purchaser Agents and the Agent under the Transaction Documents), second , the payment of accrued and unpaid interest on the Company Note, third , the payment of the outstanding principal amount of the Company Note, and fourth , other legal and valid corporate purposes permitted by the Agreement.

(q) Amendments to Certain Documents .

(i) The Seller shall not amend, supplement, amend and restate, or otherwise modify the Purchase and Sale Agreement, the Company Note, any other document executed under the Purchase and Sale Agreement, the Deposit Account Agreements, the Backup Servicing Agreement, the Backup Servicing Fee Letter (if any) or the Seller’s articles of incorporation or by-laws, except (A) in accordance with the terms of such document, instrument or agreement and (B) with the prior written consent of the Agent. The Seller shall obtain confirmation of the then–current rating of the Facility from any Rating Agency rating the Facility prior to amending the Seller’s articles of incorporation.



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(ii) The Servicer shall maintain a complete list of Excluded Receivables and shall update such list on a timely basis for all changes thereto.

(iii) The Originator shall not enter into, or otherwise become bound by, any agreement, instrument, document or other arrangement that restricts its right to amend, supplement, amend and restate or otherwise modify, or to extend or renew, or to waive any right under, this Agreement or any other Transaction Document.

(r) Incurrence of Indebtedness . Except for Debt incurred pursuant to the Company Note and liabilities incurred pursuant to or in connection with the Transaction Documents or otherwise permitted therein, the Seller shall not (i) create, incur or permit to exist any Debt or liability, (ii) cause or permit to be issued for its account any letters of credit or bankers’ acceptances, or (iii) enter into any swap or derivative contract.

(s) Lot Checks . The Seller shall, or shall cause the Servicer to, conduct Lot Checks of the Obligors according to the Originator’s customary practices or such more frequent intervals as may reasonably be requested by the Agent.

(t) Cash Collateral Amounts . With respect to each Eligible Receivable, if the related Contract (or related documentation) includes a “cash collateral” feature, then all such “cash collateral” shall be deposited to the Deposit Accounts held at [*] (numbered [*] and [*]) and such amounts shall be used to secure the obligations of the related Obligor.

(u) Article 122a . On any date on which the Net Receivables Pool Balance is greater than zero (1) AFC shall own 100% of the outstanding equity (including amounts represented by the Loss Reserve) of the Seller; (2) the equity in the Seller shall represent at least [*] of the Net Receivables Pool Balance (i.e., by virtue of the Loss Percentage being in excess of [*]); (3) AFC shall not enter into any credit risk mitigation short positions or any other hedges with respect to its equity interest in the Seller or the Eligible Receivables (including amounts represented by the Loss Reserve); (4) in each Servicer Report, AFC shall represent (a) that it continues to own 100% of the outstanding equity of the Seller and (b) that no credit risk mitigation, short positions or any other hedges with respect to its equity interest in the Seller or the Eligible Receivables (including amounts represented by the Loss Reserve) have been entered into; and (5) AFC shall provide to any Purchaser or Purchaser Agent which is subject to European Union Directive 2006/48/EC (the “CRD”) all information which such Purchaser or Purchaser Agent reasonably requests or requires in order for such Purchaser or Purchaser Agent to comply with its obligations under Article 122(a)(4) and (5) of the CRD.

(v) The Servicer shall maintain in effect and enforce policies and procedures designed to ensure compliance by the Seller Parties and each of their respective Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions. The Servicer covenants and agrees not to use, and shall procure that none of the Seller Parties, their Subsidiaries or their respective directors, officers, employees and agents shall use, the proceeds of any purchase of a Participation hereunder (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any



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Sanctioned Person or in any Sanctioned Country, or (C) in any manner that would result in the violation of any Sanctions applicable to any party hereto.



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EXHIBIT V

TERMINATION EVENTS

Each of the following shall be a “Termination Event”:

(a) Any Person which is the Servicer shall fail to (1) make when due any payment or deposit to be made by it under the Agreement or any other Transaction Document or (2) set aside or allocate all accrued and unpaid Program Fee, Discount or Servicing Fee in accordance with Section 1.4(b) and in each case, such failure shall remain unremedied for two Business Days after the earlier of (i) the Servicer’s knowledge of such failure and (ii) notice to the Servicer of such failure; or

(b) The Seller shall fail (i) to transfer to any successor Servicer when required any rights, pursuant to the Agreement, which the Seller then has with respect to the servicing of the Pool Receivables, or (ii) to make any payment required under the Agreement or any other Transaction Document, and in either case such failure shall remain unremedied for two Business Days after notice or discovery thereof; or

(c) Any representation or warranty made or deemed made by the Seller or the Servicer (or any of their respective officers) under or in connection with the Agreement or any other Transaction Document or any information or report delivered by the Seller or the Servicer pursuant to the Agreement or any other Transaction Document shall prove to have been incorrect, incomplete (with respect to such information or report delivered) or untrue in any material respect when made or deemed made or delivered; provided , however , if the violation of this paragraph (c) by the Seller or the Servicer may be cured without any potential or actual detriment to any Purchaser, the Agent, any Purchaser Agent, the Backup Servicer or any Program Support Provider, the Seller or the Servicer, as applicable, shall have 30 days from the earlier of (i) such Person’s knowledge of such failure and (ii) notice to such Person of such failure to so cure any such violation before a Termination Event shall occur so long as such Person is diligently attempting to effect such cure; or

(d) The Seller or the Servicer shall fail to perform or observe any other material term, covenant or agreement contained in the Agreement or any other Transaction Document on its part to be performed or observed and any such failure shall remain unremedied for 30 days after the earlier of (i) such Person’s knowledge of such failure and (ii) notice to such Person of such failure (or, with respect to a failure to deliver the Servicer Report or the Portfolio Certificate pursuant to the Agreement, such failure shall remain unremedied for five days); or

(e) (i) A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Debt of the Seller, AFC or KAR or (ii) a default shall occur in the performance or observance of any obligation or condition with respect to such Debt if the effect of such default is to accelerate the maturity of any such Debt, and, in the case of either clause (i) or clause (ii) , the Debt with respect to which non-payment and/or non-performance shall have occurred exceeds, at any point in time, with respect to the Seller or AFC, $1,000,000 in the aggregate for all such occurrences or, with respect to KAR, $35,000,000, in the aggregate for all such occurrences; or



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(f) The Agreement or any purchase or any reinvestment pursuant to the Agreement shall for any reason (other than pursuant to the terms hereof) (i) cease to create, or the Aggregate Participation shall for any reason cease to be, a valid and enforceable perfected undivided percentage ownership interest to the extent of the Aggregate Participation in each Pool Receivable free and clear of any Adverse Claim, excepting only Permitted Liens and the Collections with respect thereto and the Seller’s right, title and interest in, to and under the Related Security and the proceeds thereof, or (ii) cease to create with respect to all of Seller’s right, title and interest in, to and under the items described in Section 1.2(d)(A) – (F) , or the interest of the Agent (for the benefit of the Secured Parties) with respect to such items shall cease to be, a valid and enforceable first priority perfected security interest, and in the case of the Pool Receivables, free and clear of any Adverse Claim, excepting only Permitted Liens; or

(g) The Originator, KAR or Seller shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Originator, KAR or Seller seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 45 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Originator, KAR or Seller shall take any corporate action to authorize any of the actions set forth above in this paragraph (g) ; or

(h) As of the last day of any calendar month, the arithmetic average of the Default Ratios for the most recent [*] shall exceed [*]or the Default Ratio as of the last day of any calendar month shall exceed [*]; or

(i) As of the last day of any calendar month, the arithmetic average of the Delinquency Ratios for the most recent [*] shall exceed [*] or the Delinquency Ratio as of the last day of any calendar month shall exceed [*]; or

(j) The arithmetic average of the Net Spread for the most recent [*] shall be [*]; or

(k) At any time the Aggregate Participation exceeds 100% and such condition shall continue unremedied for five days after any date any Servicer Report or Portfolio Certificate is required to be delivered; or

(l) A Change in Control shall occur; or

(m) (i) Any “accumulated funding deficiency” (within the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (ii) a Reportable Event shall occur with respect to, or proceedings shall



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commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Purchasers, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iii) the Seller or any ERISA Affiliate shall, or in the reasonable opinion of the Majority Purchasers, is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan, (iv) the Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Internal Revenue Code with regard to any assets of the Seller or any ERISA Affiliate and such lien shall not have been released within ten Business Days, or the Pension Benefit Guaranty Corporation shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of ERISA or perfect a lien under Section 302(f) of ERISA with regard to any of the assets of Seller or any ERISA Affiliate, or (v) any other adverse event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i), (ii), (iii), (iv) and (v) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to involve an aggregate amount of liability to the Seller or an ERISA Affiliate in excess of $10,000,000; or

(n) The Tangible Net Worth of the Seller shall be less than [*] or the Tangible Net Worth of the Originator shall be less than [*] (provided that if GAAP is adjusted such that leases that were previously treated as operating leases are treated as debt, the parties shall negotiate in good faith to adjust this provision to reflect a level which takes into consideration such change); or

(o) Any material adverse change shall occur in the reasonable business judgment of the Agent or the Majority Purchasers in the collectibility of the Pool Receivables or the business, operations, property or financial condition of the Originator or the Seller; or

(p) The Termination Date shall occur or any Purchase and Sale Termination Event (as defined in the Purchase and Sale Agreement) shall occur (whether or not waived by the Seller); or

(q) The Performance Guaranty shall cease to be in full force and effect with respect to KAR, KAR shall fail to comply with or perform any provision of the Performance Guaranty, or KAR (or any Person by, through or on behalf of KAR) shall contest in any manner the validity, binding nature or enforceability of the Performance Guaranty with respect to KAR; or

(r) the sum of all of AFC’s Debt including (i) intercompany loans between AFC and KAR, but excluding any guarantee of KAR’s Debt under the KAR Credit Facility, and (ii) the outstanding balance of any other recourse transactions (which excludes the Investment of the Aggregate Participation under this Agreement and any Canadian securitization obligations) exceeds the sum of [*] (provided that if GAAP is adjusted such that leases that were previously treated as operating leases are treated as debt, the parties shall negotiate in good faith to adjust this provision to reflect a level which takes into consideration such change); or

(s) AFC’s Debt (excluding guarantees) to equity ratio is greater than [*] (provided that if GAAP is adjusted such that leases that were previously treated as operating



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leases are treated as debt, the parties shall negotiate in good faith to adjust this provision to reflect a level which takes into consideration such change); or

(t) The aggregate Outstanding Balances of Eligible Receivables shall be less than $100,000,000; or

(u) The amount on deposit in the Cash Reserve Account shall at any time fail to equal or exceed the Cash Reserve for a period of [*]; or

(v) (i) any of the Originator, the Seller or the Servicer shall have asserted that any of the Transaction Documents to which it is a party is not valid and binding on the parties thereto; or (ii) any court, governmental authority or agency having jurisdiction over any of the parties to any of the Transaction Documents or any property thereof shall find or rule that any material provisions of any of the Transaction Documents is not valid and binding on the parties thereto and all appeals therefrom have been decided or the time to appeal has run; or

(w) the Backup Servicer shall resign or be terminated and no successor Backup Servicer reasonably acceptable to the Agent shall have been appointed pursuant to a replacement Backup Servicing Agreement within 90 days of such resignation or termination; unless on or prior to the first day in which a Backup Servicer is required to be appointed pursuant to this paragraph (w) KAR’s senior unsecured debt shall be rated at least “BBB-” by S&P and “Baa3” by Moody’s; provided , that a Termination Event shall be deemed to occur if no Backup Servicer reasonably acceptable to the Agent shall have been appointed within 90 days following any subsequent withdrawal, suspension or downgrade of such senior unsecured debt ratings of KAR below “BBB-” by S&P or below “Baa3” by Moody’s or, if the applicable rating is “BBB-” by S&P or “Baa3” by Moody’s, the placement of such ratings on credit watch or similar notation; or

(x) the occurrence of a KAR Financial Covenant Termination Event; or

(y) as of the last day of any calendar month, the arithmetic average of the Payment Rate for the most recent [*] shall be less than [*]; or

(z) As reported on its consolidated balance sheet, AFC shall fail to maintain (as measured as of the last Business Day of each calendar week) cash and cash equivalents (including, without limitation, any intercompany receivable payable by KAR to AFC upon demand) of at least [*], at least [*] of which must constitute unrestricted cash (i.e., cash that is neither (i) pledged to a third party unrelated to this facility, nor (ii) in an account in which a third party unrelated to this facility has a perfected security interest).



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EXHIBIT VI

PORTFOLIO CERTIFICATE

AFC Funding Corporation




To:	Bank of Montreal, as Agent, Fairway Finance as Purchaser; BMO Capital Markets as Fairway Finance Purchaser Agent; Bank of Montreal as Purchaser; PNC Bank as Purchaser; Chariot Funding as Purchaser; JPMorgan Chase Bank as Chariot Funding Purchaser Agent; Thunder Bay Funding as Purchaser; RBC Capital Markets as Thunder Bay Funding Purchaser Agent; and Fifth Third Bank as Purchaser


Reference is made to the 7th Amended and Restated Receivables Purchase Agreement, dated as of December 20, 2016, (herein, as amended or otherwise modified from time to time, called the "Receivables Purchase Agreement"), among AFC Funding Corp. (the "Seller"), Automotive Finance Corporation (the "Servicer"), the entities from time parties thereto as Purchasers or Purchase Agents thereunder, and Bank of Montreal (the "Agent"). Capitalized terms used but not otherwise defined herein are used as defined in the Receivables Purchase Agreement.

					Date
The Seller hereby certifies and warrants to you that the following is a true and correct computation as of:

	current Investment
	reduced by, the amount of cash in the [*] at the end of business on the last Business Day of the prior calendar week, that was wired to the respective Purchaser on the immediately following Business Day to pay down the Purchaser's Investment.

	plus, with respect to a request for an increase of the Purchasers' Investments, the amount of such increase.
		Investment after funding activity		1A

	Current balance of unfufilled purchases subject to a Deferred Purchase Date			1B

	Loss Reserve [*]			1C


			TOTAL (1)

Net Receivables Pool Balance

	Total of all Receivables in the Receivables Pool (A) [Note: these letters correspond to the Servicer Report.]

	Reduction for: Specified Ineligible Receivables (B)

	Reduction for: Title Attached Receivables (D)

	Reduction for: ineligible Receivables (F)

	Reduction for: Normal Concentration limit (H)



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	Reduction for: Special Concentration limit - [*]

	Reduction for: Special Concentration limit - [*]

	Reduction for: Special Concentration limit - [*]

	Reduction for: Special Concentration limit - [*]

	Reduction for: Special Concentraion limit - [*]

	Net Receivables Pool Balance			2A

Liquidation Account balance excess/(deficit)
	Amount of Collections on deposit in the Liquidation Account (other than amounts transferred thereto from the Deposit Accounts to pay Discount, Servicing Fee, Unaffiliated Servicing Fee, Backup Servicing Fee, Transition Expenses and Program Fees, Note Placement Fee and Indemnified Amounts)			2B

			TOTAL (2)

Aggregate Participation TEST:			(1) / (2)
	Is Aggregate Participation less than or equal to 100%?

Cash Reserve ([*])
		Is Level One Trigger applicable?

	Cash Reserve Account balance			3A

	Cash Reserve Required Amount (1A * Cash Reserve %)			3B

Cash Reserve TEST: (3A must be greater than or equal to 3B)

IN WITNESS WHEREOF, the SELLER has caused this Portfolio Certificate to be executed and delivered by the Servicer. In addition, as of the date of this Portfolio Certificate, both AFC and AFC Funding are in compliance with all Representations & Warranties and Covenants. Also, no Termination Events or Unmatured Termination Events have occurred under the RPA.

			Automotive Finance Corporation, as Servicer

			By: _________________________________
			Name:
			Title:



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EXHIBIT VII

PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS

In addition to the representations, warranties and covenants contained in the Agreement, to induce Purchasers and Agent to enter into the Agreement and, in the case of Purchasers, to purchase the Participation hereunder, the Seller hereby represents, warrants and covenants to Agent and the Purchasers as to itself as follows on the Closing Date and on the date of each purchase and reinvestment in the Participation thereafter:

General

1. The Agreement creates a valid and continuing security interest (as defined in the Indiana UCC) in the Pool Receivables in favor of the Agent, for the benefit of the Secured Parties, which security interest is prior to all other Adverse Claims, and is enforceable as such as against creditors of and purchasers from the Seller.

2. The Pool Receivables constitute “accounts,” “payment intangibles,” “general intangibles,” “instruments” or “tangible chattel paper,” within the meaning of the Indiana UCC.

3. The Cash Reserve Account, the Deposit Accounts and the Liquidation Account and all subaccounts of such accounts, constitute either a “deposit account” or a “securities account” within the meaning of the Indiana UCC.

4. The Originator or the Originating Lender, as applicable, thereof has perfected its security interest against the Obligors in the property securing the Pool Receivables (to the extent that a security interest in such property can be perfected by the filing of a financing statement).

Creation

5. The Seller owns and has good and marketable title to the Pool Receivables free and clear of any Adverse Claim, claim or encumbrance of any Person, excepting only Permitted Liens.

6. Originator has received all consents and approvals to the sale of the Pool Receivables to the Seller required by the terms of the Receivables that constitute instruments or payment intangibles.

Perfection

7. Each of the Originator and the Seller has caused or will have caused, within ten days after the effective date of the Agreement, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the sale of the Receivables from Originator to the Seller pursuant to the Purchase and Sale Agreement and the security interest therein granted by the Seller to the Agent, for the benefit of the Secured Parties, hereunder; and Originator or Originating Lender has in its



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possession the original copies of such instruments or tangible chattel paper that constitute or evidence the Pool Receivables, and all financing statements referred to in this paragraph contain a statement to the effect that: A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Agent, for the benefit of the Secured Parties.

8. With respect to Pool Receivables that constitute an instrument or tangible chattel paper:

Such instruments or tangible chattel paper is in the possession of the Servicer and the Agent has received a written acknowledgment from the Servicer that the Servicer is holding such instruments or tangible chattel paper solely on behalf and for the benefit of the Agent, on behalf of the Secured Parties, and each of the Originator and the Seller has caused or will have caused, within ten days after the effective date of the Agreement, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law, and all financing statements referred to in this paragraph contain a statement to the effect that: A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Agent, for the benefit of the Secured Parties.

9. With respect to the Cash Reserve Account, the Deposit Accounts and the Liquidation Account and all subaccounts of such accounts that constitute deposit accounts, either:

(i) The Seller has delivered to the Agent, for the benefit of the Secured Parties, a fully executed agreement pursuant to which the bank maintaining the deposit accounts has agreed to comply with all instructions originated by the Agent, for the benefit of the Secured Parties, directing disposition of the funds in such accounts without further consent by the Seller; or

(ii) The Seller has taken all steps necessary to cause the Agent, on behalf of the Secured Parties, to become the account holder of such accounts.

10. With respect to the Cash Reserve Account, the Deposit Accounts and the Liquidation Account or subaccounts of such accounts that constitute “securities accounts” or “securities entitlements” within the meaning of the Indiana UCC:

(i) The Seller has delivered to the Agent, for the benefit of the Secured Parties, a fully executed agreement pursuant to which the securities intermediary has agreed to comply with all instructions originated by the Agent, for the benefit of the Secured Parties, relating to such account without further consent by the Seller; or

(ii) The Seller has taken all steps necessary to cause the securities intermediary to identify in its records the Agent, for the benefit of the Secured Parties, as the person having a security entitlement against the securities intermediary in each of such accounts.



	EX-VII- 2

I\11418185.1

Priority

11. Other than the transfer of the Receivables to the Seller under the Purchase and Sale Agreement and the security interest granted to the Agent, for the benefit of the Secured Parties, pursuant to this Agreement, neither the Seller nor the Originator has pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Pool Receivables or the Cash Reserve Account, the Deposit Accounts, the Liquidation Account or any subaccount of such accounts. Neither the Seller nor the Originator has authorized the filing of, or is aware of any financing statements against the Seller or the Originator that include a description of collateral covering the Pool Receivables or the Cash Reserve Account, the Deposit Accounts, the Liquidation Account or any subaccount of such accounts other than any financing statement relating to the security interest granted to the Agent, for the benefit of the Secured Parties, hereunder or that has been terminated.

12. Neither the Seller nor the Originator is aware of any judgment, ERISA or tax lien filings against either the Seller or the Originator.

13. None of the instruments or tangible chattel paper that constitute or evidence the Pool Receivables has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Seller or the Agent, for the benefit of the Secured Parties.

14. Neither the Cash Reserve Account, the Deposit Accounts, the Liquidation Account nor any subaccount of such accounts are in the name of any person other than the Seller or the Agent, on behalf of the Secured Parties. The Seller has not consented to the securities intermediary of any such account to comply with entitlement orders of any person other than the Agent, on behalf of the Secured Parties.

15. Survival of Perfection Representations . Notwithstanding any other provision of the Agreement or any other Transaction Document, the Perfection Representations contained in this Exhibit VII shall be continuing, and remain in full force and effect (notwithstanding any termination of the commitments or any replacement of the Servicer or termination of Servicer’s rights to act as such) until such time as Investments and all other obligations under the Agreement have been finally and fully paid and performed.

16. No Waiver . The parties to the Agreement: (i) shall not, without obtaining a confirmation of the then-current rating of the Facility, waive any of the Perfection Representations; and (ii) shall provide each Rating Agency rating the Facility with prompt written notice of any breach of the Perfection Representations, and shall not, without obtaining a confirmation of the then-current rating of the Facility (as determined after any adjustment or withdrawal of the ratings following notice of such breach), waive a breach of any of the Perfection Representations.

17. Servicer to Maintain Perfection and Priority . The Servicer covenants that, in order to evidence the interests of the Agent, on behalf of the Secured Parties, under this Agreement, Servicer shall take such action, or execute and deliver such instruments (other than effecting a Filing (as defined below), unless such Filing is effected in accordance with this



	EX-VII- 3

I\11418185.1

paragraph) as may be necessary or advisable including, without limitation, such actions as are requested by the Agent, on behalf of the Secured Parties, to maintain and perfect, as a first priority interest (subject only to Permitted Liens), the Agent’s, on behalf of the Secured Parties’, security interest in the Pool Receivables and Collections with respect thereto and the Seller’s right, title and interest in, to and under the Related Security and the proceeds thereof. Servicer shall, from time to time and within the time limits established by law, prepare and present to the Agent, on behalf of the Secured Parties, for the Agent, on behalf of the Secured Parties, to authorize (based in reliance on the opinion of counsel hereinafter provided for) the Servicer to file, all financing statements, amendments, continuations, initial financing statements in lieu of a continuation statement, terminations, partial terminations, releases or partial releases, or any other filings necessary or advisable to continue, maintain and perfect the Agent’s, on behalf of the Secured Parties’, security interest in the Pool Receivables and Collections with respect thereto and the Seller’s right, title and interest in, to and under the Related Security and the proceeds thereof as a first-priority interest (subject only to Permitted Liens) (each a “ Filing ”). Servicer shall present each such Filing to the Agent, on behalf of the Secured Parties, together with (x) an opinion of counsel as to perfection and such other matters as the Agent may reasonably request with respect to such Filing, and (y) a form of authorization for the Agent’s, on behalf of the Secured Parties’ signature. Upon receipt of such opinion of counsel and form of authorization, the Agent, on behalf of the Secured Parties, shall promptly authorize in writing Servicer to, and Servicer shall, effect such Filing under the Uniform Commercial Code without the signature of Originator, the Seller, or the Agent, on behalf of the Secured Parties where allowed by applicable law. Notwithstanding anything else in the Agreement to the contrary, the Servicer shall not have any authority to effect a Filing without obtaining written authorization from the Agent, on behalf of the Secured Parties, in accordance with this paragraph (17).



	EX-VII- 4

I\11418185.1

SCHEDULE I

[RESERVED]



	SCH-I-1

I\11418185.1

SCHEDULE II

DEPOSIT BANKS AND DEPOSIT ACCOUNTS



Deposit Bank	Deposit Account
[*]	[*]
[*]	[*]
[*]	[*]



	SCH-II-1

I\11418185.1

SCHEDULE III

NET RECEIVABLES POOL BALANCE CALCULATIONS



	Net Receivables Pool Balance Calculation

A.	Total Pool Receivables		(A)

B.	Specified Ineligible Receivables		(B)

C.	Total Pool Receivables excluding Specified Ineligible Receivables	(A) - (B)	(C)

D.	Title Attached Receivables		(D)
				Prior ME Recvs:
E.	Receivables subject to Back-up Servicing Fee	(C) - (D)	(E)
	Note: In calculating NRPB, there should be no duplication of amounts previously reduced from a different category.
F.	ineligible Receivables
	Non-US residents, governmental, or other ineligible obligors	f1
	Delinquent Receivables	f2
	Defaulted Receivables	f3
	Obligors with [*] Defaulted Receivables	f4
	Short-pays	f5
	NSF	f6
	Ineligible Contract Terms	f7
	Over [*] outstanding	f8
	Rental [*] on books	f9
	Other ineligible vehicle types	f10
	Sold out-of-trust	f11



	SCH-III- 1

I\11418185.1



	Obligors subject to bankruptcy or Insolvency Proceedings						f12
	Rental Receivables ([*])						f13
	Rental Receivables ([*])						f14
	Term [*] payoff						f15
				Total ineligible Receivables			(sum f)		(F)

G.	Eligible Receivables						(E) - (F)		(G)


H.	Normal Concentration Percentage
	Obligor Name	Amount	Also, has Rental? Y/N	Concentration limit	Normal Concentration Percentage	Excess concentrations
	Retail Obligors
					[] (G)	0	h1
					[] (G)	0	h2
					[] (G)	0	h3
					[] (G)	0	h4
					[] (G)	0	h5
					[] (G)	0	h6
					[] (G)	0	h7
	Rental Obligors
					[] (G)	0	h8
					[] (G)	0	h9
					[] (G)	0	h10
					[] (G)	0	h11	(sum h)
								0	(H)
								Reduction to NRPB



	SCH-III- 2

I\11418185.1



I.	Special Concentration Percentage - Special Obligors
	Obligor Name	Amount	Also, has Rental? Y/N	Concentration Limit	Special Concentration Percentage	Excess concentrations
	Retail Obligors
					[] (G)	0	i1
					[] (G)	0	i2
					[] (G)	0	i3
					[] (G)	0	i4
					[] (G)	0	i5
					[] (G)	0	i6
					[] (G)	0	i7
					[] (G)	0	i8
					[] (G)	0	i9
	Rental Obligors
					[] (G)	0	i10
					[] (G)	0	i11
					[] (G)	0	i12
					[] (G)	0	i13	(sum i)
								0	(I)
								Reduction to NRPB



	SCH-III- 3

I\11418185.1



J.	All Obligors exceeding [] Normal Concentration limit (aggregate concentration limit [])
	Obligor Name	Amount		Concentration Limit	Normal Concentration Percentage	Value of Receivables included for Obligors exceeding [*]
					[] (G)		j1
					[] (G)		j2
					[] (G)		j3
					[] (G)		j4
					[] (G)		j5
					[] (G)		j6
					[] (G)		j7
					[] (G)		j8
					[] (G)		j9
					[] (G)		j10
					[] (G)		j11
					[] (G)		j12
					[] (G)		j13

	Total of Special Obligors exceeding [*]		(i)		(sum j)
	[*] Special Concentration Percentage x (G)		(ii)		if (i) > (ii), then (ii) - (i)			0	(J)
	Excess concentration							Reduction to NRPB



	SCH-III- 4

I\11418185.1



K.	Special Concentration Percentage - Specialty Vehicles

	Total Motorcycles (including all-terrain vehicles)		(i)
	All-Terrain Vehicles		(ii)
	All-Terrain Vehicles advance Limit		(iii)	[*]
	All Terrain Vehicles discounted amount		(ii) x (iii)		(iv)
	Total Motorcycles discounted amount			(i) - (ii) + (iv)			(x)
		Discounted amount				(ii) ([]-(iii))		k1

	Salvage Vehicles		(v)
	Advance limit		(vi)	[*]
	Salvage Vehicles discounted amount				(v) x (vi)		(y)
		Discounted amount				(v) ([]-(vi))		k2

	Marine Crafts		(vii)
	Advance limit		(viii)	[*]
	Marine Crafts discounted amount			(vii) x (viii)			(z)
		Discounted amount				(vii) ([]-(viii))		k3



	SCH-III- 5

I\11418185.1



Specialty Vehicle Type		Amount		Concentration limit	Special Concentration Percentage	Excess concentrations
	[*]		l1		[] (G)	0	k4
	[*]		l2		[] (G)	0	k5
	[*]		l3		[] (G)	0	k6
	[*]		l4		[] (G)	0	k7
	[*]		l5		[] (G)	0	k8
	[*]		l6		[] (G)	0	k9
	[*]		l7		[] (G)	0	k10
	Excess concentration					(sum k1 to k10)			(K)
								Reduction to NRPB

L.	[*] Specialty Vehicle Aggregate Special Concentration Percentage
Total Specialty Vehicles			(i)		sum (l1 to 17)
Excess concentration			(ii)		sum (K4 to k10)
Total Specialty Vehicles, net of Excess Concentration			(i) - (ii)		(iii)
		[*] Special Concentration Percentage x (G)			(iv)
	Excess Concentration				if (iii) > (iv), then (iv) - (iii)				(L)
								Reduction to NRPB



	SCH-III- 6

I\11418185.1



M.	Special Concentration Percentage - Rental Receivables

	Total Rental Receivables		(i)
	Obligor Rental Receivables excess concentrations		(ii)
	Total Rental Receivables, net of Obligor excess concentrations		(iii)	(i) - (ii)
	[] Special Concentration Percentage (G)		(iv)
	Excess concentration	if (iii) > (iv), then (iii) - (iv)				(M)
					Reduction to NRPB

N.	Special Concentration Percentage - Minimum Curtailment Payment

	Receivables (excluding Rental) w/ curtailment pymt [], but []		(i)
	[*] Special Concentration Percentage x (G)		(ii)
	Excess Concentration	if (i) > (ii), then (i) - (ii)		0	0	(N)
					Reduction to NRPB
O.	Special Concentration Percentage - Auction Credit

	Total Auction Credits		(i)
	[*] Special Concentration Percentage x (G)		(ii)
	Excess Concentration	if (i) > (ii), then (i) - (ii)		0	0	(O)
					Reduction to NRPB
P.	Special Concentration Percentage - Term > [*]

	Total Receivables outstanding [*]		(i)
	[*] Special Concentration Percentage x (G)		(ii)
	Excess Concentration	if (i) > (ii), then (i) - (ii)		0	0	(P)
					Reduction to NRPB
Q.	Total of discounts and excess concentrations			(Sum H through P)		(Q)


	Net Receivables Pool Balance			(G) + (Q)



	SCH-III- 7

I\11418185.1

SCHEDULE IV

[RESERVED]



	SCH-IV-1

I\11418185.1

SCHEDULE V

TAX MATTERS

None.



	SCH-V-1

I\11418185.1

SCHEDULE VI

COMPETITOR FINANCIAL INSTITUTIONS

[*]



	SCH-VI-1

I\11418185.1

ANNEX A

FORM OF PURCHASE NOTICE




			PURCHASE/PAYDOWN REQUEST
			For Settlement on:

					TRANSACTION AMOUNT
CLIENT NAME: AFC FUNDING CORPORATION			CURRENT OUTSTANDINGS:
			PURCHASE / INCREASE:
			PAYDOWN:


	PURCHASE AMOUNT	PAYDOWN AMOUNT	CURRENT OUTSTANDINGS	REQUESTED OUTSTANDINGS	MAXIMUM LIMIT
	PURCHASE AMOUNT	PAYDOWN AMOUNT	CURRENT OUTSTANDINGS	REQUESTED OUTSTANDINGS	MAXIMUM LIMIT
BK OF MONTREAL					[*]

FAIRWAY					[*]

CHARIOT					[*]

FIFTH THIRD					[*]

PNC					[*]

THUNDER BAY					[*]

TOTALS					$1,500,000,000.00


Paydowns
BMO	FAIRWAY	CHARIOT	FIFTH THIRD	PNC	THUNDER BAY

Purchases / Increases
AFC

		AFC Funding Corporation, as Seller

		By:____________________		Dated:_____________________
		Name:
		Title:



	Annex A-1

I\11418185.1

ANNEX B

FORM OF SERVICER REPORT

AFC Funding Corporation

Servicer Report

Dated:

All amounts in US Dollars

# of Days in Month:

This Servicer report is delivered pursuant to the Seventh Amended and Restated Receivables Purchase Agreement (the “RPA”) dated as of December 20, 2016 among AFC Funding Corporation, as Seller, Automotive Finance Corporation, as Servicer, the entities identified from time to time as Purchasers or Purchaser Agents, and Bank of Montreal, as Agent.

Part I

Representations & Warranties

The Servicer certifies that (i) the figures on this Servicer Report to be true and complete, (ii) no Termination Events have occurred, (iii) the Representations and Warranties are true and correct, and (iv) the Servicer has satisfied all of its obligations under the Agreement in all material respects, in each case as of the date hereof. In addition, the Servicer confirms that no subservicing arrangements exist.

(Delivered by the Servicer, on behalf of the Seller pursuant to Exhibit IV(l)(iii) of the Receivables Purchase Agreement)

Automotive Finance Corporation

By:

Date:

Name: Dwayne Price

Title: Assistant Treasurer



	Annex B- 1

I\11418185.1

Part II

Maximum Amount, Investment Amount, and Participation as of:

Total

Maximum Commitments / Maximum Amount

Commitment %

Aggregate Investment amount

Aggregate unfulfilled purchases pending in connection with Deferred Purchase Date

Cash wired from Collection Account

Aggregate Investment of Participations (1 + 2 - 3)

Loss Reserve

Net Receivable Pool Balance + excess in Liq. Acct

Participation ((4 + 5) / 6))

Part III

Receivables Rollforward and Aging Information

See details as of calendar month end in Section I below.

Part IV

Net Receivables Pool Balance

See details as of calendar month end in Section II below.

Part V

Reserves (see Section III)

Loss Reserve

Available overcollateralization

Minimum level

Cash Reserve

Available Cash Reserve

Minimum level (min % * Investment)



	Annex B- 2

I\11418185.1

Part VI

Termination Events (see Section IV)

Actual

Trigger Level

[*]

Eligible Receivables < $100 million

100,000,000

[*]

Net Spread test [*]

[*]

Net Spread test [*]

[*]

Part VII

Financial Triggers & Covenants (see Section V)

Actual

Trigger Level

Bankruptcy

Material Adverse Change

ERISA / IRS section 6323 Lien

Change in Control (AFC < 100% of Seller; KAR < 80% of AFC)

KAR Financial Covenant violation

Default / cross acceleration of corporate Debt (Seller or AFC > $1MM; KAR > $35MM)

Increase to Utilization Fee

AFC consolidated cash equivalents are at least [*] (incl [*] unrestricted cash)

Cash Reserve exceeds required amount

Level One Trigger

AFC's Debt (excluding AFC Funding & AFCI) > ([*])

[*]

Tangible Net Worth test (AFC)

[*]

Tangible Net Worth test (Seller)

[*]

Leverage ratio (Debt / equity) of AFC - quarterly

[*]



	Annex B- 3

I\11418185.1

Part VII

Reporting Requirements

Timing

Quarterly financial statements (unaudited) - KAR & AFC

[*]

Annual financial statements - KAR & AFC

[*]

KAR compliance certificate (includes Rating Agencies)

[*]

Reporting period

[*]

Reporting dates

[*]

Material changes to Servicer Report

Requires notice to Rating Agencies

Notice of Termination Event or Unmatured Termination Event

Within 3 Business Days

Notice of ERISA liens > $250,000 or Reportable Events

Promptly for liens and 30 days for reportable events

Seller, changes to name, jurisdiction or corporate structure

60 days prior to change

Litigation over $500,000

Prompt notice

List of subservicers with contact information

10 business days after end of each quarter (if other than AFC Cal, LLC)

Material changes to Credit and Collection Policy

Requires consent of Purchaser Agents

Changes to standard operating practices or procedures

Requires notice to Purchaser Agents

Changes to Excluded Receivables

Prompt notice to Purchaser Agents

SECTION I - Receivables Rollforward and Aging Information

Receivables Rollforward

Current Month

Beginning Principal Balance

Receivables Floorplanned

Principal Receipts

Write-Offs

A/R Converted to Notes

Ending Principal Balance (1 + 2 - 3 - 4 - 5)



	Annex B- 4

I\11418185.1

Finance Charge Collections

Interest

Floorplan Fee

Other Fees

Finance Charge Collections (1 + 2 + 3)

Write-Offs

Total Write-Offs

Write-Offs [*]

Total Converted to Notes

Converted to Notes [*]

Receivables Aging Report

Current Month

Current

[*] days past due

Total Receivables (1 + 2 + 3 + 4 + 5 + 6)

Average maturity (ref purposes only)

Difference

Payment Rate / Implied Turnover

[*]



	Annex B- 5

I\11418185.1

Delinquent Receivables

Receivables[*] days past due

Specified Ineligible Receivables

(Assets sold to AFC Funding Corp., but not eligible for the Net Receivables Pool Balance. These items are not included in the rollforward and are not aged)

Defaulted Receivables

Receivables [*] days past due

Obligor Information

Dismantlers

Number of active dealers

Affiliated Obligors

Average dealer size / average dealer concentration

SECTION II - Net Receivables Pool Balance

Net Receivables Pool Balance Calculation

Total Pool Receivables

(A)

Specified Ineligible Receivables

(B)

Total Pool Receivables excluding Specified Ineligible Receivables

(A) - (B)

(C)

Title Attached Receivables

(D)

Prior ME Recvs

Receivables subject to Back-up Servicing Fee

(E)



	Annex B- 6

I\11418185.1

Note: In calculating NRPB, there should be no duplication of amounts previously reduced from a different category.

ineligible Receivables

Non-US residents, governmental, or other ineligible obligors

Delinquent Receivables

Defaulted Receivables

Obligors with [*] Defaulted Receivables

Short-pays

NSF

Ineligible contract terms

Over [*] outstanding

Rental[*] on books

Other ineligible vehicle types

f10

Sold out-of-trust

f11

Obligors subject to bankruptcy or Insolvency Proceedings

f12

Rental Receivables ([*])

f13

Rental Receivables ([*])

f14

Term [*] payoff

f15

Total ineligible Receivables

(sum f)

(F)

Eligible Receivables

(E) - (F)

(G)



	Annex B- 7

I\11418185.1

Normal Concentration Percentage

Obligor Name

Amount

Also, has Rental? Y/N

Concentration limit

Normal Concentration Percentage

Excess concentrations

Retail Obligors

[*] * (G)

Rental Obligors

[*] * (G)

h10

[*] * (G)

h11

(sum h)

(H)

Reduction to NRPB



	Annex B- 8

I\11418185.1

Special Concentration Percentage - Special Obligors

Obligor Name

Amount

Also, has Rental? Y/N

Concentration limit

Special Concentration Percentage

Excess concentrations

Retail Obligors

[*] * (G)

Rental Obligors

[*] * (G)

i10

[*] * (G)

i11

[*] * (G)

i12

[*] * (G)

i13

(sum i)

(I)

Reduction to NRPB



	Annex B- 9

I\11418185.1

All Obligors exceeding [*] Normal Concentration Percentage (aggregate concentration limit [*])

Obligor Name

Amount

Concentration Limit

Normal Concentration Percentage

Value of Receivables included for Obligors exceeding [*]

[*] * (G)

j10

[*] * (G)

j11

[*] * (G)

j12

[*] * (G)

j13

Total of Special Obligors exceeding [*]

(i)

(sum j)

[*] Special Concentration Percentage x (G)

(ii)

if (i) > (ii), then (ii) - (i)

(J)

Excess concentration

Reduction to NRPB



	Annex B- 10

I\11418185.1

Special Concentration Percentage - Specialty Vehicles

Total Motorcycles (including all-terrain vehicles)

(i)

All-Terrain Vehicles

(ii)

All-Terrain Vehicles advance limit

(iii)

[*]

All-Terrain Vehicles discounted amount

(ii) x (iii)

(iv)

Total Motorcycles discounted amount

(i) - (ii) + (iv)

(x)

Discounted amount

(ii) *([*]-(iii))

Salvage Vehicles

(v)

Advance limit

(vi)

[*]

Salvage Vehicles discounted amount

(v) x (vi)

(y)

Discounted amount

(v) *([*]-(vi))

Marine Crafts

(vii)

Advance limit

(viii)

[*]

Marine Crafts discounted amount

(vii) x (viii)

(z)

Discounted amount

(vii) *([*]-(viii))

Specialty Vehicle Type

Amount

Concentration limit

Special Concentration Percentage

Excess concentrations

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

k10

Excess concentration

(sum k1 to k10)

(K)

Reduction to NRPB



	Annex B- 11

I\11418185.1

[*] Specialty Vehicle Aggregate Special Concentration Percentage

Total Specialty Vehicles

(i)

sum (l1 to 17)

Excess concentration

(ii)

sum (K4 to k10)

Total Specialty Vehicles, net of excess concentration

(i) - (ii)

(iii)

[*] Special Concentration Percentage x (G)

(iv)

Excess concentration

if (iii) > (iv), then (iv) - (iii)

(L)

Reduction to NRPB

Special Concentration Percentage - Rental Receivables

Total Rental Receivables

(i)

Obligor Rental Receivables excess concentrations

(ii)

Total Rental Receivables, net of Obligor excess concentrations

(iii)

(i) - (ii)

[*] Special Concentration Percentage * (G)

(iv)

Excess concentration

if (iii) > (iv), then (iii) - (iv)

(M)

Reduction to NRPB

Special Concentration Percentage - Minimum Curtailment Payment

Receivables (excluding Rental) w/ curtailment pymt [*], but [*]

(i)

[*] Special Concentration Percentage x (G)

(ii)

Excess concentration

if (i) > (ii), then (i) - (ii)

(N)

Reduction to NRPB

Special Concentration Percentage - Auction Credit

Total Auction Credits

(i)

[*] Special Concentration Percentage x (G)

(ii)

Excess concentration

if (i) > (ii), then (i) - (ii)

(O)

Reduction to NRPB



	Annex B- 12

I\11418185.1

Special Concentration Percentage - Term[*]

Total Receivables outstanding [*]

(i)

[*] Special Concentration Percentage x (G)

(ii)

Excess concentration

if (i) > (ii), then (i) - (ii)

(P)

Reduction to NRPB

Total of discounts and excess concentrations

(Sum H through P)

(Q)

Net Receivables Pool Balance

(G) + (Q)

SECTION III - Reserves

Loss Reserve Calculation

Total

Aggregate Investment

[*] Delinquency Ratio

Aggregate unfulfilled Purchases pending in connection with Deferred Purchase Date

Cash wired in from Collection Accounts

Aggregate Investment of Participations (1 + 2 - 3)

Loss Percentage

Loss Reserve (4 * 5)

Loss Percentage Calculation

[*]

Minimum loss percentage

Loss Percentage [*]



	Annex B- 13

I\11418185.1

[*] Avg Default Ratio

Default Percentage Component

10)

[*]

11)

[*]

12)

[*]

13)

[*]

Loss Reserve Ratios ((12 / 13) * 11)

Cash Reserve

Calculation date of most recent Level One Trigger ([*])

(fill in the date manually or "N/A")

[*]

Level One Trigger

[*]

Level One Trigger

[*]

Level One Trigger

Has the Level One Trigger been cured for [*]?

Level I Trigger applicable?

Cash Reserve percentage

[*]

Aggregate Investment of Participations

Required Cash Reserve (1 x 2)

Cash Reserve

In Compliance



	Annex B- 14

I\11418185.1

Liquidation Account Balance

Total

Liquidation Account balance

Last billing paid

Unaffiliated Servicing Fee (not previously set aside)

Backup Serv. Fees ([*]) (not previously set aside)

[*] Backup Servicing Fee calculation

Transition Expenses (if any, not previously set aside)

[*]

Discount

[*]

Program Fees

[*]

Minimum Balance (1 + 2 + 3 + 4 +5)

[*]

Excess cash / (deficit)

In Compliance

[*]

SECTION IV - Termination Events

XVI.

Termination Events - Month End Only

Participation Test

Aggregate Investments

For Reference: calculation of numerator

Aggregate unfulfilled Deferred Purchases

ADD

Loss Reserve

[*] days

Cash wired from Collection Account

Total write-offs

Aggregate Investment of Participations + Loss Reserve (1 + 2 +3 -4)

Total conv to notes

Net Receivable Pool Balance + excess in Liquidation Acct

DEDUCT

Participation % (5 / 6)

Write-offs [*]

Participation % limit

Conv to notes [*]

Total Defaulted



	Annex B- 15

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Default Ratio Test

Receivables [*] days past due + write-offs and notes [*] past due

+ A/R conv to notes [*] past due

Receivables floorplanned [*] prior (cash disbur.)

Default Ratio (1 / 2)

Maximum [*] Default Ratio

[*]

[*] avg Default Ratio

Maximum [*] avg Default Ratio

[*]

Delinquency Ratio Test

Total Delinquent Receivables

Outstanding Balance of Pool Receivables

Delinquency Ratio (1 / 2)

Maximum [*] Delinquency Ratio

[*]

[*] avg Delinquency Ratio

Maximum [*] avg Delinquency Ratio

[*]

Net Spread Test

Finance Charge Collections

Discount expensed during month (actual)

Program Fees

Backup Servicing Fees ([*]) and Unaffiliated Servicer Fees

Transition Expenses (if any)

Servicer Fee

[*]

Other fees > $100

Receivables [*] days past due

Write-offs / non-cash adjustments

10)

A/R converted to notes

11)

Subtotal - carry costs and losses (2 thru 10)



	Annex B- 16

I\11418185.1

12)

Add Back (9 & 10) greater than [*] old

13)

Recoveries

14)

Collections on Defaulted Receivables

15)

Excess Finance Charge Collections (1 - 11 + 12 + 13 + 14)

16)

Average aggregate Outstanding Balance Pool Receivables

17)

Net Spread ([*])

18)

Minimum Net Spread (current month)

[*]

Compliance ([*])

19)

[*] avg Net Spread

20)

Minimum Net Spread ([*])

[*]

Compliance ([*])

21)

[*] avg Net Spread (Level One Trigger)

22)

Minimum Net Spread ([*])

[*]

Compliance ([*])

Payment Rate

Collections of principal on all Pool Receivables

Beginning aggregate Outstanding Balance of Pool Receivables

Payment Rate (1 / 2)

[*] Payment Rate

Minimum [*] avg Payment Rate

[*]

Compliance ([*])

Minimum Eligible Receivables

Eligible Receivables

Minimum Eligible Receivables

100,000,000

Compliance (1 > 2)



	Annex B- 17

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SECTION V - Financial Triggers & Covenants

Tangible Net Worth Test

1 Servicer - Automotive Finance Corporation

AFC's shareholder's equity

AFC's intangible assets

Tangible Net Worth (1 - 2)

Minimum Tangible Net Worth

[*]

Compliance (3 > 4)

2 Seller - AFC Funding Corporation

Funding shareholder's equity

Funding Corp's intangible assets

Tangible Net Worth (1 - 2)

Minimum Tangible Net Worth

[*]

Compliance (3 > 4)

Servicer's Debt + Investment Limitation

Maximum Debt ([*] + unfulfilled deferred purchases)

[*]

Increased by the amount of any unfulfilled Deferred Purchases

Debt (incl. intercompany and recourse transactions)

Excludes US and Canada securitization borrowings

Compliance (2 < 1 )

Servicer's Debt / Equity Ratio

All Debt including U.S. and Canadian securitization borrowings

AFC shareholder's equity

Debt / equity

Maximum Debt / equity

[*]

Compliance (3 < 4)



	Annex B- 18

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Seller Liquidity

AFC cash and cash equivalents

Minimum cash and equivalents

[*]

AFC unrestricted cash

Minimum unrestricted cash

[*]

Compliance (1 > 2 & 3 > 4)

N/A

In Compliance

Yes

Violation



	Annex B- 19

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ANNEX C

FORM OF JOINDER AGREEMENT

• THIS JOINDER AGREEMENT (this “ Agreement ”), dated as of [__________], is among AFC Funding Corporation (the “ Seller ”), Automotive Finance Corporation, as servicer (the “ Servicer ”), [___________________] , as a purchaser (the “ ______________ Purchaser ”), [____________________] , as purchaser agent for [_______________] Purchaser (the “ _____________ Purchaser Agent ”), and Bank of Montreal as agent (the “ Agent ”).

BACKGROUND

• The Seller, the Servicer, and the Agent are parties to a certain Seventh Amended and Restated Receivables Purchase Agreement, dated as of December 20, 2016 (as amended through the date hereof, the “ Receivables Purchase Agreement ”). Capitalized terms used but not defined herein have the meanings assigned to them in the Receivables Purchase Agreement.

• NOW, THEREFORE, the parties hereto hereby agree as follows:

This letter constitutes a Joinder Agreement pursuant to Section 1.12 of the Receivables Purchase Agreement. The Seller desires the [_________________] Purchaser to become a Purchaser and the [_________________] Purchaser Agent to become a Purchaser Agent under the Receivables Purchase Agreement and upon the terms and subject to the conditions set forth in the Receivables Purchase Agreement, and the [_________________] Purchaser agrees to become a Purchaser and the [_________________] Purchaser Agent agrees to become a Purchaser Agent thereunder.

• Seller hereby represents and warrants to each of the [_________________] Purchaser, the [_________________] Purchaser Agent and the Agent as of the date hereof, as follows:

(i) the representations and warranties contained in Exhibit III and Exhibit VII to the Receivables Purchase Agreement are true and correct on and as of such date of such Purchase as though made on and as of such date;

(ii) no event has occurred and is continuing, or would result from such Purchase, that constitutes a Termination Event or Unmatured Termination Event;

(iii) the sum of the aggregate of the Participations does not exceed 100%; and

(iv) the amount on deposit in the Cash Reserve Account is equal to or greater than the Cash Reserve.

Upon execution and delivery of this Agreement by the Seller, each of the [____________] Purchaser, [____________] Purchaser Agent and the Agent, satisfaction of

I\11418185.1

the other conditions to assignment specified in Section 1.12 of the Receivables Purchase Agreement and receipt by the Agent of counterparts of this Agreement (whether by facsimile or otherwise) executed by each of the parties hereto, each of the [______________] Purchaser and the [______________] Purchaser Agent shall become a party to, and have the rights and obligations of a Purchaser and Purchaser Agent, respectively, under, the Receivables Purchase Agreement.

(a) The Maximum Purchase Amount of the [__________] Purchaser shall be as set forth on the signature page hereto.

(b) All notices and other communications hereunder or under the Receivables Purchase Agreement to the [______________] Purchaser and the [______________] Purchaser Agent shall be sent or delivered to [______________] Purchaser and [______________] Purchaser Agent at the address set forth under their names on the signature pages hereof.

(c) By executing and delivering this Agreement, each of the [______________] Purchaser and the [______________] Purchaser Agent confirms to and agrees with the Agent and each other Purchaser and Purchaser Agent party to the Receivables Purchase Agreement as follows: (i) each of the [______________] Purchaser and the [______________] Purchaser Agent has received a copy of the Receivables Purchase Agreement, and the Purchase and Sale Agreement, together with copies of such financial statements and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement; (ii) each of the [______________] Purchaser and the [______________] Purchaser Agent has made and will continue to make, independently and without reliance upon the Agent, any Purchaser Agent or any other Purchaser and based on such documents and information as it shall deem appropriate at the time, its own credit decisions in taking or not taking action under the Receivables Purchase Agreement; (iii) each of the [______________] Purchaser and the [______________] Purchaser Agent appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Receivables Purchase Agreement as are delegated to the Agent by the terms of the Receivables Purchase Agreement, together with such powers as are reasonably incidental thereto; and (iv) each of the [______________] Purchaser and the [______________] Purchaser Agent agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Receivables Purchase Agreement are required to be performed by it as a Purchaser or Purchaser Agent.

Each party hereto hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, any Purchaser, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the latest maturing Note issued by such Purchaser is paid in full. The covenant contained in this paragraph shall survive any termination of the Receivables Purchase Agreement.

THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF INDIANA. This Agreement may not be amended, supplemented or waived except pursuant to a writing signed by the party to be charged. This Agreement may be executed in



	2

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counterparts, and by the different parties on different counterparts, each of which shall constitute an original, but all together shall constitute one and the same agreement.

(continued on following page)



	3

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• IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date first above written.

[ ______________________________ ] , as a [ _________ ] Purchaser

By:
Name Printed:
Title:

Address:






    Attention:
    E-Mail:
    Telephone:
    Facsimile:

    Maximum Purchase Amount: $ [ _____________]

With a copy to:





    Attention:
    E-Mail:
    Telephone:
    Facsimile:



	S- 1	Joinder Agreement ([__________])

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[__________________________] , as Purchaser Agent for the [_______] Purchaser

By:
Name Printed:
Title:

Address:





    Attention:
    E-Mail:
    Telephone:
    Facsimile:



	S- 2	Joinder Agreement ([__________])

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BANK OF MONTREAL,
as Agent

By:____________________________
Name Printed:____________________
Title:___________________________



	S- 3	Joinder Agreement ([__________])

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AFC FUNDING CORPORATION, as Seller

By:____________________________
Name Printed:____________________
Title:___________________________



	S- 4	Joinder Agreement ([__________])

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AUTOMOTIVE FINANCE CORPORATION, as Servicer

By:____________________________
Name Printed:____________________
Title:___________________________



	S- 5	Joinder Agreement ([__________])

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EXHIBIT 10.16

Execution Version

FOURTH AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT

BETWEEN

AUTOMOTIVE FINANCE CANADA INC.

- and -

KAR AUCTION SERVICES, INC.

- and -

PRECISION TRUST

Dated as of December 20, 2016

BENNETT JONES LLP

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TABLE OF CONTENTS



ARTICLE 1 INTERPRETATION		2
1.1	Definitions	2
1.2	Headings	20
1.3	Number, Gender, Etc	20
1.4	Non-Business Days	20
1.5	Governing Law	21
1.6	References to Statutes	21
1.7	Severability	21
1.8	Currency	21
1.9	Schedules	21
ARTICLE 2 PURCHASES AND INCREASES		22
2.1	Purchase Request and Increase	22
2.2	Purchase and Sale	23
2.3	Ownership Interests	23
2.4	Transfer From Deposit Accounts to Collection Account	24
2.5	Allocations of Seller's Share of Collections Before the Termination Date	24
2.6	Allocation of Trust's Share of Collections Before the Termination Date	24
2.7	Payments from Collection Account	25
2.8	Allocation and Payment of Seller's Share of Collections After a Termination Date	26
2.9	Allocation of Trust's Share of Collections After a Termination Date	26
2.10	Payments from Collection Account After a Termination Date	27
2.11	Purchases Limited by Program Limit	27
2.12	Program Limit	28
2.13	Voluntary Paydown of Investment	28
2.14	Cash Reserve Account	28
2.15	Calculations	29
2.16	Specified Ineligible Receivables	29
2.17	Collection Account	29
ARTICLE 3 CONDITIONS PRECEDENT		30
3.1	Conditions Precedent for the Initial Purchase	30
3.2	Conditions Precedent in Favour of the Trust for Purchase/All Increases	31
ARTICLE 4 REPRESENTATIONS AND WARRANTIES		32
4.1	General Representations and Warranties of the Seller	32
4.2	Survival	35
4.3	Representations and Warranties of the Trust	35
4.4	Survival	36
ARTICLE 5 ADMINISTRATION		36
5.1	Designation of the Servicer	36
5.2	Standard of Care	36

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5.3	Authorization of Servicer	36
5.4	Enforcement of Contracts	37
5.5	Assignment for Purpose of Enforcement	37
5.6	Deposit of Collections	37
5.7	Description of Services	37
5.8	Affirmative Covenants of the Servicer	39
5.9	Reporting Requirements of the Servicer	42
5.10	Negative Covenants of the Servicer	43
5.11	Servicer Termination Events	44
5.12	Effecting a Servicer Transfer	46
5.13	Appointment of Replacement Servicer	46
5.14	Additional Servicer Covenants Following a Servicer Transfer	46
5.15	Trust Rights Following a Servicer Transfer	47
5.16	Power of Attorney; Further Assurances	47
5.17	Deemed Collections	48
ARTICLE 6 TRIGGER EVENTS		49
6.1	Meaning of Trigger Event	49
6.2	Action Upon Occurrence of a Trigger Event	53
6.3	Optional Repurchase of Pool Receivables	53
ARTICLE 7 GENERAL COVENANTS AND POWER OF ATTORNEY		53
7.1	Affirmative Covenants of the Seller	53
7.2	Reporting Requirements of the Seller	55
7.3	Negative Covenants of the Seller	56
7.4	Covenants of the Trust	57
ARTICLE 8 PERFORMANCE GUARANTEE		57
8.1	Performance Guarantee	57
8.2	Guarantee Unconditional	58
8.3	Recourse against Servicer	59
8.4	Authorization by the Performance Guarantor	59
8.5	No Subrogation	59
8.6	Stay of Acceleration	59
8.7	Representations and Warranties	60
8.8	Payments	61
ARTICLE 9 INDEMNIFICATION		62
9.1	Indemnification by the Seller	62
9.2	Notification of Potential Liability	64
9.3	Litigation	64
9.4	Tax Indemnity	64
9.5	Tax Credit	65
ARTICLE 10 MISCELLANEOUS		66
10.1	Liability of the Trust and the Securitization Agent	66
10.2	Delegation in Favour of Securitization Agent	66

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10.3	Change in Circumstances	66
10.4	Amendments, Waivers, Etc.	68
10.5	Notices, Etc.	68
10.6	No Waiver; Remedies	68
10.7	Binding Effect; Assignability	68
10.8	Costs and Expenses	68
10.9	Confidentiality	69
10.10	Effect of Agreement	69
10.11	Agreement Non-Exclusive	69
10.12	No Set-off	69
10.13	Termination	69
10.14	Discharge of Certain Registrations in the Province of Quebec	70
10.15	Execution in Counterparts	70
10.16	Amendment and Restatement	70

Schedule "A" Form of Purchase Request

Schedule "B" Location of Records

Schedule "C" Form of Servicer Report

Schedule "D" Form of Portfolio Certificate

Schedule "E" Deposit Accounts

Schedule "F" Form of Increase Request

Schedule "G" Form of Quebec Assignment

Schedule "H" Net Receivables Pool Balance Calculation

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I\113475037.1

FOURTH AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT

MEMORANDUM OF AGREEMENT dated as of December 20, 2016.

B E T W E E N:

AUTOMOTIVE FINANCE CANADA INC. ,
a corporation incorporated under the laws of the Province of Ontario,

(hereinafter referred to as the " Seller " and the initial " Servicer "),

- and -

KAR AUCTION SERVICES, INC. ,
a corporation incorporated under the laws of Delaware,

(hereinafter referred to as the " Performance Guarantor " or " KAR "),

- and -

BNY TRUST COMPANY OF CANADA ,
a trust company incorporated under the laws of Canada and licensed to carry on business as a trustee in each of the provinces of Canada, in its capacity as trustee of Precision Trust, a trust established pursuant to the laws of the Province of Ontario,

(hereinafter referred to as the " Trust "),

WHEREAS the Seller, the Performance Guarantor and the Trust entered into a third amended and restated receivables purchase agreement dated as of June 16, 2015 (the " Amended and Restated RPA ") pursuant to which from time to time the Seller sold to the Trust and the Trust purchased from the Seller, an undivided co-ownership interest in the Seller's present and future Receivables and the Related Security related thereto on a fully serviced basis, all in accordance with the terms of the Amended and Restated RPA;

AND WHEREAS the Performance Guarantor agreed to guarantee the obligations of the Servicer under the Amended and Restated RPA in accordance with the terms thereof;

AND WHEREAS the parties to the Amended and Restated RPA now desire to amend and restate the Amended and Restated RPA on the terms and conditions set out herein;

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the covenants and agreements of the parties herein contained and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties), the parties hereby covenant and agree as follows:

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ARTICLE 1

INTERPRETATION

1.1 Definitions

In this Agreement, unless the context requires otherwise, the following terms shall have the following meanings:

" Adjusted Net Spread Amount " means, on any date on which the amount deposited in the Cash Reserve Account equals or exceeds the Cash Reserve Required Amount, an amount, determined at the option of the Seller to be included in the calculation of Net Spread in respect of a Collection Period, equal to or less than the Supplemental Yield Reserve Amount on such date, provided that the aggregate amounts so determined by the Seller in respect of the three most recent Collection Periods prior to such date may not exceed the Supplemental Yield Reserve Amount on such date;

" AFC " means Automotive Finance Corporation, an Indiana corporation;

" Affected Person " has the meaning ascribed thereto in Section 10.3(b);

" Affiliate " means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person;

" Agreement " means this agreement as amended, restated, supplemented or otherwise modified from time to time;

" Auction Credit " means a Receivable pursuant to which a wholesale auction has granted credit for the purpose of a float sale agreement with dealers, provided that the wholesale auction shall be the "Obligor" of such Receivable and shall be subject to the Normal Concentration Percentage and the Special Concentration Percentage, as applicable;

" Backup Servicer " means Wells Fargo Bank, National Association, and any other backup servicer subsequently appointed pursuant to the terms of the Backup Servicing Agreement;

" Backup Servicing Agreement " means (i) the backup servicing agreement dated May 24, 2011 between the Servicer, Wells Fargo Bank, National Association and the Trust; and (ii) any replacement backup servicing agreement entered into from time to time with the prior written consent of the Trust, in each case as such agreements may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof;

" Backup Servicing Fee Letter " means (i) the fee letter dated October 20, 2010 setting forth the Backup Servicing Fees payable to the Backup Servicer and (ii) any replacement backup servicing fee letter entered into from time to time with the prior written consent of the Trust, in each case as such letters may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof;

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" Backup Servicing Fees " means all fees and reimbursable expenses (excluding Transition Expenses) payable pursuant to the Backup Servicing Agreement or the Backup Servicing Fee Letter (for the avoidance of doubt, prior to the Backup Servicer assuming the role of Servicer);

" Blocked Account Agreement " means the blocked account agreements referred to in Section 3.1(l);

" Blocked Account Claims " means any Security Interest in favour of a bank or other financial institution under a Blocked Account Agreement;

" BMONB " means BMO Nesbitt Burns Inc.;

" Business Day " means any day (other than a Saturday, Sunday or public holiday) on which banks are open for business in Toronto, Ontario, but excluding any public holiday in the United States identified by the Seller as not constituting a "Business Day" for the purposes of this Agreement;

" Buyer’s Fees " means the fees paid by an Obligor to an auction or other commercial inventory source in connection with a purchase of a vehicle by such Obligor;

" Carry Costs " means, with respect to any Collection Period, the sum of the amounts of the following items that accrued or were incurred during such Collection Period: (a) the Funding Discount, (b) the Standby Fee, (c) the Replacement Servicer Fee, or, to the extent no Replacement Servicer Fee is payable during such Collection Period, the Notional Servicer Fee, (d) the Backup Servicing Fees and (e) all other expenses and fees payable by the Seller under this Agreement;

" Cash Deposit Amount " means, with respect to the Purchase or any Increase, an amount sufficient to ensure that after effecting such Purchase or Increase, the amount contained in the Cash Reserve Account is equal to the Cash Reserve Required Amount;

" Cash Payment " means, in respect of the Purchase the amount set forth in the Purchase Request as the "Cash Payment" and, in respect of each Increase, the amount set forth in the related Increase Request as the "Cash Payment";

" Cash Reserve Account " means an Eligible Deposit Account established in the name of the Trust and designated as the Cash Reserve Account for the purposes hereof, the balance of which shall be subject to the control of the Trust for the benefit of the Trust and the Seller and applied in accordance with the terms hereof, which account shall bear interest and shall initially be account number [*], maintained at [*];

" Cash Reserve Event " means as of any Settlement Date, (i) the arithmetic average of the Net Spread for [*], (ii) the Delinquency Ratio is greater than [*] or (iii) the average Payment Rate for [*]; provided, however, that following each occurrence of a Cash Reserve Event, such trigger shall remain in effect until [*];

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" Cash Reserve Excess Amount " means, on any Remittance Date, the amount of cash on deposit in the Cash Reserve Account after giving effect to any payments into and from the Cash Reserve Account on such Remittance Date in excess of the Cash Reserve Required Amount;

" Cash Reserve Required Amount " means, on any day the sum of (a) (i) after the occurrence and during the continuation of a Cash Reserve Event, [*] of the Investment on such day, and (ii) on any other day, 1.0% of the Investment on such day, plus (b) the Supplemental Yield Reserve Amount;

" CDOR " means, on any day and for any Tranche Period, the annual rate of interest equal to the average discount rate (rounded upwards, if necessary, to the nearest 0.00001%) of 1-month Canadian dollar bankers' acceptances as displayed on the "Bloomberg Screen CDOR Page" as at approximately 10:00 a.m. (Toronto time) on the first day of such applicable Tranche Period (or, if such day is not a Business Day, on the preceding Business Day), provided, however, that if such rate does not appear on the Bloomberg Screen CDOR Page on such day as contemplated, then the CDOR rate on such day shall be calculated as the average of the rates for such period applicable to Canadian dollar bankers' acceptances quoted by the banks listed on Schedule I of the Bank Act (Canada) as at approximately 10:00 a.m. (Toronto time) on such day (or, if such day is not a Business Day, on the preceding Business Day);

"Closing Date" means December 20, 2016, or such other date as may be mutually agreed between the parties;

" Collection Account " means an Eligible Deposit Account established in the name of the Trust, in trust for and on behalf of the Trust and the Seller, which account shall initially be account number [*] maintained at [*];

" Collection Costs " means, in respect of a Collection Period, all reasonable out-of-pocket costs and expenses of the Servicer (if other than the Seller, the Backup Servicer or any Affiliate thereof) and the Trust in administering the Pool Assets and collecting amounts payable thereunder and enforcing the Related Security related thereto, including reasonable legal expenses of the Servicer or the Trust;

" Collection Period " means the period from and including the first day of a calendar month to and including the last day of such calendar month, provided that the first Collection Period will begin at the close of business on February 9, 2010 and end on (and include) February 28, 2010 and the last Collection Period will be the Collection Period in which the Final Termination Date occurs;

" Collections " means, with respect to the Pool Receivables, (a) all funds which are received by the Seller, the Servicer or the Trust in payment of any amounts owed in respect of such Receivables (including, without limitation, principal payments, finance charges, floorplan fees, curtailment fees, interest and all other charges), or applied (or to be applied) to amounts owed in respect of such Receivables (including, without limitation, insurance payments and net proceeds of the sale or other disposition of vehicles or other collateral or property of the related Obligors or any other Person directly or indirectly liable for the payment of Pool Receivables applied (or to be applied) thereto), (b) all Collections deemed to have been received pursuant to Section

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5.17, (c) all other proceeds of such Receivables, and (d) without duplication, all other amounts deposited to the Deposit Accounts or the Collection Account hereunder;

" Contract " means, with respect to any Obligor, collectively, the Dealer Note issued by such Obligor, or similar agreement between such Obligor and the Seller, any guarantee issued in connection therewith and each other agreement or instrument executed by an Obligor pursuant to or in connection with any of the foregoing, the purpose of which is to evidence, secure or support such Obligor's obligations to the Seller under such Dealer Note or other similar agreement, forms of all such Dealer Notes and other agreement forms having been delivered to and approved by the Trust;

" Credit and Collection Policies " means those receivables credit and collection policies and procedures of the Servicer in effect on the date of this Agreement and provided to the Trust (including the core policies and procedures manuals and the credit policy manual), as modified in compliance with this Agreement;

" Curtailment Date " means, with respect to any Receivable, the date specified as such in the Contract for such Receivable;

" DBRS " means DBRS Limited and its successors;

" Dealer Note " means a note and security agreement substantially in the form of the Seller's standard form demand promissory note and security agreement and any other promissory note issued, or agreement made by, an Obligor in favor of the Seller;

" Default Ratio " means the ratio (expressed as a percentage and rounded upward to the nearest 1/100th of 1%) computed as of each Settlement Date by dividing (i) the aggregate Principal Balance of all Receivables (other than Specified Ineligible Receivables) that became Defaulted Receivables during the related Collection Period plus the aggregate amount of non-cash adjustments that reduced the Principal Balance of any Receivable during such Collection Period (other than a Receivable that became a Defaulted Receivable during such Collection Period) by (ii) the aggregate amount of Receivables (other than Specified Ineligible Receivables) that were generated by the Seller during the Collection Period that occurred five calendar months prior to the Collection Period ending on such Settlement Date;

" Defaulted Receivable " means a Pool Receivable:


(a)	as to which any payment, or part thereof, remains unpaid for more than 90 days after the due date for such payment;


(b)	which, consistent with the Credit and Collection Polices, would be written off the Seller's books as uncollectible; or


(c)	which is converted to a long term payment plan in the form of a note or other similar document;

" Deferred Increase Date " has the meaning ascribed thereto in Section 2.1(c);

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" Deferred Purchase Price " means the aggregate of amounts paid to the Seller in respect of the Deferred Purchase Price pursuant to Sections 2.7(f), 2.10(f) and 2.14;

" Delinquency Ratio " means the ratio (expressed as a percentage and rounded upward to the nearest 1/100 of 1%) computed as of each Settlement Date by dividing (i) the aggregate Principal Balance of all Receivables (other than Specified Ineligible Receivables) that were Delinquent Receivables on such Settlement Date, by (ii) the Pool Balance (less the aggregate Principal Balance of all Specified Ineligible Receivables) on such Settlement Date;

" Delinquent Receivable " means a Pool Receivable which is not a Defaulted Receivable (i) as to which any payment, or part thereof, remains unpaid for more than 30 days after the due date for such payment, or (ii) which, consistent with the Credit and Collection Policies, would be classified as delinquent by the Seller;

" Deposit Accounts " means the Eligible Deposit Accounts established in the name of the Servicer, in trust for and on behalf of the Trust and the Seller, which accounts shall be separate and segregated from the Servicer's own assets and shall initially be the accounts listed in Schedule "E", as such Schedule may be updated from time to time by the Servicer with the approval of the Trust;

" Eligible Deposit Account " means either (a) a deposit account with an Eligible Institution, or (b) a segregated trust account with the corporate trust department of a depositary institution organized under the laws of Canada or a province thereof and authorized to act as a trustee for funds deposited in such account, so long as any of the securities of such depositary institution shall have a credit rating from DBRS in one or more of its generic credit rating categories which signifies investment grade;

" Eligible Institution " means a depositary institution which (x) at all times (a) has either (i) a long-term unsecured debt rating not lower than AA (low) by DBRS, or (ii) a short-term rating not lower than R-1 (middle) by DBRS, or (b) has its obligations with respect to the relevant matter guaranteed by an institution with either of the ratings referred to in (a), or (y) has been approved in writing by DBRS;

" Eligible Investments " means, at any particular date, book-based securities, negotiable instruments or securities, in each case maturing not later than the Business Day preceding the next succeeding Remittance Date after such date represented by instruments in bearer or registered form which evidence any of:


(a)	direct obligations of, or obligations fully guaranteed as to the timely payment of principal and interest by, the Government of Canada or the government of British Columbia, Alberta or Ontario, provided any such government is rated not less than R-1 (middle) by DBRS;


(b)	any security having a rating of at least R-1 (middle) from DBRS, or, in the case of asset backed commercial paper, a rating of a least R-1 (high) from DBRS, but for greater certainty, excluding commercial paper that is extendable by its terms;

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(c)	any other class of investments approved in writing by the Trust (other than those set out in (a) and (b) above); and


(d)	without limiting the generality of the foregoing, if qualified under (b) or (c) above, securities of the Bank of Montreal and any Affiliate thereof may be considered Eligible Investments for the purposes of this definition;

" Eligible Receivable " means, at any time, a Receivable:


(a)	the Obligor of which (i) is a Person that is a resident of Canada and located in a province or territory of Canada, or is a co-signer or guarantor of the such Receivable and is resident in the United States, (ii) is not the Government of Canada or any agency or instrumentality thereof or any federal crown corporation, and (iii) is not any provincial or territorial government or agency thereof;


(b)	that is not a Defaulted Receivable or Delinquent Receivable;


(c)	which is denominated and payable to the Seller only in Canadian dollars in Canada;


(d)	which, together with the related Contract and Related Security, has been originated or acquired in Canada by the Seller in the ordinary course of business;

(e)

which arises under a Contract which, together with such Receivable and the Related Security in respect thereof, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor thereof, enforceable by the Seller and its assigns against such Obligor in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and to equitable principles of general application;


(f)	which is secured by the Related Security which contains customary and enforceable provisions such that the rights and remedies of the Seller and its assigns are adequate for realization against the collateral of the benefits of the security, including the Related Security of such Receivable, subject to the limitations on enforceability in (e) above;

(g)

in respect of which the Related Vehicle and Proceeds Security, as against creditors of the applicable Obligor, is a perfected, valid, subsisting and enforceable Security Interest in the Financed Vehicle in favour of the Seller, perfected by all necessary or appropriate filings, registrations, recordings or other actions in each jurisdiction necessary to ensure the perfection of such Security Interest for the term thereof and which, in respect of the Related Vehicle Security, is subject only to Security Interests in favour of other Persons which are subordinate in priority to the Related Vehicle Security, Operation of Law Claims and Government and Employee Claims, and provided that, to the knowledge of the Seller at such time, no enforcement or collection proceedings have been

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commenced in respect of any such Security Interest, Operation of Law Claim or Government and Employee Claim;


(h)	for which the interest of the Seller in the Receivable and the Related Security related thereto and the Contract giving rise thereto, as against creditors of the Seller, is free and clear of all Security Interests and rights of others, other than Government and Employee Claims, Operation of Law Claims, Blocked Account Claims and those created pursuant to this Agreement;


(i)	upon the purchase of an interest in such Receivable and the Related Security in respect thereof by the Trust, the Trust will obtain good and marketable title to the Trust's Co-Ownership Interest therein free and clear of any Security Interest created by, or arising through, the Seller (as opposed to a Security Interest created by, or arising through an Obligor) other than Blocked Account Claims;


(j)	the sale of which pursuant to the terms hereof does not contravene or conflict with any law, rules or regulations applicable thereto, or require the consent of the Obligor or any other Person;


(k)	in respect of which, to the knowledge of the Seller, no enforcement action, whether by repossession or otherwise, has been taken by any Person in respect of the related Financed Vehicle;

(l)

there is no federal, provincial or local law or ordinance under which such Receivable or the Related Security is subject to any Taxes, nor will any payment or remittance to be made by or on behalf of the Seller on its own behalf or on behalf of any Obligor under this Agreement be subject to any Taxes; provided, however, that this statement shall not extend to any Taxes payable by, or required to be withheld by the Seller on account of Taxes payable on the income or capital of the Trust or Taxes payable in respect of GST or PST payable by Obligors;

(m)

(i) which satisfies all applicable requirements of the Credit and Collection Policies, (ii) other than with respect to a Rental Receivable, whose terms require a minimum principal payment of not less than [*] plus accrued interest and, if applicable, payment of the applicable floorplan fees or curtailment fees, on each Curtailment Date, provided that, subject to a Special Concentration Percentage, such minimum principal payment for a Receivable may be less than [*] so long as it is at least [*], (iii) for which all payments required to be made pursuant to the related Contract in connection with any Curtailment Date extension have not been waived and have been made within [*] of each such extension, (iv) whose terms, including the due date thereof have not otherwise been amended or modified in any material respect, and [*];


(n)	which is payable on demand and which the related Contract requires repayment on the earlier of (i) [*] following the sale of the related Financed Vehicle, and (ii) the Curtailment Date for such Receivable;

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(o)	which arises from the making of a loan to finance the purchase of (i) an automobile or light duty truck, driven or drawn by mechanical power, manufactured primarily for use on the public streets, roads or highways, with two axles or (ii) a Specialty Vehicle;


(p)	where not more than [*] of the aggregate Principal Balance of all Receivables of the Obligor of such Receivable and its Affiliates are Defaulted Receivables;


(q)	the Obligor of which is not an Affiliate of the Seller or the Performance Guarantor, an Excluded Obligor or a father, mother, son or daughter (or any Affiliate thereof) of any officer or director of the Seller or its Affiliates;


(r)	the Obligor of which is not, to the knowledge of the Seller, subject to any proceedings of the type described in Sections 5.11(g) or 5.11(h);


(s)	which is guaranteed by the related Obligor's parent, general partner or owners, provided that, in the Servicer's discretion, guarantees shall not be required from (i) public companies, (ii) private equity firms or other similar entities, or (iii) passive partners or minority partners when an operating partner has provided a guarantee;


(t)	which is not a Specified Ineligible Receivable or an Excluded Receivable;


(u)	with respect to which the Trust has not given Seller at least five (5) Business Days notice that such Receivable will not be an Eligible Receivable hereunder, provided that such designation is in good faith and based on a reasonable business judgement by the Trust that such Receivable should not be considered an Eligible Receivable;


(v)	for which the Obligor has not "short-paid" the Receivables or paid with non-sufficient funds;

(w)

if the Receivable is an Auction Credit, then (i) the wholesale auction is not fronting for a government or a governmental subdivision or agency, (ii) the Servicer has received a bill of sale evidencing the transaction between the wholesale auction and purchasing dealer, (iii) the wholesale auction has been underwritten in accordance with the Credit and Collection Policies’ requirements for platinum dealers, (iv) a PPSA financing statement or equivalent has been filed against the wholesale auction, and (v) clauses (e) and (s) above shall be deemed to be satisfied if the wholesale auction, rather than the applicable dealer, signs the applicable Contract; and

(x)

(i) except for any Contract which has been executed electronically, there is only one original, executed copy of such Contract held by the Seller and (ii) for any Contract which has been executed electronically, such Contact has been executed in compliance with all applicable e-sign laws and the Seller has access to an electronic copy of such Contract executed by all parties thereto which can be printed and used to enforce such Contract;

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" ETA " means Part IX of the Excise Tax Act (Canada);

" Excluded Obligor " means an Obligor so designated in writing as such by the Trust in a notice to the Seller in good faith and in the Trust's reasonable judgment relating to credit considerations from time to time, it being understood that from time to time such notice may be revoked by written notice to the Seller;

" Excluded Receivable " means any Receivable that is clearly not contemplated by this Agreement due to size, terms, ineligibility or commingling concerns. The Trust has no ownership or other interest in any Excluded Receivables. For the avoidance of doubt, as required by Sections 5.7(o) and 7.2(j), the Seller and the Servicer shall maintain a complete list of Excluded Receivables at all times and shall provide notice to the Trust promptly following any changes thereto;

" Final Termination Date " means the first Remittance Date following the Termination Date on which the Investment is reduced to zero and all Replacement Servicer Fees, Collection Costs, Funding Discounts, Backup Servicing Fees, Transition Expenses, indemnified amounts and Standby Fees have been paid in full;

" Finance Charge and Floorplan Fee Collections " means, with respect to any Collection Period, any Collections applied by the Servicer in such Collection Period in respect of interest and finance charges and any other amount (other than principal) owed under a Contract;

" Financed Vehicle " means [*];

" Funding Discount " means, for each day during a Tranche Period, the amount determined pursuant to the following formula:

TA x TR

365

Where:

" TA " means the Tranche Amount outstanding on such day; and

" TR " means the Tranche Rate on such day;

" GAAP " means generally accepted accounting principles and practices in the United States, consistently applied;

" Government and Employee Claim " means, in respect of any Person, liens or deemed trusts for taxes, assessments, employee claims or similar governmental or employee charges or levies affecting such Person or its property and, in the case of the Seller, incurred in the ordinary course of business that are not yet due and payable or as to which any applicable grace period shall not have expired, or that are being contested in good faith by proper proceedings and for which adequate reserves have been established, but only so long as foreclosure with respect to such a lien is not imminent and the use and value of the property to which the Security Interest attaches is not impaired during the pendency of such proceeding;

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" Governmental Authority " means the government of any sovereign state or any political subdivision thereof, or of any political subdivision of a political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory, administrative or other functions of or pertaining to government;

" Gross-up " has the meaning ascribed thereto in Section 9.5;

" Grossed-up Payment " has the meaning ascribed thereto in Section 9.5;

" GST " means all amounts payable under the ETA or pursuant to any similar value added tax legislation in any other jurisdiction of Canada that is stated to be harmonized with the GST, and any similar tax payable under the laws of the Province of Quebec;

" Heavy Duty Truck " means [*];

" Increase " means an increase in the Investment pursuant to Section 2.1(b) hereof;

" Increase Request " means the written request sent to the Trust by the Seller pursuant to Section 2.1(b) in the form annexed hereto as Schedule "F";

" Indebtedness " means, without duplication:


(a)	indebtedness for borrowed money (including, without limitation, amounts payable to Affiliates);


(b)	obligations evidenced by bonds, debentures, notes or other similar instruments;


(c)	the redemption price of any redeemable preference shares;


(d)	obligations in respect of letters of credit or similar instruments issued or accepted by any bank or other institution; and


(e)	obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (d) above;

provided, however, that "Indebtedness" shall not include obligations both (A) classified as accounts payable or accrued liabilities under GAAP and (B) incurred in the ordinary course of business;

" Indemnified Amounts " has the meaning ascribed thereto in Section 9.1;

" Indemnified Parties " has the meaning ascribed thereto in Section 9.1;

" Initial Closing Date " means February 8, 2010;

" Insurance Policies " means any comprehensive, collision, fire, theft or other insurance policy maintained by an Obligor with respect to one or more Financed Vehicles which is in an amount

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not less than 50% of the market value of such Financed Vehicles and in which the Seller or the Servicer is or is required to be named as loss payee;

" Investment " means, with respect to the Trust, the aggregate of the amounts paid to the Seller in respect of Cash Payments pursuant to this Agreement, reduced from time to time by amounts actually distributed and applied on account of such Investment pursuant to Article 2; provided, that if such Investment shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Investment shall be increased by the amount of such rescinded or returned distribution, as though it had not been made;

" KAR Credit Facility " means that certain Amended and Restated Credit Agreement, originally dated as of March 11, 2014, as amended by the Incremental Commitment Agreement and First Amendment dated as of March 9, 2016, by and among KAR, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and agents party thereto, as the same may be amended, supplemented, restated or otherwise modified from time to time;

" KAR Financial Covenant " means the financial covenant regarding KAR's maximum consolidated senior secured leverage ratio as set forth in Section 8.1 of the KAR Credit Facility. Such covenant (including all defined terms incorporated therein) will survive the termination of the KAR Credit Facility and can only be amended, modified, added or terminated from time to time with the prior written consent of the Trust; provided, however, that as long as KAR's senior secured debt shall be rated at least "BBB- (stable)" by Standard & Poor's and at least "Baa3 (stable)" by Moody's, the financial covenant will conform with the financial covenants required by KAR's Credit Facility or any replacement facility without the consent of the Trust;

" KAR Financial Covenant Event " means any breach of the KAR Financial Covenant;

" KAR Financial Covenant Termination Event " means, following the occurrence of a KAR Financial Covenant Event, the earliest to occur of (i) if a Trust Notice Event has occurred, 120 days following the occurrence of such Trust Notice Event, (ii) any KAR Restricted Amendment, and (iii) the occurrence of a Trust Notice Event resulting in the KAR Credit Facility being accelerated;

" KAR Restricted Amendment " means any action under or amendment to the KAR Credit Facility which, in the sole and absolute discretion of the Trust, results in or may result in (i) an acceleration (in whole or in part) of principal or interest or the amount of principal or interest due under the KAR Credit Facility, (ii) the pledge of any additional collateral by the Seller under the KAR Credit Facility other than newly acquired collateral of the same type already pledged thereunder (e.g., a newly-acquired additional trademark is pledged where all trademarks of the relevant entity had previously been pledged), or (iii) any amendment to any provisions or the addition of any provision to the KAR Credit Facility regarding the Seller or its assets;

" Loss Percentage " means, on any Settlement Date, the greatest of [*];

" Loss Reserve " means, for any date, an amount equal to the product of [*];

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" Lot Check " means, with respect to an Obligor, a physical inspection of such Obligor's Financed Vehicles and which may include a review of such Obligor's books and records related thereto;

" Marine Craft " means [*];

" Material Adverse Effect " means any effect upon the business, operations, property or financial condition of the Seller or the Servicer, as applicable, which materially adversely affects (i) the interest of the Trust in the Pool Assets, (ii) the collectability or credit quality of a Receivable forming part of the Pool Assets, (iii) the legality, validity or enforceability of Receivables, (iv) the Related Security or (v) the Seller or Servicer's, as applicable, ability to perform its obligations hereunder;

" Moody's " means Moody's Investor Services, Inc. and its successors;

" Motorcycle " means [*];

" Net Cash Payment " means, with respect to the Purchase the amount set forth in the Purchase Request as the "Net Cash Payment" and, in respect of each Increase, the amount set forth in the related Increase Request as the "Net Cash Payment";

" Net Receivables Pool Balance " means, at any time, the amount determined pursuant to the calculation in Schedule "H";

" Net Spread " means, in respect of a Collection Period, the annualized percentage equivalent of a fraction, the numerator of which is the excess of (x) the sum of (i) all Finance Charge and Floorplan Fee Collections received and applied during such Collection Period (including recoveries and Collections received in respect of Defaulted Receivables), and (ii) the Adjusted Net Spread Amount for such Collection Period, if applicable over (y) the sum of, without duplication, (i) the Carry Costs for such Collection Period, plus (ii) the aggregate amount of Receivables that became Defaulted Receivables during such Collection Period, plus (iii) the aggregate amount of non-cash adjustments that reduced the Principal Balance of any Pool Receivable during such Collection Period (but excluding any Receivable that was included in the calculation of Net Spread pursuant to clause (y)(ii) above in any previous Collection Period); and the denominator of which is the average Pool Balance during such Collection Period;

" New Car " means a "new motor vehicle" within the meaning of Regulation 333/08 under the Motor Vehicle Dealer Act , 2002 (Ontario);

" Normal Concentration Percentage " for any Obligor (other than Obligors subject to Special Concentration Percentages) means at any time, [*];

" Notes " means the short-term debt obligations issued by the Trust in connection with the transactions contemplated hereby;

" Notional Servicer Fee " means, for any Collection Period, an amount equal to [*] times the average aggregate net book value of all Pool Receivables outstanding during such Collection Period;

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" Obligor " means any Person who is obligated to make payment on a Receivable including any co-signer or guarantor;

" Operation of Law Claim " means any mechanic's lien, supplier's lien, materialman's lien, landlord's lien or similar lien arising and having priority governed by operation of law but not including any Security Interest arising pursuant to a written security agreement and which can only be perfected pursuant to the provisions of a PPSA;

" Paydown Date " means any day prior to the occurrence of a Trigger Date on which:


(a)	the Servicer has failed to deliver a Servicer Report or a Portfolio Certificate in accordance with the terms hereof;


(b)	any of the statements contained in Section 3.2(b) are not satisfied and have not been waived by the Trust; or


(c)	the Trust's Share is greater than 100%;

" Payment Rate " means the ratio (expressed as a percentage and rounded upward to the nearest 1/100th of 1%) computed as of the last day of each Collection Period by dividing [*];

" Person " means an individual, partnership, corporation, limited liability company, trust, joint venture, unincorporated organization, association, board or body established by statute, government (or any agency or political subdivision thereof) or other entity;

" Pool Assets " means each Pool Receivable and the Related Security with respect thereto;

" Pool Balance " means, on a particular date, the aggregate Principal Balance of the Receivables Pool on that date;

" Pool Receivable " means any Receivable forming part of the Receivables Pool;

" Portfolio Certificate " means a certificate substantially in the form of Schedule "D" thereto;

" PPSA " means the Personal Property Security Act (Ontario) and the comparable legislation of any other province or territory of Canada;

" Prime Rate " means, at any time and from time to time, the fluctuating annual interest rate most recently established by Bank of Montreal which it refers to as its "prime rate";

" Principal Balance " means, with respect to any Receivable, the then unpaid principal amount of all advances or loans made to the related Obligor pursuant to the related Contract by the Seller, to the extent that [*];

" Program Fee Side Letter " means the letter agreement between the Seller and the Securitization Agent dated December 20, 2016 as the same may be amended, varied or replaced from time to time;

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" Program Limit " means $125 million or such greater amount as the Seller and the Trust may agree upon in writing;

" PST " means amounts payable under a statute of any province or territory in Canada imposing a single stage retail sales tax;

" Purchase " means the purchase of the Trust's Co-Ownership Interest effected pursuant to Section 2.2(a);

" Purchase Price " means the sum of the Cash Payments and the Deferred Purchase Price;

" Purchase Request " means the written request sent to the Trust by the Seller pursuant to Section 2.1 in form annexed hereto as Schedule "A";

" Quebec Assignment " means the form of assignment attached hereto as Schedule "G";

" Receivable " means any right to payment from an Obligor arising under a Contract, whether such indebtedness or other obligations constitute accounts, chattel paper, instruments or general intangibles, arising from the providing of financing and other services by the Seller to (i) new, used and wholesale automobile, light truck or other Specialty Vehicle dealers or (ii) wholesale auctions under an Auction Credit, and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto;

" Receivables Pool " means all present Receivables (other than Excluded Receivables) and all future Receivables (other than Excluded Receivables) and all Related Security with respect to such Receivables; provided that the Receivables Pool shall not include any such interests (other than proceeds of such interests) created after the Final Termination Date;

" Records " means all contracts, books, records, microfiche and other documents and information (including computer programmes, tapes, diskettes, data processing software and related property and rights) maintained by or on behalf of the Seller evidencing or otherwise relating to any Pool Receivables, including the Contracts related thereto, or relating to any of the related Financed Vehicles, Obligors, Related Security, Collections or the Deposit Accounts and shall include all such records, information and material maintained or required to be maintained by the Servicer in respect thereof but excluding for greater certainty the financial statements of the Seller and its Affiliates;

" Recreational Vehicle " means [*];

" Register " has the meaning ascribed thereto in Section 10.14;

" Related Security " means, with respect to any Receivable:


(a)	the Related Vehicle and Proceeds Security;


(b)	all of the Seller's interest in all warranties, indemnities, service obligations and other contract rights issued or granted by, or otherwise existing under applicable

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law against, the Obligor or the manufacturer in respect of the related Financed Vehicle;

(c)

all guarantees and Security Interests (other than the Related Vehicle and Proceeds Security) from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable, or otherwise, together with all financing statements or other instruments describing any collateral securing such Receivable, and including all Security Interests (other than the Related Vehicle and Proceeds Security) granted by any Person (whether or not the primary Obligor on such Receivable) under or in connection therewith and purporting to secure payment of such Receivable;


(d)	all Records relating to such Receivable, including all original Contracts;


(e)	all service contracts and other contracts and agreements relating to such Receivable; and


(f)	all proceeds of or relating to any of the foregoing, including proceeds of or relating to the Receivable;

" Related Vehicle and Proceeds Security " means with respect to any Receivable, the Seller's Security Interest in the related Financed Vehicle, and all proceeds thereof including proceeds of Insurance Policies;

" Related Vehicle Security " means with respect to any Receivable, the Seller's Security Interest in the related Financed Vehicle excluding all proceeds thereof but including proceeds of Insurance Policies;

" Remittance Date " means Tuesday of each week or, if Tuesday is not a Business Day, the next Business Day, or any other Business Day agreed to by the Servicer and the Securitization Agent; provided that, after the Termination Date, the Trust may designate additional Business Days as Remittance Dates in its discretion;

" Rental Receivable " means a Receivable which satisfies all the requirements of the definition of Eligible Receivable except [*], provided [*], (ii) such Receivable must have a current maturity of [*], (iii) the terms of the related Contract as they apply to such Receivable require [*], (iv) the Obligor thereof must be otherwise current on its obligations under the related Contract, (v) if applicable, [*];

" Replacement Servicer " means, at any time following a Servicer Transfer, the Person whom the Trust designates from time to time by written notice given to the Seller in accordance with Section 5.13 as the Replacement Servicer;

" Replacement Servicer Fee " means, in respect of any Collection Period, if the Backup Servicer is the Replacement Servicer, the amount referred to in the Backup Servicing Agreement or Backup Servicing Fee Letter, and if a Person other than the Seller, an Affiliate of the Seller or the Backup Servicer is the Replacement Servicer, the actual fee payable to such Person,

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calculated and payable monthly based on the aggregate net book value of all Pool Receivables outstanding as at each Settlement Date;

" Reporting Date " means, in respect of a Collection Period, the 15th day of the following calendar month or, if such day is not a Business Day, the next following Business Day;

" Salvage Vehicle " means any vehicles [*] provided that such vehicle [*] For purposes of the Net Receivables Pool Balance calculation, the value of Receivables that are originated for the purpose of financing Salvage Vehicles is limited to [*];

" Securitization Agent " means BMONB, in its capacity as securitization agent of the Trust;

" Security Interest " means a lien, security interest, hypothec, title retention agreement, pledge, assignment (whether or not by way of security), charge, encumbrance, mortgage, right of set-off, lease or other right or claim of any Person;

" Seller's Retained Interest " has the meaning ascribed thereto in Section 2.3;

" Seller's Share " means 100% minus the Trust's Share;

" Servicer " means the Person designated as the Servicer for the time being pursuant to Sections 5.1 and 5.13 which shall be the Seller initially and, after a Servicer Transfer, means any Replacement Servicer (including, for greater certainty, the Backup Servicer to the extent it is the Replacement Servicer);

" Servicer Report " means a report substantially in the form of Schedule "C";

" Servicer Termination Event " has the meaning ascribed thereto in Section 5.11;

" Servicer Transfer " has the meaning ascribed thereto in Section 5.12;

" Settlement Date " means, in respect of a Collection Period, the last day of the Collection Period;

" Special Concentration Percentage " means, as a percentage of the aggregate Eligible Receivables [*] at such time, without duplication:


(i)	[*];


(ii)	[*];


(iii)	[*];


(iv)	[*];


(v)	[*];


(vi)	[*];

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(vii)	[*];


(viii)	[*];


(ix)	[*]; and


(x)	[*];

" Special Obligors " means any Obligors, together with their Affiliates, identified as a "Special Obligor" on the most recent Servicer Report by the Servicer;

" Specialty Vehicles " means [*];

" Specified Ineligible Receivable " means any Pool Receivable that the Servicer has identified as a "Specified Ineligible Receivable" pursuant to Section 2.16;

" Standard & Poor's " means Standard & Poor's Rating Service, a division of The McGraw Hill Companies Inc., and its successors;

" Standby Fee " has the meaning ascribed thereto in the Program Fee Side Letter;

" Supplemental Yield Reserve Amount " means any cash amount deposited in the Cash Reserve Account as mutually agreed to by the Securitization Agent, Bank of Montreal and the Seller, less any reduction of the “Supplemental Yield Reserve Amount” in accordance with Section 2.14;

" Tangible Net Worth " means, with respect to any Person, the net worth of such Person calculated in accordance with GAAP after subtracting therefrom the aggregate amount of such Person's intangible assets, including, without limitation, goodwill, franchises, licenses, patents, trademarks, tradenames, copyrights, service marks and brand names and capitalized software;

" Tax " means any withholding, stamp, general corporation, property, capital, large corporations, excise, GST, PST, sales or other tax or any fee, levy, assessment or other governmental charge, including any related penalties or interest (excluding any tax imposed upon the Trust with respect to its income);

" Tax Credit " has the meaning ascribed thereto in Section 9.5;

" Termination Date " means the earlier of:


(a)	the Trigger Date;


(b)	January 31, 2020, which date may be extended by notice from the Trust to the Seller upon agreement to such extension by the Seller and the Trust; and


(c)	the date the Seller designates as the Termination Date upon 30 days' notice to the Trust;

" Tractor " means [*];

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" Tranche Amount " means, on any date, the principal amount of Notes outstanding on such date;

" Tranche Period " means the period beginning on a Remittance Date and ending on the day immediately prior to the next occurring Remittance Date; provided that the first Tranche Period shall be the period beginning on the date of the Purchase and ending on the day immediately prior to the first Remittance Date;

" Tranche Rate " means (a) at any time prior to the occurrence of a Trigger Event, [*], and (b) at any time on or after the occurrence of a Trigger Event, [*];

" Transition Expenses " means all reasonable costs and expenses (including reasonable legal fees) incurred by the Backup Servicer in connection with transferring servicing obligations under this Agreement, which shall not exceed the cap established in the Backup Servicing Agreement or the Backup Servicing Fee Letter;

" Trigger Date " means the day that, in accordance with Section 6.2, is declared as, or automatically becomes, the Trigger Date;

" Trigger Event " has the meaning ascribed thereto in Section 6.1;

" Trust Notice Event " means, following the occurrence of a KAR Financial Covenant Event, the Trust has provided the Seller with written notice of the Trust's declaration of a KAR Financial Covenant Termination Event;

" Trust's Co-Ownership Interest " has the meaning ascribed thereto in Section 2.3;

" Trust's Share " means on any Business Day before the Termination Date, the percentage computed as:

I + DP + LR

NRPB

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where:



I	=	the Investment at the time of computation, reduced by the aggregate amount deposited in the Collection Account on (i) with respect to any Servicer Report, the last Business Day of the immediately prior Collection Period, or (ii) with respect to any Portfolio Certificate, the last Business Day of the prior calendar week, provided that in the case of each of (i) and (ii) above, an equal amount is wired to the Trust on the immediately following Remittance Date to pay down the Investment,
DP	=	the aggregate unfulfilled purchase amounts of the Trust at such time,
LR	=	the Loss Reserve at the time of computation,
NRPB	=	the Net Receivables Pool Balance at the time of computation,

and, on any Business Day on or after the Termination Date, the Trust's Share calculated as of the last Business Day prior to the Termination Date; and

" USA PATRIOT ACT " means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended.


1.2	Headings

The division of this Agreement into Articles, Sections, Schedules and other subdivisions, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section, Schedule or other portion hereof and include the recitals and any agreement supplemental hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to particular Articles, Sections and Schedules are to the particular Articles, Sections and Schedules of this Agreement.


1.3	Number, Gender, Etc.

Words importing the singular number shall include the plural and vice versa; words importing gender shall include all genders. Any use of the term "including" in this Agreement shall be read as, and shall mean, "including, without limitation".


1.4	Non-Business Days

Whenever any payment to be made hereunder shall be stated to be due or any action to be taken hereunder shall be stated to be required to be taken on a day other than a Business Day, unless otherwise specifically provided for herein, such payment shall be made or such action shall be taken on the next succeeding Business Day.

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1.5	Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereto hereby attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario.


1.6	References to Statutes

All references herein to any statute or any provision thereof shall, unless otherwise specified herein, mean such statute or provision as the same may be amended, re-enacted or replaced from time to time.


1.7	Severability

In the event that one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or impaired thereby. Each of the provisions of this Agreement is hereby declared to be separate and distinct.


1.8	Currency

All amounts expressed herein in terms of money refer to lawful currency of Canada and all payments to be made hereunder shall be made in such currency.


1.9	Schedules

The following Schedules annexed hereto are incorporated herein by reference and are deemed to be part hereof:



Schedule "A"	-	Form of Purchase Request
Schedule "B"	-	Location of Records
Schedule "C"	-	Form of Servicer Report
Schedule "D"	-	Form of Portfolio Certificate
Schedule "E"	-	Deposit Accounts
Schedule "F"	-	Form of Increase Request
Schedule "G"	-	Form of Quebec Assignment
Schedule "H"	-	Net Receivables Pool Balance Calculation

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ARTICLE 2
PURCHASES AND INCREASES


2.1	Purchase Request and Increase

(a)

At any time on or after February 8, 2010 and on or prior to February 15, 2010, the Seller may, by delivery of an appropriately completed Purchase Request to the Trust, request the Trust to purchase an undivided co-ownership interest in the Receivables Pool from the Seller. The Purchase Request shall specify (i) the amount of the Cash Payments to be paid to the Seller (which shall not be less than $30,000,000 and shall be an integral multiple of $100,000) and the Net Cash Payment to be paid to the Seller, and (ii) the date of such Purchase.

(b)

From time to time after the Purchase hereunder up to the Termination Date, the Seller may, by delivery of an appropriately completed Increase Request delivered to the Trust at least one Business Day prior to the date of the proposed Increase, request the Trust to increase the Investment and the amount of its undivided co-ownership interest in the Receivables Pool. The Increase Request shall specify, (i) the amount of the Cash Payment and the Net Cash Payment to be paid to the Seller, (ii) the date of such Increase (which shall be a Remittance Date), and (iii) the account number of the Seller into which the Net Cash Payment should be deposited.

(c)

Notwithstanding the foregoing, the Trust may, in its sole discretion by written notice to the Seller and the Servicer by 5:00 p.m. on the date of receipt of an Increase Request, elect to fund any requested Increase no later than the [*] day following the Seller's delivery of an Increase Request (the " Deferred Increase Date "), rather than on the requested Increase date. In the event that the Trust so elects to defer funding an Increase, subject to the adjustment of the Investment for certain purposes as described in Section 2.1(d), the Trust shall be obligated to fund such Increase no later than such Deferred Increase Date so long as all applicable conditions precedent to such Increase pursuant to Section 3.2 were satisfied on the related requested Increase date (regardless of whether such conditions precedent to funding are not satisfied thereafter or on the Deferred Increase Date). The Trust may (in its sole discretion) fund such Increase on any Business Day prior to such Deferred Increase Date. Subject to any adjustment of the Cash Payment payable as described in Section 2.1(d), the Seller shall be obligated to accept the proceeds of any such Increase on the date funded by the Trust.

(d)

Future Increase Requests and reports shall be calculated on a pro forma basis including any unfulfilled Increases in the calculation of the Investment (e.g., the calculation of the Trust's Share shall include such unfulfilled Increases). For the avoidance of doubt, any payments required by clause (c) of the definition of Paydown Date shall be satisfied first by reducing the current balance of any unfulfilled Increases to zero before allocating the Trust's Share of Collections to

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the Trust. In addition, no unfulfilled Increase shall accrue Funding Discount or be included in the calculation of fees hereunder until funded.


2.2	Purchase and Sale

(a)

If the conditions precedent in Section 3.1 (in the case of the Purchase hereunder) and Section 3.2 are satisfied or have not been satisfied but have been waived by the Trust, on the date specified in the Purchase Request, the Seller shall sell, assign and transfer to the Trust, and the Trust shall purchase, an undivided co-ownership interest in the Receivables Pool, having the terms and attributes and conferring upon the Trust the entitlements and property rights set out in Section 2.3, for the Purchase Price applicable to the Purchase, and the Trust shall deposit the applicable Cash Deposit Amount into the Cash Reserve Account and pay to the Seller the Net Cash Payment in respect thereof on the date of such Purchase. Upon the making of such payment and deposit, all of the Seller's right, title and interest in and to an undivided co-ownership interest in the Receivables Pool shall be sold, assigned and transferred to the Trust on a fully serviced basis without recourse (except as provided by this Agreement), without the need of any formality or other instrument of assignment.

(b)

If the conditions precedent in Section 3.2 are satisfied or have not been satisfied but have been waived by the Trust, on the date specified in an Increase Request, the Seller shall sell, assign and transfer to the Trust, and the Trust shall purchase, an additional undivided co-ownership interest in the Receivables Pool, having the terms and attributes and conferring upon the Trust the entitlements and property rights set out in Section 2.3, for the additional Purchase Price applicable to the Increase, and the Trust shall deposit the applicable Cash Deposit Amount into the Cash Reserve Account and pay to the Seller the Net Cash Payment in respect thereof on the date of such Increase and thereafter the Investment shall be increased by the amount of the Cash Payment and the Trust's Share shall be calculated based on such increased Investment. Upon the making of such payment and deposit pursuant to the Increase Request, an additional interest in the Receivables Pool shall be sold, assigned and transferred to the Trust on a fully serviced basis without recourse (except as provided by this Agreement), without the need of any formality or other instrument of assignment, such that the Trust's Share shall be calculated based on such increased Investment.


(c)	In addition to Sections 2.2(a) and 2.2(b), but subject to the last sentence of this Section 2.2(c), the Seller shall, on the date hereof, execute and deliver to the Trust the Quebec Assignment. For greater certainty, to the extent there is any conflict or inconsistency between this Agreement and the Quebec Assignment, the Quebec Assignment shall govern.


2.3	Ownership Interests

The undivided co-ownership interests in the Receivables Pool to be conveyed to and owned by the Trust pursuant to the terms hereof shall constitute and comprise property interests in the

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Receivables Pool that shall entitle the Trust to receive amounts from the Trust's Share of Collections from Receivables and other amounts constituting the Receivables Pool in the amounts, at the times and on the terms and conditions herein provided. Such undivided co-ownership interest is not intended and shall not be construed as merely a contractual or personal right against the Seller but rather as an interest in rem. The undivided co-ownership interest in the Receivables Pool acquired by the Trust by way of the Purchase and any Increases in accordance with Section 2.1 are collectively referred to herein as the "Trust's Co- Ownership Interest." The undivided ownership interest in the Receivables Pool not constituting the Trust's Co-Ownership Interest shall be retained by the Seller and shall constitute and comprise property interests in the Receivables Pool that shall entitle the Seller to receive amounts from the Seller's Share of Collections from Receivables and other amounts constituting the Receivables Pool in the amounts, at the times and on the terms and conditions herein provided. Such undivided ownership interest in the Receivables Pool not constituting the Trust's Co-Ownership Interest is referred to herein as the " Seller's Retained Interest ". The Seller and Trust shall hold the Seller's Retained Interest and Trust's Co-Ownership Interest, respectively, as tenants in common.


2.4	Transfer From Deposit Accounts to Collection Account

On each Business Day, all amounts on deposit in each Deposit Account shall be transferred by the Servicer from such Deposit Account to the Collection Account.


2.5	Allocations of Seller's Share of Collections Before the Termination Date

The Seller hereby authorizes and directs the Servicer, on each Business Day which is prior to the occurrence of the Termination Date, to allocate from the Seller's Share of Collections for such day, the following amounts in the following order:


(a)	to the Replacement Servicer, an amount equal to the Seller's Share of the sum of any Replacement Servicer Fee and any Collection Costs, and any arrears thereof, and to the Backup Servicer, the Seller's Share of any Backup Servicing Fees and Transition Expenses, and any arrears thereof;


(b)	in respect of the Cash Reserve Account, the amount, if any, by which the balance on deposit in the Cash Reserve Account is less than the Cash Reserve Required Amount; and


(c)	to the Seller, any remaining balance on account of the Seller's Retained Interest.


2.6	Allocation of Trust's Share of Collections Before the Termination Date

The Trust hereby authorizes and directs the Servicer, on each Business Day which is prior to the occurrence of the Termination Date, to allocate from the Trust's Share of Collections for such day and from amounts available in the Cash Reserve Account pursuant to Section 2.14, the following amounts in the following order of priority:


(a)	to the Replacement Servicer, an amount equal to the Trust's Share of the sum of any Replacement Servicer Fee and any Collection Costs, and any arrears thereof,

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and to the Backup Servicer, the Trust's Share of the Backup Servicing Fees and Transition Expenses, and any arrears thereof;


(b)	to the Trust, an amount equal to the sum of the Funding Discount and the Standby Fees accrued through such day;

(c)

to the Trust, subject to Section 2.1(d), if such Business Day is a Paydown Date, an amount up to the amount of the Investment for application in reduction of the Investment; provided that if a Paydown Date has occurred pursuant to clause (c) of the definition of Paydown Date, the amount to be applied in reduction of the Investment shall only be the amount (subject to such amounts being in integral multiples of $100,000) necessary to cause the Trust's Share to be reduced to an amount equal to or less than 100%;


(d)	into the Cash Reserve Account, the amount, if any (after giving effect to Section 2.5(b)), by which the balance on deposit in the Cash Reserve Account is less than the Cash Reserve Required Amount;


(e)	to the Trust, if a voluntary paydown of the Investment is being made, for application in reduction of the Investment in accordance with Section 2.13;


(f)	to the relevant Indemnified Party, an amount equal to the aggregate amounts owed to such Indemnified Party pursuant to Sections 9.1 or 9.4 that remain unpaid;


(g)	to the Trust, any other amounts owing to the Trust hereunder; and


(h)	to the Seller, any remaining balance as Deferred Purchase Price.


2.7	Payments from Collection Account

Amounts on deposit in the Collection Account deposited pursuant to Section 2.4 shall be paid out and applied by the Servicer as follows:


(a)	amounts allocated for the benefit of the Replacement Servicer and Backup Servicer pursuant to Sections 2.5(a) and 2.6(a) shall be paid to the Replacement Servicer and Backup Servicer, as applicable, when due and payable;


(b)	amounts allocated pursuant to Sections 2.5(b) and 2.6(d) shall be deposited to the Cash Reserve Account;


(c)	amounts allocated pursuant to (i) Section 2.6(b) shall be paid to the Trust on each Remittance Date and (ii) Section 2.6(g) shall be paid to the Trust on the second Remittance Date of each month;


(d)	amounts allocated pursuant to Sections 2.6(c) and 2.6(e) shall be paid to the Trust on each Remittance Date and the Investment shall be reduced by the amounts distributed and applied pursuant to such Sections;

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(e)	amounts allocated for the benefit of an Indemnified Party pursuant to Section 2.6(f) shall be paid when due and payable to such Indemnified Party or as such Indemnified Party may otherwise direct; and


(f)	amounts allocated pursuant to Section 2.5(c) shall be paid to the Seller in respect of the Seller's Retained Interest on each Business Day and amounts allocated pursuant to Section 2.6(h) shall be paid to the Seller in respect of Deferred Purchase Price on each Business Day.

For greater certainty, priority shall be determined by the priority of allocations under Sections 2.5 and 2.6 and not by the order in which payments and deposits are referred to in this Section 2.7.


2.8	Allocation and Payment of Seller's Share of Collections After a Termination Date

The Seller hereby authorizes and directs the Servicer, on each Business Day on or after the occurrence of a Termination Date, to allocate from the Seller's Share of Collections for such day, the following amounts in the following order:


(a)	to the Replacement Servicer, an amount equal to the Seller's Share of the sum of any Replacement Servicer Fee and any Collection Costs, and any arrears thereof, and to the Backup Servicer, the Seller's Share of any Backup Servicing Fees and Transition Expenses, and any arrears thereof;


(b)	to the relevant Indemnified Party, an amount equal to the aggregate amounts owed to such Indemnified Party pursuant to Sections 9.1 or 9.4 that remain unpaid; and


(c)	to the Seller, the balance on account of the Seller's Retained Interest.


2.9	Allocation of Trust's Share of Collections After a Termination Date

The Trust hereby authorizes and directs the Servicer, on each Business Day which is on or after the Termination Date, to allocate from the Trust's Share of Collections for such day and amounts available in the Cash Reserve Account pursuant to Section 2.14, the following amounts in the following order of priority:


(a)	to the Replacement Servicer, an amount equal to the Trust's Share of the sum of any Replacement Servicer Fee and any Collection Costs, and any arrears thereof, and to the Backup Servicer, the Trust's Share of the Backup Servicing Fees and Transition Expenses, and any arrears thereof;


(b)	to the Trust, an amount equal to the Funding Discount accrued through such day;


(c)	to the Trust, an amount equal to the Investment;


(d)	to the extent the amounts payable under Section 2.8(b) have not been satisfied in full, to the relevant Indemnified Party, an amount equal to the aggregate amounts

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	owed to such Indemnified Party pursuant to Sections 9.1 or 9.4 that remain unpaid;


(e)	to the Trust, any other amounts owing to the Trust hereunder; and


(f)	to the Seller, the balance, as Deferred Purchase Price.


2.10	Payments from Collection Account After a Termination Date

Amounts on deposit in the Collection Account deposited pursuant to Section 2.4 shall be paid out and applied by the Trust as follows:


(a)	amounts held on deposit for the benefit of the Replacement Servicer pursuant to Sections 2.8(a) and 2.9(a) shall be paid to the Replacement Servicer when due and payable;


(b)	amounts held on deposit for the benefit of the Backup Servicer pursuant to Sections 2.8(a) and 2.9(a) shall be paid to the Backup Servicer when due and payable;


(c)	amounts held on deposit for the benefit of an Indemnified Party pursuant to Sections 2.8(b) and 2.9(d) shall be paid to such Indemnified Party or as such Indemnified Party may otherwise direct, when due and payable;


(d)	amounts allocated pursuant to Sections 2.9(b) and 2.9(e) shall be paid to the Trust on such dates as the Trust may determine;


(e)	amounts allocated pursuant to Section 2.9(c) shall be paid to the Trust on each Remittance Date and the Investment shall be reduced by such amounts distributed; and


(f)	amounts allocated pursuant to Section 2.8(c) shall be paid to the Seller in respect of the Seller's Retained Interest on each Business Day and amounts allocated pursuant to Section 2.9(f) shall be paid to the Seller on account of Deferred Purchase Price on each Business Day.

For greater certainty, priority shall be determined by the priority of allocations under Sections 2.8 and 2.9 and not by the order in which payments and deposits are referred to in this Section 2.10.


2.11	Purchases Limited by Program Limit

No Purchase or Increase may be made hereunder if, after giving effect thereto, the Investment would exceed the Program Limit.

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2.12	Program Limit

The Seller may, upon at least 30 days written notice to the Trust, reduce in part the unused portion of the Program Limit; provided that each partial reduction shall be in the amount of at least $1,000,000 or an integral multiple thereof and shall be effective on a Remittance Date.


2.13	Voluntary Paydown of Investment

If at any time the Seller wishes to reduce the Investment, the Seller shall (i) provided the reduction can be fully paid on a Remittance Date, provide details thereof in a Servicer Report or Portfolio Certificate one day prior to such Remittance Date, or (ii) give the Trust, the Servicer and the Backup Servicer at least two Business Days' prior written notice thereof (including the amount of such proposed reduction and the proposed date on which such reduction will commence).

Following the delivery of such notice, on the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall allocate all amounts available for allocation under Section 2.6(e) to the Trust until the aggregate amount allocated shall equal the desired amount of reduction, provided that,


(a)	unless otherwise agreed by the Trust, the amount of any such reduction shall be not less than $1,000,000 and shall be an integral multiple of $1,000,000, and the Investment after giving effect to such reduction shall be not less than $30 million, and


(b)	the Seller shall use reasonable efforts to choose a reduction amount, and the date of commencement thereof, so that to the extent practicable such reduction shall commence and conclude in the same Collection Period.


2.14	Cash Reserve Account

To the extent that on any Business Day before the Termination Date the Trust's Share of Collections is less than the sum of the amounts referred to in Sections 2.6(a) through 2.6(c), the Trust shall apply, by deposit to the Collection Account, any amounts on deposit in the Cash Reserve Account to make the allocations specified in Sections 2.6(a) through 2.6(c) on such Business Day. On each Remittance Date prior to the Termination Date, any Cash Reserve Excess Amount shall, if requested by the Seller, be paid to the Seller on account of Deferred Purchase Price. On any Business Day, prior to the Termination Date, any Supplemental Yield Reserve Amount, if requested by the Seller and with the consent of the Securitization Agent and Bank of Montreal, shall be paid to Seller; provided, the Supplemental Yield Reserve Amount will be reduced by the amount of such payment. On the Termination Date, the balance of the Cash Reserve Account shall be deposited to the Collection Account and applied under Section 2.9.

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2.15	Calculations

In making all allocation and payments of Collections and amounts on deposit in the Cash Reserve Account hereunder, the Servicer shall use the information contained in the most recently delivered Servicer Report or Portfolio Certificate, as applicable, including any Servicer Report or Portfolio Certificate delivered on the day of such allocation or payment.


2.16	Specified Ineligible Receivables

At any time prior to a Receivable first being referenced in a Servicer Report or a Portfolio Certificate as an Eligible Receivable, the Servicer (so long as the Seller is the Servicer) may designate such Receivable as a "Specified Ineligible Receivable" (which designation may take the form of a specification that a certain class or category of Receivables to be created after such designation will be treated as "Specified Ineligible Receivables"). In addition, the Servicer (so long as the Seller is the Servicer) may, on behalf of the Seller, (i) designate an existing Receivable as a "Specified Ineligible Receivable" or (ii) designate an existing Specified Ineligible Receivable as a Receivable (i.e., no longer a "Specified Ineligible Receivable"), in each of cases (i) and (ii) with the prior written consent of the Trust. For the avoidance of doubt, any Receivable which was treated as an Eligible Receivable hereunder at any time may not be treated as a "Specified Ineligible Receivable" without the prior written consent of the Trust. The Servicer (so long as the Seller is the Servicer) shall identify the aggregate Principal Balance of all such "Specified Ineligible Receivables" on each Servicer Report. To the extent the Servicer has from time to time identified a Receivable as a "Specified Ineligible Receivable" in accordance with this Section, for so long as such Receivable is a Specified Ineligible Receivable, such Receivable (i) shall not be included as an Eligible Receivable by the Seller or the Servicer hereunder, (ii) shall not be included in any calculations of the Delinquency Ratio or the Default Ratio or other Receivables Pool information (other than a statement of the aggregate Principal Balance of such Specified Ineligible Receivables) hereunder and (iii) shall not be considered a Receivable for purposes of Section 6.1.


2.17	Collection Account

Subject to this Section 2.17, the Servicer shall be entitled to access the Collection Account and the Collections deposited therein, and may withdraw funds deposited to the Collection Account and payable to the Seller pursuant to Sections 2.7(f) and 2.10(f) prior to the relevant Remittance Date. Notwithstanding anything else contained in this Agreement, the Trust may notify the Servicer that it no longer wishes the Servicer to have the access rights described in this Section 2.17 and/or to be authorized to allocate and pay the amounts referred to in Sections 2.5, 2.6, 2.7, 2.8, 2.9 and 2.10. Upon receipt of such notice, the Servicer will have no further access or other rights with respect to the Collection Account and the Trust, or its nominees, will assume the duties of the Servicer under the aforementioned Sections 2.5 through 2.10.

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ARTICLE 3
CONDITIONS PRECEDENT


3.1	Conditions Precedent for the Initial Purchase

Prior to the Purchase occurring hereunder, the following shall have occurred, or the Seller shall have delivered to the Trust the following, as the case may be, in each case in form and substance satisfactory to the Trust, acting reasonably:


(a)	a certificate of an officer of the Seller attaching copies of its constating documents;


(b)	a certificate of status for the Seller in the Province of Ontario and a certificate of compliance for the Performance Guarantor in the State of Delaware;


(c)	resolutions of the board of directors of the Seller approving and authorizing the execution, delivery and performance of this Agreement and the other documents to be delivered by the Seller hereunder, and the Purchase and any Increase hereunder up to the Program Limit, certified by a senior officer of the Seller to be in full force and effect as of the Initial Closing Date;


(d)	incumbency certificates of the officers of the Seller executing this Agreement and the other documents to be delivered by the Seller hereunder showing their names, offices and specimen signatures on which certificates the Trust shall be entitled to conclusively rely until such time as the Trust receives from the Seller a replacement certificate meeting the requirements of this Section 3.1(d);


(e)	a copy of the Credit and Collection Policies and sample copies of each of the forms of Contract and other documents used or acquired by the Seller in each of the provinces of Canada with respect to Financed Vehicles and the Related Security, including credit application forms;


(f)	reports showing the results of the searches conducted in the Provinces of Ontario and Quebec against the Seller and its predecessors on the Business Day immediately preceding the Initial Closing Date to determine the existence of any Security Interests in the Pool Assets;

(g)

copies of verification statements, officially stamped or marked to indicate that copies of such documents have been filed with the appropriate Governmental Authorities in the Provinces of Ontario and Quebec or, if officially stamped copies are not available prior to the Initial Closing Date, photocopies of documents accepted for filing or registration, of all financing statements or other similar statements or other registrations, if any, filed in such province or provinces with respect to the Purchase to ensure recognition as against third parties of the interests of the Trust in the Pool Assets; in each case showing the Seller's address as 1717 Burton Road, Vars, Ontario, K0A 3H0;

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(h)

evidence that such Persons as the Trust may have designated who have registered financing statements or similar instruments against the Seller shall have entered into such agreements or acknowledgements or amended their registrations, filings or recordings so as to negate any Security Interest or other interest in the Pool Assets capable of encumbering or defeating the interests of the Trust therein;


(i)	executed copies of this Agreement, the Program Fee Side Letter, the Quebec Assignment and the other agreements and instruments called for hereunder;


(j)	an opinion of counsel to the Seller (including certain matters under Quebec Law) dated as of the Initial Closing Date, which opinions may rely on an officer's certificate of the Seller as to certain factual matters;


(k)	an opinion of counsel to the Performance Guarantor dated as of the Initial Closing Date;


(l)	Blocked Account Agreements with respect to the Deposit Accounts executed by the banks or other financial institutions at which each of the Deposit Accounts are located shall have been be executed and delivered to the Trust in form satisfactory to the Trust; and


(m)	such other documentation as may be required by the Trust or its counsel, Bennett Jones LLP or the Seller or its counsel, Osler Hoskin & Harcourt LLP, acting reasonably.


3.2	Conditions Precedent in Favour of the Trust for Purchase/All Increases

Prior to the Purchase and all Increases hereunder, the following shall have occurred, or the Seller shall have delivered to the Trust the following, as the case may be, in each case in form and substance satisfactory to the Trust, acting reasonably:


(a)	the Trust shall have received the Purchase Request or Increase Request duly executed by the Seller;


(b)	immediately prior to, at the time of and after giving effect to the Purchase or Increase, the following statements will be true, and the Seller, by accepting any payment pursuant to Section 2.2 in respect of the Purchase or any Increase, will be deemed to have certified that:


(i)	the representations and warranties of the Seller contained in Section 4.1 are correct on and as of the date of purchase as though made on and as of such date; and


(ii)	no event has occurred and is continuing, or would result from the effecting of such Purchase or Increase, that constitutes a Trigger Event or would constitute a Trigger Event by further requirement that notice be given or time elapse or both; and

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(c)	all other documents, instruments, opinions and agreements required by the terms hereof to be delivered to the Trust shall have been so delivered and shall be satisfactory in form and substance to the Trust, acting reasonably, and the Trust shall have received such other approvals, opinions or documents as it may reasonably request.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES


4.1	General Representations and Warranties of the Seller

The Seller represents and warrants to the Trust (in its capacity as Seller and as Servicer), and acknowledges that the Trust is relying upon such representations and warranties in consummating the transactions contemplated hereby that as of the Closing Date and as of the date of each Increase:

(a)

the Seller is a corporation duly incorporated and existing under its jurisdiction of incorporation, the Seller is not a "non-resident" of Canada for the purposes of the Income Tax Act (Canada) and the Seller is duly qualified, licensed or registered in each of the provinces of Canada to carry on its present business and operations, except where the failure to be so qualified, licensed or registered could not reasonably be expected to have a Material Adverse Effect;

(b)

the execution, delivery and performance by the Seller of this Agreement and all other instruments, agreements and documents to be delivered by it hereunder, and the transactions contemplated hereby and thereby, are within the Seller's powers, have been duly authorized by all necessary corporate action and do not contravene (i) the Seller's constating documents or by-laws, (ii) any resolution of its board of directors (or any committee thereof) or shareholders or (iii) any law or any contractual restriction binding on or affecting the Seller (including pursuant to any indentures, loan or credit agreements, leases, mortgages or security agreements), the contravention of which could reasonably be expected to have a Material Adverse Effect, and do not result in or require the creation of any Security Interest (other than any Security Interest created pursuant to this Agreement and the Related Security, the Blocked Account Claims, or Security Interests permitted by this Agreement), upon or with respect to any of its properties, and the consummation of the transactions contemplated hereby does not require approval of shareholders or approval or consent of any Person under any contract to which the Seller is a party;

(c)

no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for the due execution, delivery and performance by the Seller of this Agreement or any other instrument, agreement or document to be delivered hereunder or thereunder except (i) those that have already been given, filed or obtained, as the case may be, and (ii) financing statements filed in favour of the Trust;

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(d)

this Agreement and the other instruments, agreements and documents executed in connection herewith constitute legal, valid and binding obligations of the Seller enforceable against it in accordance with their terms, subject to (a) applicable bankruptcy, reorganization, winding-up, insolvency, moratorium and other laws of general application limiting the enforcement of creditors' rights; (b) the fact that the granting of equitable remedies such as specific performance and injunction is within the discretion of a court of competent jurisdiction; and (c) general principles of equity;

(e)

all filings, recordings, registrations or other actions required under this Agreement have been made or taken in Ontario (the parties acknowledge that in Quebec such filings, recordings, registrations or other actions shall be taken immediately following closing), in order to validate, preserve, perfect or protect the interests (including the co-ownership interest) of the Trust in, and the rights of the Trust to collect, any and all of the Pool Assets, including the right to enforce the Related Security;

(f)

as of the date hereof, the chief executive office of the Seller is located in Ontario and the books, Records and documents related to the Receivables in which the Seller has an interest and other printed information (excluding policies or certificates of insurance) evidencing or relating to the Pool Assets, the Obligors and the related Financed Vehicles are located at the offices shown in Schedule "B";

(g)

the Records contain all information reasonably necessary for the enforcement and Collection by the Trust of the Pool Assets, including the name, address and phone number of each Obligor, the Principal Balance and any accrued interest and fees on each Pool Receivable, the vehicle identification number of each related Financed Vehicle and the payment history of the Obligor with respect to each Pool Receivable, as such information may change from time to time;


(h)	each Servicer Report and Portfolio Certificate fully and accurately summarizes the information contained therein and reflects all of the Pool Receivables and the adjusted Principal Balances;

(i)

there is no order, judgment or decree of any court, arbitrator or similar tribunal or Governmental Authority purporting to enjoin or restrain, and there are no proceedings before any court, arbitrator or similar tribunal or Governmental Authority seeking to enjoin or restrain the Seller from effecting the Purchase or any Increase hereunder, or the Seller, its agents or the Trust from making any collection in respect thereof, which could reasonably be expected to have a Material Adverse Effect;


(j)	there are no actions, suits or proceedings in existence or, to the knowledge of the Seller, pending or threatened, against or affecting the Seller or its Affiliates, or the property of the Seller or of any such Affiliates, in any court, or before any

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arbitrator of any kind, or before or by any governmental body, which could reasonably be expected to have a Material Adverse Effect;


(k)	the transactions contemplated herein do not require compliance with the Bulk Sales Act (Ontario) or any similar legislation of any other jurisdiction;


(l)	all documents, computer files, microfiche or other records and materials containing information or disclosure relating to the Seller, the Backup Servicer, the Performance Guarantor, the Obligors, the Financed Vehicles and the Pool Assets made available to the Trust from time to time will be true and correct in all material respects;


(m)	the computer records of the Seller which contain particulars of the Pool Assets will contain notations, marks or other designations sufficient to identify that an interest in the Pool Assets has been sold by the Seller to the Trust hereunder;


(n)	the Records relating to the Pool Assets are current and reflect all material transactions between the Seller and the Obligors under such Pool Assets and any other Person in respect thereof;


(o)	each Pool Receivable included as an Eligible Receivable in the calculation of the Net Receivables Pool Balance is an Eligible Receivable as of the date of such calculation;


(p)	the Credit and Collection Policies in their current form do not contain any amendments or new policies or practices when compared to the historical policies and practices of the Servicer that would have adversely affected the historical collection results that have been furnished to the Trust;

(q)

since December 31, 2015, there has been no material adverse change in the business, operations, property or financial condition of the Seller or AFC, the ability of the Seller or AFC to perform its obligations under this Agreement or the other documents delivered or to be delivered by it hereunder or the collectability of the Pool Receivables, or which affects the legality, validity, or enforceability of this Agreement or the other documents delivered or to be delivered by it hereunder; and

(r)

the Seller is not: (i) a country, territory, organization, person or entity named on an Office of Foreign Asset Control (OFAC) list; (ii) a Person that resides or has a place of business in a country or territory named on such lists or which is designated as a "Non-Cooperative Jurisdiction" by the Financial Action Task Force on Money Laundering, or whose subscription funds are transferred from or through such a jurisdiction; (iii) a "Foreign Shell Bank" within the meaning of the USA PATRIOT Act, i.e., a foreign bank that does not have a physical presence in any country and that is not affiliated with a bank that has a physical presence and an acceptable level of regulation and supervision; or (iv) a person or entity that resides in or is organized under the laws of a jurisdictions designated by the

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United States Secretary of the Treasury under Sections 311 or 312 of the USA PATRIOT Act as warranting special measures due to money laundering concerns.


4.2	Survival

Subject to Section 10.13, the representations, warranties and covenants of the Seller (in its capacity as Servicer) contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement.


4.3	Representations and Warranties of the Trust

The Trust represents and warrants to the Seller, and acknowledges that the Seller is relying upon such representations and warranties in consummating the transactions contemplated hereby, that:


(a)	the Trust is validly existing under the laws of the Province of Ontario;

(b)

the execution, delivery and performance by it of this Agreement and the other documents to be delivered by it hereunder (i) are within its powers and (ii) do not contravene: (A) the documents pursuant to which it was established, (B) in any material respect, any law, rule or regulation applicable to it, (C) any material contractual restriction binding on or affecting it or its property, or (D) any material order, writ, judgement, award, injunction or decree binding on or affecting it or its property;


(c)	no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for the due execution, delivery and performance by it of this Agreement or any other document to be delivered by it hereunder other than those which have been obtained or completed;

(d)

this Agreement constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms subject to (a) applicable bankruptcy, reorganization, winding-up, insolvency, moratorium and other laws of general application limiting the enforcement of creditors' rights; (b) the fact that the granting of equitable remedies such as specific performance and injunction is within the discretion of a court of competent jurisdiction; and (c) general principles of equity;


(e)	there is no pending or, to its knowledge, threatened, action or proceeding affecting it or any of its assets before any court, governmental agency or arbitrator which would, if determined adversely, have a material adverse effect on the Seller's rights or interests hereunder; and


(f)	it is not a non-resident of Canada within the meaning of the Income Tax Act (Canada).

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4.4	Survival

Subject to Section 10.13, the representations and warranties of the Trust contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement.

ARTICLE 5
ADMINISTRATION


5.1	Designation of the Servicer

The Trust hereby designates the Seller as the initial Servicer under this Agreement and by executing and delivering this Agreement, the Seller agrees to accept its designation as the Servicer until a Servicer Transfer, and hereby agrees to perform the duties and obligations of the Servicer pursuant to the terms hereof, at no cost to the Trust. Subject to the provisions of this Agreement, the Servicer shall administer, service and collect the Pool Assets as agent for the Trust until the Final Termination Date and the Trust shall not terminate the Seller as Servicer except in accordance with Section 5.12. The Servicer may, in accordance with the terms of the Credit and Collection Policies, subcontract with any Person for the administration and collection of the Pool Receivables; provided however, that the Servicer shall remain liable for the performance of the duties and obligations so subcontracted and all other duties and obligations of the Servicer pursuant to the terms hereof.


5.2	Standard of Care

The Servicer, as agent for the Trust (to the extent provided herein), shall perform its duties hereunder with reasonable care and diligence, using that degree of skill and attention that the Servicer exercises in managing, servicing, administering, collecting on and performing similar functions relating to comparable Receivables that it services for itself or other Persons.


5.3	Authorization of Servicer

Without limiting the generality of the authority granted by the designation of any Person as Servicer, and subject to the other provisions of this Agreement, the Servicer is hereby authorized and empowered by the Trust to take any and all reasonable steps in its name and on its behalf necessary or desirable, and not inconsistent with the sale, transfer and assignment of an undivided co-ownership interest in the Pool Assets to the Trust, except that the Servicer shall not be required to notify any Person of the Trust's interest therein until the occurrence of a Trigger Event (other than a Trigger Event pursuant to Section 6.1(ee)), in the reasonable determination of the Servicer, to collect all amounts due under any and all Pool Assets, including, to execute and deliver, on behalf of the Trust and its successors and assigns, any and all instruments of satisfaction or cancellation, or partial or full release or discharge, and all other comparable instruments, with respect to the Pool Assets and, after delinquency of any Pool Receivable, and to the extent permitted under and in compliance with applicable law and regulations, to commence proceedings with respect to enforcing payment of such Pool Receivable and the Related Security, and adjusting, settling or compromising the account or payment thereof, to the same extent as the Seller could have done if it had continued to own the Pool Assets. The Trust shall furnish the Servicer with any powers of attorney and other documents that are within the

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ability of the Trust to furnish and which are reasonably necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder as agent of the Trust.


5.4	Enforcement of Contracts

The Servicer is authorized to enforce and protect the Trust's rights and interests in, to and under the Pool Assets and the Trust's right to receive payment in respect thereof, and the Servicer may commence or defend proceedings in the name of the Trust (or any agent thereof, including the Servicer) for the purpose of enforcing or protecting any rights under any of the Pool Assets or against any Obligor personally. Unless the Trust shall have given its express prior written consent thereto, the Servicer shall not take any action that would make the Trust a party to any litigation. Notwithstanding the foregoing, the Servicer need not seek the Trust's consent to make the Trust a party to litigation incidental to the enforcement by the Servicer of any of the Pool Assets.


5.5	Assignment for Purpose of Enforcement

If the Servicer shall commence a legal proceeding to enforce any rights under any of the Pool Assets or against an Obligor personally in accordance with this Agreement, the Trust shall thereupon be deemed to have automatically assigned its interest in any affected Pool Asset to the Servicer as of the day prior to such commencement, solely for the purpose of and only to the extent necessarily incidental to the enforcement by the Servicer of such rights. The Servicer shall hold any such assigned interest in a Pool Asset in trust for the Trust and the same shall be deemed to have been automatically re-assigned to the Trust when the assignment to the Servicer ceases to be necessary for the enforcement by the Servicer of such rights. If in any enforcement suit or legal proceeding it shall be held that the Servicer may not enforce a right under a Pool Asset on the grounds that it shall not be a real party in interest or a holder entitled to enforce rights in respect of the Pool Asset, the Trust shall, at the Servicer's expense and direction, take such steps as are necessary to enforce the Pool Asset.


5.6	Deposit of Collections

The Servicer shall deposit, or cause to be deposited, all Collections, to the Deposit Accounts as soon as reasonably possible and in any event, within one Business Day of receipt. All Collections deposited to the Deposit Accounts shall be held for the benefit of the Trust and the Seller, shall only be invested in Eligible Investments and shall be withdrawn from the Deposit Accounts only in accordance with the terms of this Agreement. Notwithstanding the foregoing, the Servicer shall be entitled to reimburse itself out of Collections for any amounts paid by it to [*] pursuant to Section 8 of the Blocked Account Agreement in respect of chargebacks relating to cheques, drafts and other payment items dishonoured or otherwise returned for insufficient funds.


5.7	Description of Services

The Servicer shall, unless the Trust directs otherwise, take or cause to be taken all such reasonable actions as may be necessary or advisable from time to time to administer and service each Pool Receivable and the Related Security and the related Collections in accordance with the provisions of the Credit and Collection Policies, this Agreement and applicable law. Without

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limiting the generality of the foregoing, the Servicer shall, in accordance with and subject to the Credit and Collection Policies, with respect to each Pool Receivable:


(a)	take or cause to be taken all such actions as may be necessary or desirable from time to time to collect the Pool Receivable in accordance with the terms and provisions of the applicable Contract and in accordance with the terms of this Agreement;


(b)	keep an individual record with respect to the Pool Receivable and post to it all payments received under or in respect of such Pool Receivable;


(c)	deposit all Collections in respect of the Pool Receivable to the Deposit Accounts as required by Section 5.6, regardless of any defence, set-off right or counterclaim;


(d)	give timely notice to the Obligor of the Pool Receivable of any payment or other default thereunder within the Servicer's knowledge;


(e)	record the Pool Receivable as being delinquent or defaulted in accordance with the Credit and Collection Policies;


(f)	investigate all delinquencies and defaults under the Pool Receivable;


(g)	respond to all reasonable enquiries of the Obligor of the Pool Receivable or other obligors under the Related Security;

(h)

take such steps as are reasonably necessary or appropriate to maintain the perfection and priority, as the case may be, of the Security Interests, if any, created pursuant to the Pool Receivable and the Related Security and, subject to Sections 5.7(m) and (n) to refrain from releasing or subordinating any such Security Interest in whole or in part except to the extent that the Servicer would have done so in a similar situation with respect to other Receivables administered by it on its own behalf;


(i)	make all payments to Governmental Authorities and others where a statutory lien or deemed trust having priority over the Trust's interest in any of the Pool Assets has arisen (provided that nothing herein shall preclude the Servicer from contesting any claim in the ordinary course of business and in good faith);


(j)	subject to Sections 5.3 and 5.4, determine the advisability of taking action and instituting and carrying out legal proceedings with respect to the Pool Receivable and the Related Security in case of default by the Obligor under such Pool Receivable and take such action and institute and carry out such legal proceedings determined by it to be advisable;


(k)	maintain Records with respect to the Pool Receivable and the Related Security and, subject to Section 10.9, grant representatives of the Trust reasonable access to examine and make copies of such Records and a reasonable opportunity to

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discuss matters relating to the administration and servicing of the Pool Receivable and the Related Security with personnel of the Servicer involved in such administration and servicing during business hours, including the opportunity to see and review information systems and software in operation;

(l)

hold as trust property for and on behalf of the Trust and the Seller, free and clear, as against creditors of the Seller, of all Security Interests and rights of others other than Government and Employee Claims, Operation of Law Claims and those created pursuant to this Agreement, all Records with respect to the Pool Receivable at any one or more of the offices identified in Schedule "B" until the Final Termination Date;


(m)	execute and deliver all such assignments, releases and discharges of the Pool Receivable and the Related Security as are required by the terms thereof and upon receipt of all amounts due thereunder or as necessary to allow the Servicer to liquidate and sell a Financed Vehicle in accordance with the Credit and Collection Policies;


(n)	settle, compromise and otherwise deal with any claims under the Pool Receivable or the Related Security if necessary, advisable or otherwise permitted in accordance with the terms of the related Contract, this Agreement and the Credit and Collection Policies; and


(o)	maintain a complete list of Excluded Receivables and shall update such list on a timely basis for all changes thereto.


5.8	Affirmative Covenants of the Servicer

From the date hereof until the Final Termination Date, the Servicer covenants and agrees that it will, unless the Trust shall otherwise consent in writing:

(a)

comply in all respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties, all Pool Assets and the performance of its obligations as Servicer, such compliance to include paying before the same become delinquent all Taxes and Security Interests imposed upon the Servicer or its property in accordance with its normal policies with respect thereto, except to the extent the same are contested in good faith and by appropriate proceedings or where failure to do so could not reasonably be expected to have a Material Adverse Effect;

(b)

preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as an extra-provincial corporation or other out-of-jurisdiction corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualifications could reasonably be expected to have a Material Adverse Effect;

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(c)

hold as trust property for and on behalf of the Trust and the Seller, at any one or more of the offices designated under the heading "Location of Records" in Schedule "B" (provided that, as may be necessary, originals may be delivered to any law firm acting on behalf of the Servicer in connection with any claims or proceedings connected with a Pool Asset) with respect to each Pool Receivable, until the obligations in respect of such Pool Receivable have been satisfied, the following documents or instruments, which are hereby constructively delivered to the Trust:


(i)	the original Contracts applicable to the Pool Receivables;


(ii)	the original credit application, credit analysis and credit agency report (unless no such report could be obtained in respect of the Obligor) and "credit bureau score" and "custom score" records, if any, relating to the Obligor, all in accordance with the Credit and Collection Policies;


(iii)	all other documents that the Servicer shall keep on file, in accordance with its customary procedures, evidencing the Related Security; and


(iv)	any and all other documents that the Servicer shall keep on file, in accordance with its customary procedures, relating to a Receivable, an Obligor or any Financed Vehicles;

(d)

comply with the Credit and Collections Policies in regard to the Pool Assets and otherwise, as applicable, in performing its covenants hereunder, except to the extent that non-compliance therewith would not materially adversely affect the Trust's interest in any Pool Assets with respect thereto or the collectability or enforceability thereof, it being agreed for the purposes of this Agreement that the invalidity or loss of priority of any material Security Interest in any Financed Vehicle comprising part of the Related Security related to any Pool Receivable would materially adversely affect the Trust's interest therein;

(e)

at its own expense, employ and provide general administrative, supervisory and accounting staff and general overhead as may from time to time be reasonably required to carry out its obligations hereunder and cause its employees to perform their responsibilities in collecting and administering the Pool Assets in the same manner as if the Pool Assets were owned by the Seller, except (i) to the extent necessary or desirable to accommodate the exercise by the Trust of its rights under this Agreement, or (ii) as otherwise required hereby;


(f)	pay from its own funds all general administrative and out-of-pocket expenses and other costs incurred by it in carrying out its obligations hereunder and all fees and expenses of any administrator appointed or subcontractor retained by it;


(g)	cause the computer records of the Seller which contain particulars of the Pool Assets to contain notations, marks or other designations sufficient to identify that an interest in the Pool Assets has been sold by the Seller to the Trust hereunder;

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(h)

maintain and implement administrative and operating procedures (including an ability to recreate Records in the event of the destruction of the originals of such Records) to keep and maintain, and keep and maintain all Records and other information reasonably necessary or advisable to enable the Servicer to produce the information required to be produced by it pursuant hereto or reasonably necessary or advisable for the enforcement of all of the Pool Receivables and Related Security (including Records adequate to permit the daily identification of all Collections under and adjustments to each Pool Receivable);

(i)

at any time and from time to time during regular business hours, upon five Business Days' prior notice, subject to Section 10.9, (A) assemble such of the Records or copies thereof as may reasonably be requested by the Trust and make same available to the Trust at the principal place of business of the Servicer and, if the Records cannot be provided solely at such office, at such other offices of the Servicer or its Affiliates where Records are kept, and permit the Trust, its agents or representatives, to examine and make copies, as reasonably required, of such Records and (B) permit the Trust or its agents to visit the offices and properties of the Seller for the purpose of discussing matters relating to the Pool Assets and the Servicer's performance hereunder with any of the Servicer's officers or employees having knowledge of such matters, provided that the Trust shall act reasonably to minimize any disruption to the Servicer in connection therewith; provided that prior to the occurrence of a Cash Reserve Event or a Trigger Event, the Trust shall not be reimbursed for more than two such examinations in any year, if a Cash Reserve Event has occurred and is continuing, the Trust shall not be reimbursed for more than four such examinations in any year and, if a Trigger Event has occurred and is continuing, the Trust shall be reimbursed for all such examinations;

(j)

to the extent the Records consist in whole or in part of computer programs which are licensed by the Servicer, the Servicer will, forthwith upon the occurrence of the first Servicer Termination Event, use its best efforts to arrange for the licence or sublicence of such programs to the Trust for the limited purpose of permitting the Trust or any Replacement Servicer to administer and collect the Pool Assets and to enforce the rights acquired by the Trust in respect of the Related Security;


(k)	at its expense, timely and fully perform and comply in all material respects with all material provisions, covenants and other promises required to be observed by the Seller under the Contracts in connection with the Pool Assets;

(l)

permit the Trust at any reasonable time and from time to time to inspect the data processing systems used by the Servicer to service, administer and collect the Pool Receivables and the Related Security and, in the event that the Seller is not the Servicer, to permit the Servicer to use, through the Seller only (and not directly), any computer or computer related equipment, together with all necessary software, that had been used by the Seller to service, administer and collect the Pool Receivables and the Related Security immediately prior to the

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Seller ceasing to be the Servicer, provided that the Trust shall act reasonably to minimize any disruption to the Servicer in connection therewith;


(m)	give the Trust not less than 30 days' prior written notice of any change in the address of its chief place of business and chief executive office, and written notice promptly after any change in the address of an office listed under the heading "Location of Records" in Schedule "B", and each such notice shall be deemed to amend Schedule "B" accordingly;


(n)	provide to the Trust not less than 30 days' prior notice of any change in the name of the Servicer as stated in its constating documents;


(o)	co-operate with, and offer such assistance as may reasonably be requested by, the chartered accountants selected by the Trust to furnish reports in respect of the Trust, the Purchase, any Increases and the servicing of the Pool Assets under this Agreement;


(p)	upon request of the Trust and with the Servicer's written consent, such consent not to be unreasonably withheld, request the Servicer's auditors to assist the Trust's auditors to the extent and in such manner as is reasonably required for the Trust's auditors to report on the status of the Pool Assets under this Agreement;


(q)	make or cause to be made all filings, recordings, registrations and take all other actions in each jurisdiction necessary to validate, preserve, perfect or protect the co-ownership interests of the Trust in the Pool Assets including, the right to enforce the Related Security; and

(r)

following the occurrence and during the continuation of a Termination Event or a Cash Reserve Event, the Servicer shall provide to the Backup Servicer and the Trust (if requested) on a daily basis an electronic download with respect to the Pool Receivables in form and substance acceptable to the Backup Servicer (and which shall include, but not be limited to, all Records related to each Receivable required by the Backup Servicer to service and collect such Receivable) and a Portfolio Certificate (including information with respect to all Collections received and all Receivables acquired by the Seller). Following the occurrence and during the continuation of a Cash Reserve Event, the Trust shall have the right to require the Seller or the Servicer to, and upon such request the Seller or the Servicer, as applicable, shall, assemble copies of all of the Contracts and make the same available to the Backup Servicer or other third-party custodian specified by, and at a place selected by, the Trust within 30 days.


5.9	Reporting Requirements of the Servicer

From the date hereof until the Final Termination Date, the Servicer covenants and agrees that it will, unless the Trust shall otherwise consent in writing, deliver to the Trust:


(a)	on each Reporting Date, a Servicer Report relating to the Pool Assets during the related Collection Period and relating to all transactions between the Seller in its

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capacity as Servicer and the Trust during such Collection Period, such report to be current as of the close of business of the Servicer on the related Settlement Date;


(b)	on the first Business Day of each week, a Portfolio Certificate relating to the Pool Assets as of the close of business of the Servicer on the last day of the prior week;


(c)	upon the Trust's reasonable request therefor, a listing by Obligor of all Pool Receivables and current aging report for all Delinquent Receivables;

(d)

forthwith after the occurrence of each Servicer Termination Event and each event or the existence of any fact which, with the giving of such notice or lapse of time or both, may constitute a Servicer Termination Event, a statement of a senior financial officer or accounting officer of the Servicer setting forth details as to such Servicer Termination Event or fact or event and the action which the Servicer has taken and is proposing to take with respect thereto; and


(e)	promptly, from time to time, such other documents, records, information or reports with respect to the Pool Assets or the conditions or operations, financial or otherwise, of the Servicer as the Trust may from time to time reasonably request.


5.10	Negative Covenants of the Servicer

From the date of this Agreement until the Final Termination Date, the Servicer covenants and agrees that it will not, unless the Trust shall otherwise consent in writing:

(a)

except as otherwise provided herein, whether by operation of law or otherwise, purport to sell, assign or otherwise dispose of, or create or suffer to exist any Security Interest upon or with respect to the Seller's or the Trust's interest in the Pool Assets if the effect of such Security Interest would be to cause the related Pool Receivable not to be an Eligible Receivable, or assign any right to receive payment under, or to enforce the Servicer's interest in, any of the Pool Assets, provided that the Servicer may enter into arrangements with collection agencies, private investigation firms and law firms to directly collect and hold payments of Receivables in trust for the benefit of the Trust and the Seller in accordance with the Credit and Collection Policies;

(b)

without the prior written consent of the Trust, make any change in the Credit and Collection Policies which could reasonably be expected to have a Material Adverse Effect, or make any change to its credit, collection and administration practices and procedures with respect to Pool Receivables or Receivables which are to become Pool Receivables, provided that prior written consent shall not be required for changes to standard operating procedures (excluding any changes to credit underwriting criteria), however, the Trust can prevent a change, or require that a change be reversed, by notifying the Servicer that the Trust reasonably believes such a change would have a material adverse impact on the Pool Receivables;

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(c)	after the occurrence and during the continuance of a Trigger Event, extend the maturity or adjust the Principal Balance or otherwise modify the terms of any Pool Receivable in any material respect, or amend, modify or waive any term or condition of any related Contract in any material respect;


(d)	release any security, guarantee or insurance securing any indebtedness under any of the Pool Receivables, except to the extent that granting such release is in accordance with this Agreement, the Credit and Collection Policies and the Servicer's usual practices as an obligee or such security or insurance is replaced in a form acceptable to the Trust, acting reasonably;


(e)	take any action that adversely affects the perfection, validity or protection of the Trust's rights to collect amounts owing in respect of the Pool Receivables and the proceeds thereof, including the right to enforce the Related Security, except to the extent that the Servicer would have done so in a similar situation with respect to other similar receivables administered by it on its own behalf;

(f)

enter into any transaction of reorganization, amalgamation or arrangement, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution) or sell, lease or otherwise dispose of its assets as an entirety or substantially as an entirety; except that the Servicer may enter into a transaction of reorganization, amalgamation, or arrangement, so long as (i) such transaction could not reasonably be expected to have a Material Adverse Effect, (ii) as a condition to the completion of such transaction, the continued or reorganized corporation shall have executed an agreement of assumption to perform every obligation of the Servicer hereunder and under the other agreements, instruments and documents executed and delivered by the Servicer hereunder or otherwise contemplated hereby, (iii) the Backup Servicer shall have provided its written consent and acknowledged its continuing obligations under the Backup Servicer Agreement in respect of the obligations of such continued or reorganized corporation, and (iv) the Performance Guarantor shall have provided its written consent and acknowledged its continuing obligations under this Agreement in respect of the obligations of such continued or reorganized corporation; or


(g)	resign as Servicer (provided, for greater certainty, that nothing herein contained shall limit the ability of the Trust to appoint a Replacement Servicer in accordance with the provisions of this Agreement).


5.11	Servicer Termination Events

The occurrence or existence of one or more of the following events or facts which is continuing and has not been remedied by the Servicer or the Backup Servicer within the time period specified if any, with respect to such events or facts shall constitute a " Servicer Termination Event ":


(a)	the Servicer fails to make any payment or deposit to be made by it hereunder and such failure continues for two Business Days after the occurrence of such failure;

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(b)

any failure on the part of the Servicer to duly perform or observe any material term, condition, covenant or agreement of the Servicer set forth in this Agreement (other than Section 5.10(f)) or any document executed in connection herewith, other than such as are specifically referred to in paragraph (a) above, which failure continues unremedied for a period of 30 days after the date on which the Servicer receives written notice thereof from the Trust specifying the default or breach;

(c)

any representation or warranty made by the Servicer (or any of its officers) in or pursuant to this Agreement, the Purchase Request, any Increase Request, any Servicer Report, any Portfolio Certificate or any document executed in connection herewith or therewith proves to have been false or incorrect in any material respect when made and has not been cured within 30 days after written notice thereof has been received by the Servicer from the Trust;

(d)

the taking of possession by an encumbrancer (including a receiver, receiver manager or trustee) of any assets of the Servicer (other than solely to perfect a security interest therein), or the levying or enforcement or a distress or execution or any similar process against any part of the assets of the Servicer that remains unsatisfied for 30 days after the Servicer becoming aware thereof, which materially adversely affects the Servicer's ability to perform its obligations hereunder;

(e)

the issuance or levying of a writ of execution, attachment or similar process against all or a substantial portion of the property of the Servicer, the Backup Servicer or the Performance Guarantor, in connection with any judgment against the Servicer, the Backup Servicer or the Performance Guarantor in any amount that materially affects the property of the Servicer, the Backup Servicer or the Performance Guarantor if such writ of execution, attachment or similar process shall not have been stayed or dismissed after 45 days;


(f)	any failure on the part of the Servicer to duly perform or observe the terms of Section 5.10(f);

(g)

any of the Servicer, AFC or the Performance Guarantor shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceedings shall be instituted by or against the Servicer or the Performance Guarantor seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief by the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, if such proceeding has been instituted against the Servicer or the Performance Guarantor, as the case may be, either such proceeding has not been stayed or dismissed within 45 days or any of the actions sought in such proceeding (including the entry of an order for relief or the

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appointment of a receiver, trustee, custodian or other similar official) are granted, or the Servicer or the Performance Guarantor take any corporate action to authorize any of the actions described in this Section 5.11(g); and


(h)	the filing by the Servicer, AFC or the Performance Guarantor of a notice of intention to make a proposal under the Bankruptcy and Insolvency Act , the Companies' Creditors Arrangement Act or any other similar legislation in the applicable jurisdiction, to some or all of its creditors.


5.12	Effecting a Servicer Transfer

At any time after the occurrence of a Servicer Termination Event that has not been subsequently waived in writing by the Trust, the Trust may effect a termination of a Servicer's designation as Servicer hereunder (a " Servicer Transfer ") by giving notice to the Servicer of its decision to terminate the Servicer's engagement as Servicer, which termination shall take effect at the time specified in such notice, or, failing the specification of any time, upon the appointment of a Replacement Servicer. Any waiver delivered by the Trust will only be effective with respect to the specific matters in respect of which it is given and shall not be applicable to any further event or occurrence. The Trust acknowledges that any written waiver it delivers will be irrevocable by the Trust.


5.13	Appointment of Replacement Servicer

At any time after the occurrence of a Servicer Termination Event, the Trust may by instrument in writing delivered to the Servicer designate and appoint as the Replacement Servicer any Person;


5.14	Additional Servicer Covenants Following a Servicer Transfer

From and after a Servicer Transfer until the Final Termination Date, the Servicer and the Seller covenant and agree that they shall, in addition to any other obligations, upon the request of the Trust:


(a)	instruct the Obligor of each Pool Receivable (and any other Persons, if applicable, in the case of the Related Security) to remit all payments due under the Pool Receivables and Related Security to the Replacement Servicer;


(b)	remit to the Replacement Servicer all payments, if any, received by the predecessor Servicer from Obligors and from other Persons, if applicable, under the Pool Assets;


(c)	segregate all cash, cheques and other instruments constituting Collections in a manner acceptable to the Trust and, immediately upon receipt, deposit all such cash, cheques and instruments, duly endorsed or with duly executed instruments of transfer, to an account specified by the Replacement Servicer;


(d)	cause the computer records of the Seller which contain particulars of the Pool Assets to contain notations, marks or other designations sufficient to identify that an interest in the Pool Assets has been sold by the Seller to the Trust hereunder;

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(e)

deliver copies or originals of all Records (including computer diskettes or tapes containing all information necessary or reasonably desirable to enable the Trust or its agent to collect the amounts owing under the Pool Receivables and the Related Security, together with a printed copy or microfiche of all such information) to the Trust or as it may direct in writing (or retain the same in segregated storage if so directed), and provide the Trust or its agent with all reasonable assistance necessary to decipher the information contained on the computer diskettes or tapes; and


(f)	perform any and all acts and execute and deliver any and all documents as may reasonably be requested by the Trust in order to effect the purposes of this Agreement or to enable the Replacement Servicer to collect and enforce the Pool Receivables and any Related Security and Collections related thereto.


5.15	Trust Rights Following a Servicer Transfer

Upon a Servicer Transfer, the Trust may, but is not required to, at any time (unless prior to such time the Seller shall have purchased from the Trust and satisfied all of its obligations with respect to such purchase, all of the Pool Receivables), directly or through the Replacement Servicer, without limitation:


(a)	perform the services, duties and functions of the Servicer specified in Article 5 of this Agreement with respect to the Pool Assets as the Trust reasonably deems fit;


(b)	notify any Obligor of the purchase by the Trust and the sale, transfer and assignment by the Seller of any Pool Assets under this Agreement;


(c)	contact any Obligor for any reasonable purpose, including for the performance of audits and verification analyses, and the determination of account balances and other data maintained by the predecessor Servicer;


(d)	direct any Obligor to make all payments on account of any Pool Receivables or Related Security directly to the Trust at an address designated by the Trust or to such third party (including the Replacement Servicer) or bank or depositary as may be designated by the Trust;


(e)	request any Obligor to change the instructions for any direct debit or electronic funds transfer otherwise payable to the Seller or the Servicer; and


(f)	proceed directly against any Obligor and take any and all other actions, in the Seller's name or otherwise, necessary or reasonably desirable to collect the Pool Receivables, enforce the Related Security or effect any related result.


5.16	Power of Attorney; Further Assurances


(a)	The Seller hereby grants to the Trust an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Seller or in the name of the Trust, acting reasonably, all steps necessary or advisable to

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endorse or negotiate an instrument, bill of exchange or other writing or to otherwise enforce or realize on any Pool Asset or other right of any kind held or owned by the Seller or transmitted to or received by the Seller or the Trust as payment on account or otherwise in respect of the Pool Asset, and to execute and deliver, in the Seller's name and on the Seller's behalf, such instruments and documents necessary or desirable to evidence or protect the ownership of the Trust in the Pool Assets and to execute and file, in the Seller's name and on the Seller's behalf, such recording, registration, financing or similar statements (including any amendments, renewals and continuation statements) under applicable laws, including the PPSA, in such jurisdictions where it may be necessary to validate, perfect or protect the ownership of the Trust as aforesaid. The Seller shall execute and deliver such additional documents and shall take such further actions as the Trust may reasonably request to effect or evidence the sale, assignment and transfer of the Pool Assets, and the Trust's ownership interest therein or otherwise necessary or desirable in furtherance of the foregoing. The Seller shall execute and deliver to the Trust such powers of attorney as may be necessary or appropriate to enable the Trust to endorse for payment any cheque, draft or other instrument delivered to the Trust in payment of any amount under or in respect of a Pool Asset.


(b)	The Trust hereby covenants and agrees that it will not exercise any of the rights conferred by Section 5.16(a) except upon the occurrence of a Trigger Event and then only in respect of the Pool Assets.


5.17	Deemed Collections

(a)

If, on any day prior to the Final Termination Date, any Pool Receivable is either (i) reduced or cancelled as a result of any breach by the Seller or the Servicer of its obligations hereunder or of the terms of the related Contract; or (ii) reduced or cancelled as a result of a set-off in respect of any claim by the applicable Obligor against the Seller or the Servicer (whether such claim arises out of the same or a related transaction or an unrelated transaction or the loss of or interference with the right of the Obligor to quiet enjoyment of, and continued possession of, the Financed Vehicle), the Servicer or the Seller and the Servicer (on a joint and several basis), so long as the Servicer is the Seller or an Affiliate thereof, as the case may be shall, for all purposes hereof, be irrebuttably deemed to have received a Collection of such Receivable in the amount of such reduction or cancellation and shall deposit such amount to the Deposit Accounts in accordance with the terms of Section 5.6.

(b)

If on any day prior to the Final Termination Date any Security Interest, other than a Blocked Account Claim, is validly asserted by any Person (other than the Trust) against any Pool Receivable (as determined by a court of competent jurisdiction or due to the agreement or acquiescence of the Seller or Servicer), and such Security Interest has arisen by or through the action or inaction of the Seller or the Servicer, and, with respect to any Security Interest granted by or arising through an Obligor and asserted against a Financed Vehicle, such Security Interest ranks

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in priority to or pari-passu with the interest of the Trust, the Seller shall, for all purposes hereof, be irrebuttably deemed to have received on such day, a Collection of any affected Pool Receivable in full and shall deposit such amounts to the Deposit Accounts in accordance with the terms of Section 5.6.

(c)

If on any day prior to the Final Termination Date it is discovered or determined (i) that any Pool Receivable included as an Eligible Receivable in the calculation of the Net Receivables Pool Balance was not an Eligible Receivable on the date of such calculation, or (ii) the Servicer, so long as the Servicer is the Seller or an Affiliate thereof, has extended, amended or otherwise modified a Contract in contravention of Section 5.10(c), the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full.

(d)

If the Seller or Servicer has been deemed, pursuant to Section 5.17(a), (b) or (c) to have received a Collection of any Pool Receivable in full, upon deposit by the Seller or Servicer to the Collection Account of the amount thereof, the Trust will be deemed to have sold to the Seller or Servicer, as the case may be, without further instrument or formality, the related Pool Receivables together with the Related Security in respect thereof free and clear of all Security Interests arising through the Trust but otherwise on an "as is, where is" basis without recourse to, or representation or warranty of the Trust.

ARTICLE 6
TRIGGER EVENTS


6.1	Meaning of Trigger Event

The term "Trigger Event" means any of the following events or circumstances:


(a)	the Seller or the Servicer fails to make any payment or deposit to be made by it hereunder and such failure continues for two Business Days after the occurrence of such failure;

(b)

any failure on the part of the Seller to duly perform or observe any material term, condition, covenant or agreement of the Seller set forth in this Agreement (other than Section 7.3(c)) or any document executed in connection herewith, other than such as are specifically referred to in paragraph (a) above, which failure continues unremedied for a period of 30 days after the date on which the Seller receives written notice thereof from the Trust specifying the default or breach;


(c)	a Servicer Termination Event occurs;

(d)

any representation or warranty made by the Seller (or any of its officers) in or pursuant to this Agreement, the Purchase Request, any Increase Request, any Servicer Report, any Portfolio Certificate or any document executed in connection herewith or therewith proves to have been false or incorrect in any material respect when made and has not been cured within 30 days after written notice thereof has been received by the Seller from the Trust;

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(e)

the taking or possession by an encumbrancer (including a receiver, receiver manager or trustee) of any assets of the Seller (other than solely to perfect a security interest therein) or the levying or enforcement or a distress or execution or any similar process against any of the assets of the Seller that remains unsatisfied for 30 days after the Seller becoming aware thereof, which materially adversely affects the Seller's ability to perform its obligations hereunder;


(f)	the issuance or levying of a writ of execution, attachment or similar process against all or a substantial portion of the property of the Seller, in connection with any judgment against the Seller in any amount that materially affects the property of the Seller if such writ of execution, attachment or similar process shall not have been stayed or dismissed after 45 days;


(g)	any failure on the part of the Seller to duly perform or observe the terms of Section 7.3(c);


(h)	the filing by the Seller of a notice of intention to make a proposal under the Bankruptcy and Insolvency Act , the Companies' Creditors Arrangement Act or any other similar legislation in the applicable jurisdiction, to some or all of its creditors;

(i)

the Seller shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceedings shall be instituted by or against the Seller seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief by the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, if such proceeding has been instituted against the Seller either such proceeding has not been stayed or dismissed within 45 days or any of the actions sought in such proceeding (including the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official) are granted, or the Seller take any corporate action to authorize any of the actions described in this Section 6.1(i);


(j)	the Seller shall fail to transfer to any Replacement Servicer when required any rights, pursuant to the Agreement, which the Seller then has with respect to the servicing of the Pool Receivables;

(k)

(i) a default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness of the Seller, AFC or the Performance Guarantor or (ii) a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness, and, in the case of either clause (i) or clause (ii), the Indebtedness with respect to which non-payment and/or non-performance shall have occurred and is

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continuing exceeds, at any point in time, with respect to the Seller and AFC, $1,000,000 and with respect to the Performance Guarantor, $35,000,000, in the aggregate for all such occurrences;


(l)	this Agreement, the Purchase or any Increases shall for any reason (other than pursuant to the terms hereof) cease to create, or shall for any reason cease to be, a valid and enforceable perfected co-ownership interest in each Pool Receivable and the Collections with respect thereto;


(m)	as of any Settlement Date, the arithmetic average of the Default Ratios for the most recent [] shall exceed [] or the Default Ratio as of any Settlement Date shall exceed [*];


(n)	as of any Settlement Date, the arithmetic average of the Delinquency Ratios for the most recent [] shall exceed [] or the Delinquency Ratio as of any Settlement Date shall exceed [*];


(o)	as of any Settlement Date, the arithmetic average of the Net Spread for the most recent [] shall be [];


(p)	the Tangible Net Worth of the Seller shall be less than [] or the Tangible Net Worth of AFC shall be less than [] (provided that if GAAP is adjusted such that leases that were previously treated as operating leases are treated as debt, the parties shall negotiate in good faith to adjust this provision to reflect a level which takes into consideration such change);


(q)	any material adverse change shall occur in the reasonable business judgment of the Trust in the collectability of the Receivables or the business, operations, property or financial condition of the Seller or the Performance Guarantor;

(r)

this Agreement shall cease to be in full force and effect with respect to the Performance Guarantor, the Performance Guarantor shall fail to comply with or perform any provision of this Agreement, or the Performance Guarantor (or any Person by, through or on behalf of the Performance Guarantor) shall contest in any manner the validity, binding nature or enforceability of this Agreement with respect to the Performance Guarantor;


(s)	the sum of all of the Seller's Indebtedness, net of [], exceeds [] (provided that if GAAP is adjusted such that leases that were previously treated as operating leases are treated as debt, the parties shall negotiate in good faith to adjust this provision to reflect a level which takes into consideration such change),


(t)	the Seller's Indebtedness (excluding guarantees) to equity ratio is greater than [*] (provided that if GAAP is adjusted such that leases that were previously treated as operating leases are treated as debt, the parties shall negotiate in good faith to adjust this provision to reflect a level which takes into consideration such change),

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(u)	the aggregate of the Principal Balances of all Eligible Receivables shall be less than $30 million;


(v)	a Blocked Account Agreement in favour of the Trust in place with respect to any Deposit Account shall have terminated other than as a result of any action by the Trust (and not been replaced) or shall be of no force and effect or otherwise unenforceable;

(w)

AFC shall not hold, directly or indirectly, 100% of the outstanding share capital of the Seller, or the Performance Guarantor shall not hold, directly or indirectly, at least 80% of all of the outstanding share capital of AFC; provided that, for greater certainty, the pledge as security by the Seller or the Performance Guarantor, as the case may be, of all or any of such shares shall not be a Trigger Event hereunder;


(x)	the amount on deposit in the Cash Reserve Account shall at any time before the Termination Date fail to equal or exceed the Cash Reserve Required Amount for a period of [*];

(y)

(i) any of the Seller or the Servicer shall have asserted that this Agreement or any document executed herewith to which it is a party is not valid and binding on the parties thereto; or (ii) any court, governmental authority or agency having jurisdiction over any of the parties to any of such documents or any property thereof shall find or rule that any material provisions of any of such documents is not valid and binding on the parties thereto and all appeals therefrom have been decided or the time to appeal has run;

(z)

the Backup Servicer shall resign or be terminated and no successor Backup Servicer reasonably acceptable to the Trust shall have been appointed pursuant to a replacement Backup Servicing Agreement, within 90 days of such resignation or termination, as applicable; unless on or prior to the first day on which a Backup Servicer is required to be appointed pursuant to this paragraph (z), the Performance Guarantor's senior unsecured debt shall be rated at least "BBB-" by Standard & Poor's and "Baa3" by Moody's; provided, that a Trigger Event shall be deemed to occur if no Backup Servicer reasonably acceptable to the Trust shall have been appointed within 90 days following any subsequent withdrawal, suspension or downgrade of such senior unsecured debt ratings of the Performance Guarantor below "BBB-" by Standard & Poor's or below "Baa3" by Moody's or, if the applicable rating is "BBB-" by Standard & Poor's or "Baa3" by Moody's, the placement of such ratings on credit watch or similar notation;


(aa)	the occurrence of a KAR Financial Covenant Termination Event;


(bb)	the average Payment Rate for the [] is less than [];


(cc)	at any time the Trust Share exceeds 100%, and such condition shall continue unremedied for five days after any date, any Servicer Report or Portfolio Certificate is required to be delivered;

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(dd)

as reported on its consolidated balance sheet, AFC shall fail to maintain (as measured as of the last Business Day of each calendar week) cash and cash equivalents (including, without limitation, any intercompany receivable payable by KAR to AFC upon demand) of at least [*], at least [*] of which must constitute unrestricted cash (i.e., cash that is neither (i) pledged to a third party unrelated to the KAR Credit Facility, nor (ii) in an account in which a third party unrelated to the KAR Credit Facility has a perfected security interest; or


(ee)	the Termination Date shall have occurred.


6.2	Action Upon Occurrence of a Trigger Event

Upon the occurrence of any Trigger Event described in Sections 6.1(a), (b), (c), (d), (g), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (aa), (bb), (cc), and (dd) provided such Trigger Event has not been subsequently waived in writing by the Trust, the Trust or its authorized agent may, by notice to the Seller declare the Trigger Date to have occurred on the date specified in such notice. Upon the occurrence of any other Trigger Event described in Section 6.1, the Trigger Date will occur automatically, without the necessity of any notice. Upon any such declaration or automatic occurrence, the Trust will have, in addition to its rights and remedies hereunder and under any documents related hereto, all other rights and remedies under applicable laws and otherwise, which rights and remedies will be cumulative. Notwithstanding the above, the Trust may waive any Trigger Event in its sole discretion and, if given, such waiver shall be irrevocable.


6.3	Optional Repurchase of Pool Receivables

If, at any time the Pool Balance is less than 10% of the highest ever Pool Balance, the Servicer may elect, by notice to the Trust, to purchase all of the Pool Receivables and the Related Security. The purchase by the Servicer of all of the Pool Receivables and the Related Security shall be effective upon the payment by the Servicer to the Trust of an amount equal to the sum of (i) the then outstanding Investment, (ii) the Funding Discount, and (iii) any other fees, costs and expenses incurred by the Trust in connection with this Agreement to the date of or as a result of such purchase, including any interest and other costs required to be paid on outstanding Notes. Upon the payment to the Trust of such amount by deposit to the Collection Account, the Trust shall transfer, assign and convey to the Servicer or as it may direct all of the Trust's right, title and interest in, to and under such Pool Receivables and the Related Security related thereto, without recourse, and subject only to the representations and warranties of the Trust that such right, title and interest is held beneficially by it and is transferred, assigned and conveyed to the Servicer or as it may direct free and clear of any Security Interests created, suffered or permitted to exist by the Trust.

ARTICLE 7
GENERAL COVENANTS AND POWER OF ATTORNEY


7.1	Affirmative Covenants of the Seller

From the date hereof until the Final Termination Date, the Seller covenants and agrees that it will, unless the Trust shall otherwise consent in writing:

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(a)

comply in all respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties and all Pool Assets, such compliance to include paying before the same become delinquent all Taxes and Security Interests imposed upon the Seller or its property in accordance with its normal policies with respect thereto, except to the extent the same are contested in good faith and by appropriate proceedings or where failure to do so could not reasonably be expected to have a Material Adverse Effect;

(b)

preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as an extra-provincial corporation or other out-of-jurisdiction corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could reasonably be expected to have a Material Adverse Effect;

(c)

at any time and from time to time during regular business hours, upon five Business Days' prior written notice, subject to Section 10.9, (A) assemble such of the Records or copies thereof in its possession or control as may reasonably be required by the Trust and make same available to the Trust at the principal place of business of the Seller and, if the Records cannot be provided solely at such office, at such other offices of the Seller or its Affiliates where Records are kept, and permit the Trust, its agents or representatives, to examine and make copies, as reasonably requested, of such Records and (B) permit the Trust or its agents to visit the offices and properties of the Seller and its Affiliates for the purpose of discussing matters relating to the Pool Assets and the Seller's performance hereunder with any of the Seller's officers or employees having knowledge of such matters, provided that the Trust shall act reasonably to minimize any disruption to the Seller in connection therewith; provided that prior to the occurrence of a Cash Reserve Event or a Trigger Event, the Trust shall not be reimbursed for more than two such examinations in any year, if a Cash Reserve Event has occurred and is continuing, the Trust shall not be reimbursed for more than four such examinations in any year and, if a Trigger Event has occurred and is continuing, the Trust shall be reimbursed for all such examinations;


(d)	at its expense, timely and fully perform and comply in all material respects with all material provisions, covenants and other obligations required to be observed, complied with or performed by the Seller under the Contracts relating to the Pool Assets;


(e)	give the Trust at least 30 days' prior written notice of any change in the address of its chief place of business and chief executive office, and written notice promptly after any change in the address of an office listed under the heading "Location of Records" in Schedule "B", and each such notice shall be deemed to amend Schedule "B" accordingly;


(f)	provide to the Trust not less than 30 days' prior notice of any change in the name of the Seller as stated in its constating documents;

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(g)	co-operate with, and offer such assistance as may reasonably be requested by, the chartered accountants selected by the Trust to furnish reports in respect of the Trust, the Purchase and any Increase and the servicing of the Pool Assets under this Agreement;


(h)	upon request of the Trust and with the Seller's written consent, such consent not to be unreasonably withheld, request the Seller's auditors to assist the Trust's auditors to the extent and in such manner as is reasonably required for the Trust's auditors to report on the status of the Pool Assets under this Agreement;


(i)	conduct Lot Checks of each Obligor in accordance with the Seller's customary practices or on such more frequent intervals as may be reasonably requested by the Trust;


(j)	promptly after becoming aware thereof, but in any event no later than two Business Days thereafter, provide the Trust with notice of any Servicer Termination Event that is continuing when the Seller becomes aware thereof; and


(k)	make or cause to be made all filings, recordings, and registrations and take all other actions in each jurisdiction necessary or appropriate to validate, preserve, perfect or protect the co-ownership interests of the Trust in the Pool Assets, including the right to enforce the Related Security.


7.2	Reporting Requirements of the Seller

From the date hereof until the Final Termination Date, the Seller covenants and agrees that it will, unless the Trust shall otherwise consent in writing, deliver to the Trust:

(a)

within five Business Days after the Seller becomes aware of a material adverse change in the business, operations, properties or condition (financial or otherwise) (other than matters of a general economic nature) of the Seller, the Backup Servicer or the Performance Guarantor, or of an occurrence of a breach of its obligations under this Agreement, notice of such change or occurrence together with a statement by a responsible officer of the Seller specifying the facts, the nature and period of existence of any such breach, condition or event and the action the Seller has taken, is taking and proposes to take with respect thereto;


(b)	within five Business Days of the Seller becoming aware thereof, notice of any litigation or other court or arbitration proceeding affecting the Seller which could reasonably be expected to have a Material Adverse Effect;


(c)	within five Business Days of the Seller becoming aware thereof, notice of any litigation or other court or arbitration proceeding affecting the Backup Servicer or the Performance Guarantor which could reasonably be expected to have a Material Adverse Effect;


(d)	as soon as available and in any event within 45 days after the end of each fiscal quarter of the Seller, the unaudited financial statements of the Seller and, as soon

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as available but in any event within 90 days after the end of the fiscal year of the Seller, the unaudited financial statements of the Seller;

(e)

as soon as available and in any event within 90 days after the end of the fiscal year of the Performance Guarantor, the audited consolidated balance sheet of the Performance Guarantor and its consolidated subsidiaries as of the end of such year and the related audited consolidated statements of income and of cash flows for such year; reported on by KPMG LLP or other independent certified public accountants of nationally recognized standing;


(f)	promptly after the sending or filing thereof, copies of all reports which the Seller sent to any holders of securities which it has offered to the public;

(g)

forthwith after the occurrence of each Trigger Event and each event or the existence of any fact which, with the giving of notice or lapse of time or both, may constitute a Trigger Event, a statement of a senior financial officer or accounting officer of the Seller setting forth details as to such Trigger Event or fact or event and the action which the Seller has taken and is proposing to take with respect thereto;


(h)	notice of any material change to the Credit and Collection Policies or change to the standard operating practices or procedures;


(i)	promptly, from time to time, such other documents, records, information or reports with respect to the Pool Assets or the conditions or operations, financial or otherwise, of the Seller as the Trust may from time to time reasonably request; and


(j)	promptly after any changes, the current list of Excluded Receivables.


7.3	Negative Covenants of the Seller

From the date of this Agreement until the Final Termination Date, the Seller covenants and agrees that it will not, unless the Trust shall otherwise consent in writing:

(a)

except as otherwise provided herein, and whether by operation of law or otherwise, purport to sell, assign or otherwise dispose of, or create or suffer to exist any Security Interest upon or with respect to the Seller's or the Trust's interest in the Pool Assets if the effect of such Security Interest would be to cause the related Pool Receivable not to be an Eligible Receivable, or assign any right to receive payment under, or to enforce the Seller's interest in, any of the Pool Assets, provided, that the Seller or Servicer may sell the interest of the Seller and the Trust in Defaulted Receivables including any Contracts and Related Security with respect thereto and any judgement obtained thereon to any Person who is not an Affiliate of the Seller or Servicer (and does not own 5% or more of any equity interest in the Servicer or any Affiliate thereof and in which the Servicer does not own, directly or indirectly, 5% or more of the equity of such Person) on arm’s-length terms in order to maximize collections thereon;

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(b)	take any action that adversely affects the perfection, validity or protection of the Trust's rights to collect amounts owing pursuant to the Pool Assets and the proceeds thereof, including the right to enforce the Related Security, except to the extent that the Seller would have done so in a similar situation with respect to other similar receivables administered by it on its own behalf; or

(c)

enter into any transaction of reorganization, amalgamation or arrangement, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution) or, other than with respect to sales, assignments, leases, licences or transfers of computer hardware and software, or of leases and licences relating thereto or any rights or benefits thereunder, in the ordinary course of business, sell, lease or otherwise dispose of its assets as an entirety or substantially as an entirety; except that the Seller may enter into a transaction of reorganization, amalgamation, or arrangement, so long as (i) such transaction could not reasonably be expected to have a Material Adverse Effect, (ii) as a condition to the completion of such transaction, the continued or reorganized corporation shall have executed an agreement of assumption to perform every obligation of the Seller hereunder and under the other agreements, instruments and documents executed and delivered by the Seller hereunder or otherwise contemplated hereby, (iii) the Backup Servicer shall have provided its written consent and acknowledged its continuing obligations under the Backup Servicer Agreement in respect of the obligations of such continued or reorganized corporation and (iv) the Performance Guarantor shall have provided its written consent and acknowledged its continuing obligations under this Agreement in respect of the obligations of such continued or reorganized corporation.


7.4	Covenants of the Trust

The Trust covenants and agrees that it will:


(a)	until the Final Termination Date, use commercially reasonably efforts to ensure that the fair value of the Pool Assets held by it will constitute no more than one-half of the total fair value of all assets owned by it; and


(b)	not use personal information relating to Obligors received from the Seller other than in connection with the collection, servicing and administration of the Pool Assets and for other reasonable purposes ancillary thereto, all in accordance with and as allowed by applicable law.

ARTICLE 8
PERFORMANCE GUARANTEE


8.1	Performance Guarantee

The Performance Guarantor hereby unconditionally and irrevocably guarantees to the Trust, the due and prompt performance, payment and observance by the Servicer (to the extent the Servicer is the Seller or an Affiliate thereof) of all of the terms, conditions, covenants, agreements, indemnities, liabilities and obligations of any kind whatsoever (collectively, the " Guaranteed

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Obligations ") strictly in accordance with the terms hereof (the " Performance Guarantee "). If for any reason whatsoever, the Servicer shall fail to perform, pay or observe any of the Guaranteed Obligations, the Performance Guarantor shall forthwith perform, pay and observe, as applicable, any such of the Guaranteed Obligations as they may be required to be performed, paid or observed in accordance with the terms of this Agreement.


8.2	Guarantee Unconditional

The obligations of the Performance Guarantor pursuant to this Article 8 are continuing, unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged, diminished, limited, impaired or otherwise affected by (and the Performance Guarantor hereby waives, to the fullest extent permitted by applicable law):


(a)	any extension, modification, amendment or renewal of, or indulgence with respect to, or substitutions for, the Guaranteed Obligations or any part thereof or any agreement relating thereto at any time;


(b)	any failure or omission to enforce any right, power or remedy with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto, or any collateral securing the Guaranteed Obligations or any part thereof;


(c)	any waiver of any right, power or remedy or of any default with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto or with respect to any collateral securing the Guaranteed Obligations or any part thereof;


(d)	any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any collateral securing the Guaranteed Obligations or any part thereof, any other guarantees with respect to the Guaranteed Obligations or any part thereof, or any other obligation of any person or entity with respect to the Guaranteed Obligations or any part thereof;


(e)	the enforceability or validity of the Guaranteed Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to any collateral securing the Guaranteed Obligations or any part thereof;


(f)	the application of payments received from any source to the payment of indebtedness of the Seller or the Servicer other than the Guaranteed Obligations, any part thereof or amounts which are not covered by this Agreement, even though the Trust might lawfully have elected to apply such payments to any part or all of the Guaranteed Obligations;


(g)	any other act, or omission to act, or delay of any kind by any of the Servicer, the Seller, the Trust or any other person or any other circumstance whatsoever, whether similar or dissimilar to the foregoing, which might, but for the provisions of this Section 8.2, constitute a legal or equitable discharge, defense, limitation or

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reduction of the Performance Guarantor's obligations hereunder (other than the payment or extinguishment in full of all of the Guaranteed Obligations); or


(h)	the existence of any claim, set-off or other rights which the Performance Guarantor may have at any time against the Seller, the Servicer or any other Person, including any Obligor, whether in connection with any transactions under this Agreement, any related document or any other transaction,

The foregoing provisions apply (and the foregoing waivers by the Performance Guarantor will be effective) even if the effect of any action (or failure to take action) by the Trust is to destroy or diminish the Performance Guarantor's subrogation rights, the Performance Guarantors' right to proceed against the Servicer or Seller for reimbursement, the Performance Guarantors' right to recover contribution from any other guarantor or any other right or remedy which may be available to the Performance Guarantor.


8.3	Recourse against Servicer

The Trust shall not be required to exhaust its recourse against the Servicer, Seller or any other person, or under any other security or guarantee, before being entitled to performance by the Performance Guarantor under this Agreement.


8.4	Authorization by the Performance Guarantor

The Trust may continue to effect Increases without notice to or authorization from the Performance Guarantor regardless of the Servicer's or Seller's financial or other condition at the time of any such transaction. The Performance Guarantor represents and warrants to the Trust that it has adequate means to obtain from the Servicer and the Seller on a continuing basis all information concerning the financial condition of the Servicer and the Seller, and agrees with the Trust that the Trust shall not have any obligation to disclose or discuss with the Performance Guarantor any information which it has respecting the financial condition of the Servicer and the Seller.


8.5	No Subrogation

Until all of the Guaranteed Obligations have been paid or performed in full, the Performance Guarantor shall not exercise any right of subrogation to, and the Performance Guarantor waives, to the fullest extent permitted by law, any right to enforce, any remedy which the Trust now has or may hereafter have against the Servicer or the Seller in respect of the Guaranteed Obligations and the Performance Guarantor waives any benefit of, and any right to participate in, any security now or hereafter held by the Trust for the Guaranteed Obligations. The Performance Guarantor authorizes the Trust, subject to applicable law, to take any action or exercise any remedy which the Trust now has or may hereafter have against the Servicer or the Seller in respect of the Guaranteed Obligations, without notice to the Performance Guarantor.


8.6	Stay of Acceleration

If acceleration of the time for payment of any amount payable by the Servicer or the Seller in respect of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or

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reorganization of the Seller or the Servicer or any moratorium affecting the payment of the Guaranteed Obligations, all such amounts otherwise subject to acceleration will nonetheless be payable by the Performance Guarantor hereunder forthwith upon demand by the Trust.


8.7	Representations and Warranties

The Performance Guarantor represents and warrants to the Trust, that as at the date hereof and at each date that an Increase occurs:


(a)	it is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware;

(b)

it has full power and authority to execute and deliver this Agreement and to perform the terms and conditions hereof and is duly qualified, licensed or registered in each relevant jurisdiction to carry on its present business and operations except where the failure to be so qualified, licensed or registered does not and will not materially adversely affect such operations or its ability to perform its obligations hereunder, as applicable;

(c)

the execution, delivery and performance by the Performance Guarantor of this Agreement, and the transactions contemplated hereby, are within the powers of the Performance Guarantor, have been duly authorized by all necessary corporate or other action (as applicable) and do not contravene (i) the constating documents or by-laws of the Performance Guarantor, or (ii) any law or any contractual restriction binding on or affecting the Performance Guarantor, the contravention of which could be expected to materially adversely affect the Performance Guarantor's ability to perform its obligations hereunder, does not result in or require the creation of any Security Interest upon or with respect to the Performance Guarantor's properties, and the consummation of the transactions contemplated hereby does not require approval of shareholders or partners or approval or consent of any Person under any contract to which the Performance Guarantor is a party, except, to the extent such approvals have been granted;


(d)	no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for the due execution, delivery and performance by the Performance Guarantor of this Agreement, other than those that have been obtained or made, as the case may be, or any filings required after the date hereof with any securities regulators;

(e)

this Agreement constitutes a legal, valid and binding obligation of the Performance Guarantor, enforceable against it in accordance with its terms subject to (i) applicable bankruptcy, reorganization, winding-up, insolvency, moratorium and other laws of general application limiting the enforcement of creditors' rights; (ii) the fact that the granting of equitable remedies such as specific performance and injunction is within the discretion of a court of competent jurisdiction; and (iii) general principles of equity;

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(f)	there has been no material adverse change in the business of the Performance Guarantor since the date of the most recent audited financial statements of the Performance Guarantor delivered to the Trust;


(g)	there is no order, judgment or decree of any court, arbitrator or similar tribunal or Governmental Authority purporting to enjoin or restrain, and there are no proceedings before any court, arbitrator or similar tribunal or Governmental Authority which might materially adversely affect the Performance Guarantor's ability to perform its obligations hereunder; and

(h)

there are no actions, suits or proceedings in existence or, to the Performance Guarantor's knowledge, pending or threatened, against or affecting it or its property in any court, or before any arbitrator of any kind, or before or by any governmental body, in respect of which there is a reasonable possibility of an adverse determination that could materially adversely affect the Performance Guarantor's financial condition or materially adversely affect the ability of the Performance Guarantor to perform its obligations under this Agreement; and

(i)

it is not: (i) a country, territory, organization, person or entity named on an Office of Foreign Asset Control (OFAC) list; (ii) a Person that resides or has a place of business in a country or territory named on such lists or which is designated as a "Non-Cooperative Jurisdiction" by the Financial Action Task Force on Money Laundering, or whose subscription funds are transferred from or through such a jurisdiction; (iii) a "Foreign Shell Bank" within the meaning of the USA PATRIOT Act, i.e., a foreign bank that does not have a physical presence in any country and that is not affiliated with a bank that has a physical presence and an acceptable level of regulation and supervision; or (iv) a person or entity that resides in or is organized under the laws of a jurisdictions designated by the United States Secretary of the Treasury under Sections 311 or 312 of the USA PATRIOT Act as warranting special measures due to money laundering concerns.


8.8	Payments

All payments to be made by the Performance Guarantor under this Performance Guarantee shall be made in full, without set-off or counterclaim and without deduction for any taxes, levies, duties, fees, deductions, withholdings, restrictions or conditions of any nature whatsoever. If at any time, or from time to time, any applicable law, regulation or international agreement requires the Performance Guarantor to make any such deduction or withholding from any such payment other than as a result of the Trust or any assignee thereof being a non-resident of Canada for purposes of the Income Tax Act (Canada), the sums due from the Performance Guarantor with respect to such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the Trust receives a net sum equal to the sum which it would have received had no deduction or withholding been required, and the Performance Guarantor shall indemnify the Trust on an after tax basis with respect to any such deduction or withholding, including with respect to any taxes payable by the Trust on any increased amounts payable under this Article 8.

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ARTICLE 9
INDEMNIFICATION


9.1	Indemnification by the Seller

Without limiting any other rights which the Trust may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Trust and the Securitization Agent, and their respective officers, agents, trustees and assigns (collectively, the " Indemnified Parties "), from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable legal fees and disbursements, and any costs associated with the appointment of a Replacement Servicer, resulting from the Seller's or Servicer's breach of any of its duties or obligations hereunder (all of the foregoing being collectively referred to as " Indemnified Amounts ") awarded against or reasonably incurred by any of the Indemnified Parties and arising out of or as a result of the Seller's or Servicer's breach or violation of this Agreement, excluding, however, amounts (i) resulting solely from the failure of any Obligor to pay an amount owing under a Pool Receivable, or (ii) resulting from gross negligence or wilful misconduct on the part of the Trust or the Securitization Agent. Without limiting the generality of the foregoing but subject to the restrictions in clauses (i) and (ii) above, the Seller shall indemnify the Indemnified Parties for Indemnified Amounts awarded or incurred as aforesaid relating to or resulting from:

(a)

the failure of any information contained in a Servicer Report or a Portfolio Certificate to be true and correct (including the failure of a Pool Receivable included in the calculation of Net Receivables Pool Balance to be an Eligible Receivable as of the date of such calculation), or the failure of any other information provided to the Trust or the Securitization Agent with respect to Receivables or this Agreement to be true and correct;


(b)	the failure of any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement to have been true and correct in all respects when made;


(c)	the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Assets or the related Contract; or the failure of any Pool Assets or the related Contract to conform to any such applicable law, rule or regulation;


(d)	the failure to vest in the Trust a valid and enforceable perfected first ranking (as against the Seller and creditors of the Seller) co-ownership interest in the Pool Receivables and the Related Security and Collections with respect thereto;


(e)	the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the PPSA of any applicable jurisdiction or other applicable laws with respect to any Pool Receivables and the Related Security and Collections in respect thereof, whether at the time of the Purchase or any Increase at any subsequent time;


(f)	any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Pool Receivable (including,

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without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from or relating to the transaction giving rise to such Receivable or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Servicer or by any agent or independent contractor retained by the Seller or any of its Affiliates);


(g)	any failure of the Seller to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under the Contracts;


(h)	any products liability or other claim, investigation, litigation or proceeding arising out of or in connection with goods, insurance or services that are the subject of or secure any Contract;


(i)	the commingling of Collections of Pool Assets at any time with other funds;


(j)	any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Purchases or in respect of any Pool Receivable, Related Security or Contract;


(k)	any reduction in the Investment as a result of the payment of allocations of Collections pursuant to Sections 2.7(d), 2.10(e) or 2.13, in the event that all or a portion of such payments shall thereafter be rescinded or otherwise must be returned for any reason;

(l)

any tax or governmental fee or charge (other than any tax upon or measured by net income or gross receipts), all interest and penalties thereon or with respect thereto, and all reasonable out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of the Trust's Co-Ownership Interest or other interests in the Receivables Pool or in any Related Security or Contract;


(m)	the failure by the Seller or the Servicer to pay when due any taxes payable by it, including, without limitation, the franchise taxes and sales, excise or personal property taxes payable in connection with the Receivables;


(n)	the failure by the Seller or the Servicer to be duly qualified to do business, to be in good standing or to have filed appropriate registration documents in any jurisdiction;


(o)	the failure to vest and maintain vested in the Trust a perfected ownership interest in respect of the Trust's Co-Ownership Interest free and clear of any Security Interest created by or through the Seller, whether existing at the time of the consummation of the transactions contemplated hereby or at any time thereafter, other than Security Interests created by or arising through the Trust;

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(p)	any claim for personal injury, death, property damage or product liability which may arise by reason of, result from or be caused by, or relate to the use, operation, maintenance or ownership of, the Financed Vehicles; and


(q)	any material failure of the Seller to perform its duties or obligations, as Servicer or otherwise, in accordance with the provisions of this Agreement.


9.2	Notification of Potential Liability

The Seller will, upon becoming aware of circumstances that could reasonably be expected to result in material liability of the Seller under this Article 9, promptly notify the Trust thereof.


9.3	Litigation

At the request of the Trust, the Seller shall, at its expense, co-operate with the Trust in any action, suit or proceeding brought by or against the Trust relating to any of the transactions contemplated by this Agreement or any of the Pool Assets (other than an action, suit or proceeding by the Seller, the Backup Servicer, the Performance Guarantor or any of their respective Affiliates against the Trust or by the Trust against the Seller, the Backup Servicer, the Performance Guarantor or any of their respective Affiliates). In addition, the Seller agrees to notify the Trust and the Trust agrees to notify the Seller, at the Seller's expense, promptly upon learning of any pending or threatened action, suit or proceeding, if the judgment or expenses of defending such action, suit or proceeding would be covered by Section 9.1 (except for an action, suit or proceeding by the Seller, the Backup Servicer, the Performance Guarantor or any of their respective Affiliates against the Trust or by the Trust against the Seller, the Backup Servicer, the Performance Guarantor or any of their respective Affiliates and except for ordinary course litigation relating to the enforcement of the Pool Assets) and to consult with the Trust, concerning the defence and prior to settlement; provided, however, that if (i) the Seller shall have acknowledged that Section 9.1 would cover any judgment or expenses in any action, suit or proceeding, and (ii) in the sole determination of the Trust, acting reasonably, the Seller has the financial ability to satisfy such judgment or expenses, then the Seller shall have the right, on behalf of the Trust but at the Seller's expense, to defend such action, suit or proceeding with counsel selected by the Seller, and shall have sole discretion as to whether to litigate, appeal or enter into an exclusively monetary settlement.


9.4	Tax Indemnity

The Seller agrees to defend and to save the Indemnified Parties harmless from and against any and all liabilities arising out of the transactions contemplated by this Agreement with respect to or resulting from any delay by the Seller in paying or any omission to pay any Taxes otherwise required under this Agreement to be paid or withheld and remitted by or on behalf of the Seller on its own behalf, on behalf of the Trust or on behalf of any Obligor. If the Seller shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable by or on behalf of the Seller on its own behalf or on behalf of any Obligor to the Trust hereunder or in connection with the execution, delivery, filing and recording hereof and of the other documents to be delivered hereunder and the consummation of the transactions contemplated hereby, or if

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the Trust shall be required to pay any Taxes in respect of any sum received by the Trust from the Seller hereunder:


(a)	the sum payable to the Trust shall be increased as may be necessary (or an amount shall be owed to the Trust) so that, after all required deductions, withholdings or payments in respect of such Taxes have been made, the Trust receives or retains an amount equal to the sum that the Trust would have received or retained had no such deductions, withholdings or payments been made;


(b)	the Seller shall make such deductions or withholdings; and


(c)	the Seller shall pay forthwith the full amount deducted or withheld to the relevant taxation authority or other authority in accordance with applicable law and will provide to the Trust copies of such forms as are required to be provided to such authority evidencing the payment by the Seller.

For greater certainty, it is hereby acknowledged by the parties hereto that the Seller shall not be liable to indemnify the Indemnified Parties under this Section for any Taxes payable by, or required to be withheld by, the Seller on account of Taxes payable on the income or gains of the Trust, Taxes payable by virtue of the non-resident status of the Trust or Taxes payable on the capital of the Trust.


9.5	Tax Credit

If a payment (a " Grossed-up Payment ") made by the Seller includes an amount (a " Gross-up ") referred to in Section 9.4, and the Trust is able to apply for or otherwise take advantage of any tax credit or deduction in computing income or similar benefit by reason of any withholding or deduction made by the Seller in respect of the Grossed-up Payment (such credit, deduction or benefit hereinafter being referred to as a " Tax Credit "), then the Trust will, at the expense of the Seller, use reasonable endeavours to obtain the Tax Credit and, if it realizes the Tax Credit (whether by way of reducing taxes payable, receiving a tax refund, or otherwise), the Trust shall, subject to the provisos to this Section 9.5, pay to the Seller such amount, if any (not exceeding the Gross-up) as is determined by the Trust to be equal to the net after-tax value to the Trust of such part of the Tax Credit as is reasonably attributable to such withholding or deduction having regard to all dealings giving rise to similar credits, deductions or benefits in relation to the same tax period and to the cost of obtaining the same. Any such reimbursement shall be conclusive evidence of the amount due to the Seller absent manifest error and shall be accepted by the Seller in full and final settlement of its rights of reimbursement hereunder; provided that notwithstanding the foregoing, (i) nothing herein contained shall interfere with the right of the Trust to arrange its tax affairs in whatever manner it deems fit and, in particular, the Trust shall not be under any obligation to claim relief from its income or similar tax liability in respect of any such deduction or withholding in priority to any other relief, claims, credits or deductions available to it; and (ii) the Trust shall not be obligated to disclose to the Seller any information regarding its tax affairs or tax computations; provided, further, that if, as a result of (x) an audit of the Trust by its auditors or by a taxing authority, or (y) any change to the affairs of the Trust or to the available information concerning such affairs, which change is relevant to the determination that reimbursement with respect to a Tax Credit is payable to the Seller hereunder,

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the Trust determines, in its reasonable discretion, that any such payment made by the Trust to the Seller hereunder would not have been made had the Trust known the results of such audit or anticipated such change, or would have been made in a smaller amount, then the Seller shall pay to the Trust the amount of such payment which the Trust so determines, acting reasonably, to have been an overpayment.

ARTICLE 10
MISCELLANEOUS


10.1	Liability of the Trust and the Securitization Agent

Neither BNY Trust Company of Canada or BMONB, nor any of their respective directors, officers, agents or employees, will be liable pursuant to this Agreement for any action taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own negligence or wilful misconduct. Without limiting the generality of the foregoing, and notwithstanding any term or provision hereof to the contrary, the Seller hereby acknowledges and agrees that BMONB, in its capacity as Securitization Agent, acts as agent for the Trust and, except as otherwise provided in the first sentence of this Section, has no duties or obligations to, will incur no liability to, and does not act as an agent in any capacity for, the Seller.


10.2	Delegation in Favour of Securitization Agent

The Trust may delegate to the Securitization Agent all or any of its powers, rights and discretion hereunder, and the Securitization Agent may from time to time take such actions and exercise such powers for and on behalf of the Trust as are delegated to it or contemplated hereby and all such actions and powers as are reasonably incidental thereto. Each of the Seller and the Servicer shall be entitled to and be fully protected in relying on any instruction made or given by the Securitization Agent, and shall have no liability to the Trust in respect of such reliance.


10.3	Change in Circumstances

If, at any time:

(a)

the introduction of, or any change in, or in the interpretation, administration application or implementation of, any applicable law or regulation by any court or Governmental Authority, in each case, adopted, issued, taking effect or occurring after the later of: (i) the date hereof; and (ii) the most recent date on which the Termination Date is extended in accordance with the terms of this Agreement; or

(b)

the compliance by any of the Trust, the Securitization Agent, BMONB and/or any liquidity provider or credit enhancement provider to the Trust, or any of their Affiliates (each, an " Affected Person "), with any changed or introduced guideline, direction or request, or any change in the interpretation or administration thereof made after the later of: (i) the date hereof; and (ii) the most recent date on which the Termination Date is extended in accordance with the terms of this Agreement, from or by any Governmental Authority or professional self-regulating or governing body (including, for greater certainty, the Office of the Superintendent of Financial Institutions Canada, the Board of Governors of

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the United States Federal Reserve System or any other body or entity governing accounting treatment or reserve requirements) or any change in generally accepted accounting principles including the adoption of International Financial Reporting Standards (whether or not having the force of law);

has in the reasonable opinion of the Affected Person, the effect of:

(i)

(A) increasing the costs, expenses or liabilities of, or imposes, modifies or deems applicable any reserve, assessment, fee, tax, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, in each case any Affected Person (including as a result of a change in the Affected Person's capital position), as such costs, expenses or liabilities relate to the Trust making, funding or maintaining the Investment hereunder, provided that in the case of BMONB or any of its Affiliates, such increased costs, liabilities or expenses shall be limited to those that are directly attributable to increases in regulatory capital of BMONB or such Affiliates, (B) reducing the rate of return (on capital or otherwise) to any Affected Person in connection with, or as a result of the Affected Person either having to raise additional capital or incurring a deteriorated capital position as a result of the Trust making, funding or maintaining the Investment hereunder, (C) requiring the payment of any Taxes on or calculated with reference to the capital or debt of any Affected Person or (D) requiring any Affected Person to make any payment it would not otherwise be required to make; or


(ii)	reducing the amount received or receivable by the Trust under this Agreement or in respect of any Pool Receivable, and provided that any such introductions or changes enumerated in clauses (a) and (b) above are of application across any applicable industry in which such Affected Person participates and are not limited in their application to one or more Affected Persons,

then the Seller shall, from time to time upon demand by the Trust, pay forthwith to the Trust or the applicable Affected Person, either directly or indirectly through the Trust, the amount of any such increased costs, expenses or liabilities incurred, reduction in amounts received or receivable, reduction in rate of return or required payment made or to be made; provided that the Seller shall not be obligated to indemnify any Affected Person for any period in excess of 30 days prior to receipt of such notice. The Trust shall deliver to the Seller a certificate setting forth the cause and computation of the amount of any such increased costs, expenses or liabilities, reduction in amounts received or receivable, reduction in rate of return, or required payment made or to be made, which computation may utilize such averaging and attribution methods as the Trust, or the applicable Affected Person, believes to be fair, acting reasonably. Upon becoming aware thereof, the Trust shall, as soon as reasonably possible thereafter, notify the Seller of any event or circumstance which will result in any payment being required to be made by the Seller pursuant to this Section 10.3.

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10.4	Amendments, Waivers, Etc.

No amendment or waiver of any provision of this Agreement nor consent to any departure by the Seller or the Trust therefrom shall be effective unless the same shall be in writing and signed by (i) the Seller, the Trust and the Performance Guarantor (with respect to an amendment) or (ii) the Trust (with respect to a waiver or consent by it) or the Seller (with respect to a waiver or consent by the Seller), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.


10.5	Notices, Etc.

All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telecopied or electronic transmission) and telecopied, mailed or delivered, to each party hereto, at its address set forth under its name on the signature page hereof or at such other address as shall be designated by such parties in a written notice to the other party hereto. All such notices and communications shall be effective, in the case of written notice, on the Business Day it is delivered, and, in the case of notice by telecopy or electronic transmission, when telecopied or electronically transmitted against receipt of answer back, in each case addressed as aforesaid.


10.6	No Waiver; Remedies

No failure on the part of the Trust to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.


10.7	Binding Effect; Assignability

This Agreement shall be binding upon and enure to the benefit of the Seller, the Performance Guarantor and the Trust, and their respective successors and permitted assigns; provided, however, that (i) neither the Seller nor the Performance Guarantor may assign its rights hereunder or any interest herein without the prior written consent of the Trust, such consent not to be unreasonably withheld or delayed, and (ii) prior to the occurrence of a Trigger Date, the Trust may not assign its rights hereunder or any interest herein, without the prior written consent of the Seller, such consent not to be unreasonably withheld, provided that the Trust shall be permitted to assign its rights hereunder and interests herein without consent of the Seller to any other asset-backed commercial paper conduit administered by BMONB, to BMONB or any Affiliates of BMONB and as security for the benefit of the holders of Notes.


10.8	Costs and Expenses

In addition to the rights of indemnification granted to the Trust under Article 9, the Seller shall pay to the Trust all reasonable out-of-pocket costs and expenses (including the reasonable fees and disbursements of counsel on a substantial indemnity basis) incurred by the Trust and its agents in connection with the preparation of this Agreement, the consummation of the transactions contemplated hereby and the enforcement of the Seller's obligations and liabilities under this Agreement or under any related documents. The Servicer shall also pay to the Trust

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such expenses as the Trust and the Securitization Agent may reasonably incur and such fees as the Trust and the Seller agree the Trust or the Securitization Agent may charge in respect of each amendment to this Agreement and each waiver of any provision of this Agreement requested by the Seller or required or initiated as a result of the Seller's actions.


10.9	Confidentiality

Each of the Trust, the Seller, the Servicer, the Performance Guarantor and the Securitization Agent shall make all reasonable efforts to hold all non-public information obtained pursuant to this Agreement and the transactions contemplated hereby or effected in connection herewith in accordance with its customary procedures for handling its confidential information of this nature, provided that, notwithstanding the foregoing, the Trust, the Seller, the Servicer, the Performance Guarantor and the Securitization Agent may make disclosure of such non-public information as requested or required by any governmental agency or representative thereof or pursuant to legal process or when required under applicable law, and to its professional advisors; provided that, unless specifically prohibited by applicable law or court order, each party hereto shall notify the other party hereto of any request by any governmental agency or representative thereof for disclosure of any such non-public information prior to disclosure of such information to permit the party affected to contest such disclosure, if possible.


10.10	Effect of Agreement

Each of the Seller and the Trust hereby expressly acknowledges that this Agreement, except as specifically provided with respect to the duties and obligations of the Servicer, is intended to create a relationship of purchaser and vendor. Each of the Seller and the Trust hereby expressly disclaims any intention to establish a trust relationship (except to the extent expressly provided herein) or to constitute either the Seller or the Trust as the agent of the other except to the extent that the Seller, in its capacity as the Servicer, is acting as an agent of the Trust. The Seller, on the one hand, and the Trust, on the other, covenant with each other that they will not, at any time, allege or claim that a relationship of trust or agency is created hereby, except as otherwise expressly provided for herein.


10.11	Agreement Non-Exclusive

The parties hereby acknowledge and agree that this Agreement does not create any rights of exclusivity between them.


10.12	No Set-off

All payments to be made by the Seller or the Servicer hereunder shall be made without any deduction, set-off or counterclaim.


10.13	Termination

This Agreement shall remain in full force and effect until the Final Termination Date; provided, however, that the Trust's rights and remedies with respect to any incorrect representation or warranty made or deemed to be made by the Seller herein and the indemnification and payment

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provisions hereof shall be continuing and will survive any termination hereof for a period of six years commencing on the Final Termination Date.


10.14	Discharge of Certain Registrations in the Province of Quebec

So long as no Servicer Termination Event shall have occurred, the Servicer shall have the authority to sign, for and on behalf of the Trust, any document reasonably required to be signed by the Trust and the Seller and filed in the Register of Personal and Movable Real Rights (Quebec) (the " Register ") for the purpose of effecting the discharge of any hypothec, lease, sale with a reservation of ownership, sale with a right of repurchase or any other registration forming part of the Pool Assets and registered in the Register, provided such discharge is granted by the Servicer in the ordinary course of its business.


10.15	Execution in Counterparts

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.


10.16	Amendment and Restatement

This Agreement amends and restates in full and supersedes the Amended and Restated RPA, and it is hereby confirmed by the parties hereto that all prior actions of the parties made pursuant to the Amended and Restated RPA are effective as if made hereunder.

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IN WITNESS WHEREOF the parties have caused this Agreement to be executed by their respective duly authorized officers as of the date first written above.



AUTOMOTIVE FINANCE CANADA INC.


Per:	/s/ Amy Wirges
	Name Amy Wirges Title Vice President of Finance and Treasurer

Address: 1717 Burton Road Vars, ON K0A 3H0
Attention: Vice President of Legal Telecopier No.: 613-443-3436
With a copy to: Automotive Finance Corporation 13085 Hamilton Crossing Blvd. Suite 300 Carmel, Indiana 46032
Attention: Vice President of Legal Telecopier No.: 866-929-3430
And to: Automotive Finance Corporation 13085 Hamilton Crossing Blvd. Suite 300 Carmel, Indiana 46032
Attention: Amy Wirges Telecopier No.: 317-360-3766

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KAR AUCTION SERVICES, INC.


Per:	/s/ Rebecca C. Polak
	Name Rebecca C. Polak Title Executive Vice President, General Counsel and Secretary
Address: 13085 Hamilton Crossing Blvd. Carmel, IN 46032 USA
Attention: Becca C. Polak Executive Vice President and General Counsel and Secretary Telecopier No.: 317-249-4518



BNY TRUST COMPANY OF CANADA , in its capacity as trustee of PRECISION TRUST , by its Securitization Agent, BMO NESBITT BURNS INC.


Per:	/s/ John Vidinovski
	Name John Vidinovski Title Managing Director
Per:	/s/ Chris Romano
	Name Chris Romano Title Managing Director


c/o BMO Nesbitt Burns Inc. 3rd Floor Podium 1 First Canadian Place Toronto, Ontario M5X 1H3
Attention: Managing Director Securitization Telecopier No.: 416-359-1910

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Schedule "A"

FORM OF PURCHASE REQUEST



TO:	PRECISION TRUST c/o BMO NESBITT BURNS INC. 3rd Floor Podium 1 First Canadian Place Toronto, Ontario M5X 1H3 Telecopier No.: (416) 359-1910

This Purchase Request is delivered to you pursuant to Section 2.1(a) of the fourth amended and restated receivables purchase agreement dated as of December 20, 2016 (the " Receivables Purchase Agreement ") between Automotive Finance Canada Inc. (the " Seller "), KAR Auction Services, Inc. (the " Performance Guarantor ") and BNY Trust Company of Canada, in its capacity as trustee of Precision Trust (in such capacity, the " Trust "). All initially capitalized terms used herein, but not otherwise defined herein, have the meanings ascribed to them in the Receivables Purchase Agreement.

The Seller represents and warrants as of the date hereof as follows:


(i)	the representations and warranties of the Seller contained in Section 4.1 of the Receivables Purchase Agreement are correct on and as of the date of the Purchase as though made on and as of such date;


(ii)	no event has occurred and is continuing, or would result from the effecting of such Purchase, that constitutes a Trigger Event or would constitute a Trigger Event by further requirement that notice be given or time elapse or both;


(iii)	the attached Portfolio Certificate (Schedule "D") fully and accurately reflects the Pool Receivables and adjusted Principal Balances; and



Date of Purchase:
Cash Payment:
Cash Deposit Amount [*]:
Net Cash Payment:
Transferred to [*]:

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DATED the day of ●.



AUTOMOTIVE FINANCE CANADA INC.
Per:
	[Name] [Title]
Per:
	[Name] [Title]

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SCHEDULE "B"

LOCATION OF RECORDS

Calgary – Branch 54

ADESA Calgary

1621 Veterans Boulevard NE Airdrie, AB T4A 2G6

Edmonton – Branch 129

ADESA Edmonton

1701 9th Street

Nisku, AB T9E 8M8

Halifax – Branch 61

ADESA Halifax

300 Sky Boulevard

Enfield, NS B2T1K3

Kitchener – Branch 53

218 Boida Ave. Unit #2, RR #1

Ayr, ON N0B1E0

Montreal – Branch 21

ADESA Montreal

300 Albert Mondou

St. Eustache, PQ J7R7A7

Ottawa – Branch 14

ADESA Ottawa

1717 Burton Rd

Vars, ON K0A3H0

Toronto – Branch 56

ADESA Toronto

55 Auction Lane

Brampton, ON L6T 5P4

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Toronto – Branch 182

Toronto Impact Office

535 Wentworth Street S.W.

Oshawa, ON L1J 6G5

Vancouver – Branch 49

ADESA Vancouver

7111 No. 8 Road

Richmond, BC V6W 1L9

Winnipeg – Branch 113

ADESA Winnipeg

Box 19, Group 242, RR # 2

Winnipeg, MB R3C 2E6

Saskatoon – Branch 155

ADESA Saskatoon

618 – 48th Street East

Saskatoon, Saskatchewan S7K 6K4

Carmel Office

Automotive Finance Canada Inc.

c/o Automotive Finance Corporation

13085 Hamilton Crossing Blvd., Suite 300

Carmel, IN 46032

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SCHEDULE "C"

FORM OF SERVICER REPORT

Automotive Finance Canada Inc.

Servicer Report

Dated:

All amounts in Canadian Dollars

# of Days in Month:

Fourth Amended and Restated Receivables Purchase Agreement dated as of December 20, 2016 between Automotive Finance Canada Inc., as Seller and Servicer, KAR Auction Services, Inc., as Performance Guarantor, and Precision Trust (the "Agreement").

Part I

Representations & Warranties

The Servicer certifies that (i) the information provided in this Servicer Report is true and complete, (ii) no Trigger Events, including no Servicer Termination Events, have occurred, (iii) the Representations and Warranties are true and correct, and (iv) the Servicer has satisfied all of its obligations under the Agreement in all material respects, in each case as of the date hereof. In addition, the Servicer confirms that no subservicing arrangements exist.

Automotive Finance Canada Inc.

By:

Date:

Name: Dwayne Price

Title: Assistant Treasurer

Part II

Program Limit, Investment Amount, and Trust's Share as of:

Program Limit (Termination Date: January 31, 2020)

125,000,000

Aggregate Investment (Precision Trust)

Unfulfilled Increases pending in connection with Deferred Increase Date

Paydown Date reduction (cash in account paid next day)

Adjusted Investment (1 + 2 - 3)

Loss Reserve

Net Receivables Pool Balance

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Trust's Share = [(4+5 /6)]

Part III

Receivables Rollforward and Aging Information

See details as of calendar month end in Section I below.

Part IV

Net Receivables Pool Balance

See details as of calendar month end in Section II below.

Part V

Reserves (see Section III for minimum reserves)

Loss Reserve

Available overcollateralization

Minimum level

[*]

Cash Reserve

Available Cash Reserve

[*]

Minimum level (min % * Investment)

[*]

Supplement Yield Reserve Amount

% of Investment

[*]

Part VI

Trigger Events (see Section IV)

Actual

Trigger Level

[*]

Eligible Receivables < CAD 30 million

30,000,000

[*]

Net Spread test [*]

[*]

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Part VII

Financial Triggers & Covenants (see Section V)

Actual

Trigger Level

Bankruptcy

Material Adverse Change

Change in Control (AFC < 100% of Seller; KAR < 80% of AFC)

Cash Reserve < Cash Reserve Required Amount

KAR Financial Covenant violation

Default / cross acceleration of corporate Indebtedness (Seller or AFC > $1MM; KAR > $35MM)

AFC consolidated cash equivalents are at least [*] (incl. [*] unrestricted cash)

Seller's Indebtedness limitation [*]

[*]

Tangible Net Worth test (AFC)

[*]

Tangible Net Worth test (AFCI)

[*]

Leverage ratio (Indebtedness / equity); AFCI

[*]

Part VIII

Reporting Requirements

Timing

Reporting period

[*]

Reporting dates

[*]

Unaudited quarterly financial statements - Seller & Servicer

[*]

Unaudited annual F/S - Seller & Servicer; audited consolidating KAR F/S

[*]

KAR compliance certificate

[*]

Material Changes to Servicer Report

[*]

List of subservicers with contact information

[*]

Changes to Excluded Receivables

[*]

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Section I - Receivables Rollforward and Aging Information

Receivables Rollforward

Current Month

Beginning Principal Balance

Receivables Floorplanned

Principal Receipts

Write-Offs

A/R Converted to Notes

Ending Principal Balance (1 + 2 - 3 - 4 - 5)

Finance Charge Collections

Interest

Floorplan Fee

Other Fees

Finance Charge Collections (1 + 2 + 3)

Write-Offs

Current Month

Total Write-Offs

Write-Offs [*]

Total Converted to Notes

Converted to Notes [*]

Receivables Aging Report

Current

[*] days past due

Total Receivables (1 + 2 + 3 + 4 + 5 + 6)

Average maturity (ref purposes only)

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Difference

Payment Rate / Implied Turnover

[*]

Delinquent Receivables

Receivables [*] days past due

Specified Ineligible Receivables

- Assets that are not eligible for the Net Receivables Pool Balance.

Defaulted Receivables

- These items are not included in the rollforward and are not aged.

Receivables [*] days past due

- These items are however sold to and are assets of the Trust.

Obligor Information

Affiliated Obligors

Number of active dealers

Dismantlers

Average dealer size / average dealer concentration

Section II - Net Receivables Pool Balance

Net Receivables Pool Balance Calculation

In calculating NRPB, there should be no duplication of amounts previously reduced from a different category.

Total Pool Receivables

(A)

Specified Ineligible Receivables

(B)

Total Pool Receivables excluding Specified Ineligible Receivables

(A) - (B)

(C)

Accounts Payable (Title Status "T" from "Title Absent Exclusions Report")

(D)

Total Pool Receivables excluding Specified Ineligible Receivables and Title Status "T"

(E)

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ineligible Receivables

Non-Canadian residents, governmental, or other ineligible obligors

Delinquent Receivables

Defaulted Receivables

Obligors with [*] Defaulted Receivables

Short-pays

NSF

Ineligible contract terms

Over [*] outstanding

Rental [*] months on books

Other ineligible vehicle types

f19

Sold out-of-trust

f11

Obligors subject to bankruptcy or insolvency proceedings

f12

Rental Receivables ([*])

f13

Rental Receivables ([*])

f14

Term [*] payoff

f15

Total ineligible Receivables

(sum f)

(F)

Eligible Receivables

(E) - (F)

(G)

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Normal Concentration Percentage

Obligor Name

Amount

Also, has Rental? Y/N

Concentration limit

Normal Concentration Percentage

Excess concentrations

Retail Obligors

[*] * (G)

Rental Obligors

[*] * (G)

h10

(sum h)

[*] * (G)

h11

(H)

[*] * (G)

h12

Reduction to NRPB

Special Concentration Percentage - Special Obligors

Obligor Name

Amount

Also, has Rental? Y/N

Concentration Limit

Special Concentration Percentage

Excess concentrations

Retail Obligors

[*] * (G)

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[*] * (G)

Rental Obligors

[*] * (G)

i10

(sum i)

[*] * (G)

i11

(I)

[*] * (G)

i12

Reduction to NRPB

All Obligors exceeding [*] Normal Concentration Percentage (aggregate concentration limit [*])

Obligor Name

Amount

Concentration Limit

Normal Concentration Percentage

Value of Receivables included for Obligors exceeding [*]

[*] * (G)

j1 (limited to 3%)

[*] * (G)

j2 (limited to 2%)

[*] * (G)

j3 (limited to 2%)

[*] * (G)

j4 (limited to 2%)

[*] * (G)

j5 (limited to 2%)

[*] * (G)

j6 (limited to 2%)

[*] * (G)

j7 (limited to 2%)

[*] * (G)

j8 (limited to 2%)

[*] * (G)

j9 (limited to 2%)

[*] * (G)

j10 (limited to 2%)

Total of Special Obligors exceeding [*]

(i)

(sum j)

[*] Special Concentration Percentage x (G)

(ii)

Excess concentration

if (i) > (ii), then (ii) - (i)

(J)

Reduction to NRPB

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Special Concentration Percentage - Specialty Vehicles

Total Motorcycles (including all-terrain vehicles)

(i)

All-Terrain Vehicles

(ii)

All-Terrain Vehicles advance limit

(iii)

[*]

All-Terrain Vehicles discounted amount

(ii) x (iii)

(iv)

Total Motorcycles discounted amount

(i) - (ii) + (iv)

(x)

Discounted amount

(ii) *([*]-(iii))

Salvage Vehicles

(v)

Advance Limit

(vi)

[*]

Salvage Vehicles discounted amount

(v) x (vi)

(y)

Discounted amount

(v) *([*]-(vi))

Marine Crafts

(vii)

Advance Limit

(viii)

[*]

Marine Crafts discounted amount

(vii) x (viii)

(z)

Discounted amount

(vii) *([*]-(viii))

Specialty Vehicle Type

Amount

Concentration limit

Special Concentration Percentage

Excess concentrations

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

[*]

[*] * (G)

k10

Excess concentration

(sum k)

(K)

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Reduction to NRPB

[*] Specialty Vehicle Aggregate Special Concentration Percentage

Total Specialty Vehicles

(i)

sum (l1 - l7)

Excess concentration

(ii)

from (k4 - k10)

Total Specialty Vehicles, net of excess concentration

(i) - (ii)

(iii)

[*] Special Concentration Percentage x (G)

(iv)

Excess concentration

if (iii) > (iv), then (iv) - (iii)

(L)

Reduction to NRPB

Special Concentration Percentage - Rental Receivables

Total Rental Receivables

(i)

Obligor Rental Receivables excess concentrations

(ii)

Total Rental Receivables, net of Obligor excess concentrations

(iii)

(i) - (ii)

[*] Special Concentration Percentage * (G)

(iv)

Excess concentration

if (iii) > (iv), then (iii) - (iv)

(M)

Reduction to NRPB

Special Concentration Percentage - Minimum Curtailment Payment

Receivables (excluding Rental) w/ curtailment pymt [*], but [*]

(i)

[*] Special Concentration Percentage x (G)

(ii)

Excess concentration

if (i) > (ii), then (i) - (ii)

(N)

Reduction to NRPB

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Special Concentration Percentage - Auction Credit

Total Auction Credits

(i)

[*] Special Concentration Percentage x (G)

(ii)

Excess concentration

if (i) > (ii), then (i) - (ii)

(O)

Reduction to NRPB

Special Concentration Percentage - Term [*]

Total Receivables outstanding [*]

(i)

[*] Special Concentration Percentage x (G)

(ii)

Excess concentration

if (i) > (ii), then (i) - (ii)

(P)

Reduction to NRPB

Total of discounts and excess concentrations

(Sum H through P)

(Q)

Net Receivables Pool Balance

(G) + (Q)

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SECTION III - Minimum Reserves

Loss Reserve Calculation

Total

[*] Delinquency Ratio

[*]

Dec-16

[*]

Nov-16

[*]

Oct-16

[*]

Loss Reserve ((1 - 2) * 3)

Sep-16

[*]

Aug-16

[*]

Loss Percentage Calculation

Jul-16

[*]

Jun-16

[*]

May-16

[*]

[*] (see below)

Apr-16

[*]

Minimum Loss Percentage

Mar-16

[*]

Loss Percentage ([*])

[*]

Feb-16

[*]

Jan-16

[*]

Default Ratio Component

[*]

[*] Avg Default Ratio

[*]

Dec-16

[*]

10)

[*]

Nov-16

[*]

11)

[*]

Oct-16

[*]

Default Ratio Component ((10 / 11) * 9)

[*]

Sep-16

[*]

Aug-16

[*]

Cash Reserve Event (Determination)

Jul-16

[*]

Adjusted Net Spread [*]

Jun-16

[*]

Adjusted Net Spread [*]

May-16

[*]

Apr-16

[*]

Mar-16

[*]

Feb-16

[*]

Jan-16

[*]

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Delinquency Ratio, current month

II.

[*]

[*] avg Payment Rate

III.

Minimum Payment Rate

[*]

Cash Reserve Event?

[*]

Cash Reserve Required Amount

Calculation date of most recent Cash Reserve Event ([*])

(fill in the date manually or "N/A")

Has the Cash Reserve Event been cured for [*]?

Cash Reserve Event trigger applicable (occurred and not cured for [*]) ?

Application percentage

Aggregate Investment

Required amount based on Investment and performance [*]

Supplement Yield Reserve Amount

Cash Reserve Required Amount [*]

Actual Cash Reserve balance

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Collection Account Balance (RPA section 2.5 and 2.6 payments)

Total

Collection Account balance

Replacement Servicer Fee

Collection costs

Backup Servicing Fees

Transition Expenses

Funding Discount

Standby Fees

Paydown Date reduction (cash in account paid next day)

Required payment to Cash Reserve Account [contingent]

10)

Required amounts owed to Indemnified Parties [contingent]

11)

Total RPA section 2.5 and 2.6 payments (2 thru 10)

Excess cash / (deficit) (1 - 11)

SECTION IV - Trigger Events

XVI.

Trigger Events - Month End Only

Participation Test

For Reference: calculation of numerator

Investment

ADD

Unfulfilled Increase

[*] days

Loss Reserve

Total write-offs

Paydown Date reduction (cash in account paid next day)

Total conv to notes

Trust's Share (1 + 2 + 3 - 4)

DEDUCT

Net Receivable Pool Balance

Write-offs [*]

Trust's Share % (5 / 6)

Conv to notes [*]

Trust's Share % limit

Total Defaulted

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Default Ratio Test

Receivables [*] days past due + write-offs [*] past due

+ A/R conv to notes [*] past due

Receivables floorplanned [*] prior (cash disbur.)

Default Ratio (1 / 2)

Maximum [*] Default Ratio

[*]

[*] avg Default Ratio

Maximum [*] avg Default Ratio

[*]

Delinquency Ratio Test

Total Delinquent Receivables

Outstanding Balance of Pool Receivables

Delinquency Ratio (1 / 2)

Maximum [*] Delinquency Ratio

[*]

[*] avg Delinquency Ratio

Maximum [*] avg Delinquency Ratio

[*]

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D.	Net Spread Test

	1)	Finance Charge Collections
	2)	Funding Discount expensed during month
	3)	Standby Fee (unused fee)
	4)	Replacement Servicer Fee (if $0 there should be a Notional Servicer Fee)
	5)	Notional Servicer Fee [*]
	6)	Backup Servicing Fees
	7)	Transition Expenses (if any)
	8)	Other Fees > $100
	9)	Defaults as defined for the Default Ratio test
	10)		Subtotal - carry costs and losses (2 thru 9)
	11)	Recoveries
	12)	Collections on Defaulted Receivables
	13)	Subtotal: excess Finance Charge Collections (1 - 10 + 11 + 12)
	14)	Average aggregate balance Pool Receivables
		Net Spread (before allocation of Supplemental Yield) ([*])
	15)	Adjusted Net Spread Amount (allocation of Supplemental Yield)
	16)	Subtotal: excess Finance Charge Collections + allocation (13 + 15)
	17)	Average aggregate balance Pool Receivables
	18)	Net Spread ([*])
		Minimum [*] Net Spread		[*]
		Compliance ([] > [])

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Payment Rate

Collections of principal on all Pool Receivables (excl. Collections of principal on Spec. Ineligible Receivables)

Beginning aggregate O/S Balance of Pool Receivables (excl. Collections of principal on Spec. Ineligible Receivables)

Payment Rate (1 / 2)

[*] Payment Rate

Minimum [*] Payment Rate

[*]

Compliance (4 > 5)

Minimum Eligible Receivables

Eligible Receivables

Minimum Eligible Receivables

30,000,000

Compliance (1 > 2)

Minimum Cash Reserve

Amount on deposit in Cash Reserve

Minimum Cash Reserve amount

[*]

Compliance (1 > 2)

SECTION V - Financial Triggers & Covenants

Tangible Net Worth Test

AFC

AFC's Shareholder's Equity

AFC's Intangible Assets

Tangible Net Worth (1 - 2)

Minimum Tangible Net Worth

[*]

Compliance (3 > 4)

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Seller - AFCI

AFCI Shareholder's Equity

AFCI's Intangible Assets

Tangible Net Worth (1 - 2)

Minimum Tangible Net Worth

[*]

Compliance (3 > 4)

Seller's Indebtedness (including Investment)

Maximum Indebtedness ([*])

All Indebtedness ([*])

Compliance (1 > 2)

Seller's Indebtedness (including Investment) / Equity

Maximum Indebtedness / equity

[*]

AFCI Indebtedness / equity

Compliance (1 > 2)

Seller Liquidity

AFC cash and cash equivalents

Minimum cash and equivalents

[*]

AFC unrestricted cash

Minimum unrestricted cash

[*]

Compliance (1 > 2 & 3 > 4)

N/A

In Compliance

Yes

Violation

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SCHEDULE "D"

FORM OF PORTFOLIO CERTIFICATE

Automotive Finance Canada Inc.



To:		Precision Trust

Reference is made to the Fourth Amended and Restated Receivables Purchase Agreement, dated as of December 20, 2016, (herein, as amended or otherwise modified from time to time, called the "Receivables Purchase Agreement"), among Automotive Finance Canada Inc. (the "Seller"), KAR Auction Services, Inc. (the "Performance Guarantor"), and BNY Trust Company of Canada, in its capacity as trustee of Precision Trust (in such capacity "The Trust"). Capitalized terms used but not otherwise defined herein are used as defined in the Receivables Purchase Agreement.

					Date
The Seller hereby certifies and warrants to you that the following is a true and correct computation as of:

	current Investment
	[*]
	plus, with respect to a request for an increase of the Purchasers' Investments, the amount of such increase.
			Investment after funding activity	1A

	Current balance of unfufilled purchases subject to a Deferred Purchase Date			1B

	Loss Reserve [*]			1C


				TOTAL (1)

Net Receivables Pool Balance

	Total of all Receivables in the Receivables Pool (A) [Note: these letters correspond to the Servicer Report.]

	Reduction for: Specified Ineligible Receivables (B)

	Reduction for: Title Attached Receivables (D)

	Reduction for: ineligible Receivables (F)

	Reduction for: [*]

	Reduction for: Special Concentration limit - [*]

	Reduction for: Special Concentration limit - [*]

	Reduction for: Special Concentration limit - [*]

	Reduction for: Special Concentration limit - [*]

	Reduction for: Special Concentraion limi - [*]

	Net Receivables Pool Balance			TOTAL (2)

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Carry Costs referenced in the RPA Section 2.6 have been set aside


Aggregate Participation TEST:				(1) / (2)
	Is Aggregate Participation less than or equal to [*]?

Cash Reserve [*]
		Is Level One Trigger applicable?

	[*]	times the Investment in 1A

	Supplemental Yield Reserve Amount

	Cash Reserve Required Amount			3A

	Cash Reserve Account Balance			3B

Cash Reserve TEST: (3B must be greater than or equal to 3A)

IN WITNESS WHEREOF, the SELLER has caused this Portfolio Certificate to be executed and delivered by the Servicer. In addition, as of the date of this Portfolio Certificate, AFCI is in compliance with all Representations & Warranties and Covenants. Also, no Termination Events have occurred under the Receivables Purchase Agreement.


			Automotive Finance Corporation, as Servicer

			By: _________________________________
			Name:
			Title:

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SCHEDULE "E"

DEPOSIT ACCOUNTS



Account Name	Account Type	Account Number
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]

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SCHEDULE "F"

FORM OF INCREASE REQUEST



TO:	PRECISION TRUST c/o BMO NESBITT BURNS INC. 3rd Floor Podium 1 First Canadian Place Toronto, Ontario M5X 1H3 Telecopier No.: (416) 359-1910

This Increase Request is delivered to you pursuant to Section 2.1(b) of the fourth amended and restated receivables purchase agreement dated as of December 20, 2016 (the " Receivables Purchase Agreement ") between Automotive Finance Canada Inc. (the " Seller "), KAR Auction Services, Inc. (the " Performance Guarantor ") and BNY Trust Company of Canada, in its capacity as trustee of Precision Trust (in such capacity, the " Trust "). All initially capitalized terms used herein, but not otherwise defined herein, have the meanings ascribed to them in the Receivables Purchase Agreement.

The Seller represents and warrants as of the date hereof as follows:


(i)	the representations and warranties of the Seller contained in Section 4.1 of the Receivables Purchase Agreement are correct on and as of the date of purchase as though made on and as of such date; and


(ii)	no event has occurred and is continuing, or would result from the effecting of such Purchase, that constitutes a Trigger Event or would constitute a Trigger Event by further requirement that notice be given or time elapse or both; and


(iii)	the attached weekly Portfolio Certificate fully and accurately reflects the Pool Receivables and adjusted Principal Balances.



Remittance Date:
Current aggregate Investment:
Increase to Investment (Cash Payment) (at least Cdn$500,000, increments of Cdn$100,000):
Cash Reserve Required Amount [*]:

Current Cash Reserve Account balance:
Cash Deposit Amount (if req'd) Transferred to Precision Trust Cash Reserve Account [*]: Net Cash Payment:
Transferred to Seller's Account No. [*]:

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DATED the day of ●.



AUTOMOTIVE FINANCE CANADA INC.
Per:
	[Name] [Title]
Per:
	[Name] [Title]

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SCHEDULE "G"

FORM OF QUEBEC ASSIGNMENT

(see attached)

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Reference is made to a receivables purchase agreement dated as of February 8, 2010 (as may be amended, restated, supplemented or otherwise modified, the “ Purchase Agreement ”) by and among Automotive Finance Canada Inc./Financement d’Automobiles Canada Inc., a corporation existing under the laws of Ontario (the “ Seller ”), KAR Auction Services, Inc., a corporation existing under the laws of Delaware, as performance guarantor, and BNY Trust Company of Canada, in its capacity as trustee of Precision Trust, a trust established under the laws of the Province of Ontario (the “ Trust ”) concerning the sale and assignment by the Seller to the Trust of an interest in the Receivables Pool. For good and valuable consideration, the Trust and the Seller agree as follows:

INTERPRETATION

Definitions

In this Québec Assignment, the following terms shall have the following meanings:

“ Contract ” means, with respect to any Obligor, collectively, the Dealer Note issued by such Obligor, or similar agreement between such Obligor and the Seller, any guarantee issued in connection therewith and each other agreement or instrument executed by an Obligor pursuant to or in connection with any of the foregoing, the purpose of which is to evidence, secure or support such Obligor's obligations to the Seller under such Dealer Note or other similar agreement;

" Credit and Collection Policies " means the customary policies and practices of the Servicer that have been delivered to the Trust relating to the creditworthiness of Obligors, the making of collections and the enforcement of Receivables and the Related Security as such policies and practices may be amended from time to time in accordance with the Purchase Agreement;

“ Dealer Note ” means a demand promissory note and security agreement and any other promissory note issued, or agreement made by, an Obligor in favour of the Seller;

“ Financed Vehicle ” means [*];

“ Obligor ” means any Person who is from time to time obligated to make payments on a Receivable including any co-signer or guarantor;

“ Person ” means an individual, partnership, corporation, limited liability company, trust, joint venture, unincorporated organization, association, board or body established by statute, government (or any agency or political subdivision thereof) or other entity;

“ Québec Collections ” means, with respect to Québec Receivables, (a) all funds which are received by the Seller, the Servicer or the Trust in payment of any amounts owed in respect of such Québec Receivables (including, without limitation, principal payments, finance charges, floorplan fees, curtailment fees, interest and all other charges), or applied (or to be applied) to amounts owed in respect of such Québec Receivables (including, without limitation, insurance payments and net proceeds of the sale or other disposition of vehicles or other collateral or property of the related Obligors or any other Person directly or indirectly liable for the payment of Québec Receivables applied (or to be applied) thereto), (b) all Collections in respect of

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Québec Receivables deemed to have been received pursuant to Section 5.17 of the Purchase Agreement, (c) all other proceeds of Québec Receivables, and (d) without duplication, all other amounts deposited to the Deposit Accounts or the Collection Account under the Purchase Agreement;

“ Québec Pool Assets ” means the universality of all present and future Québec Receivables together with all Related Security, all Québec Collections, and all rights of action with respect to the foregoing;

“ Québec Receivable ” means each Receivable where either one of the following conditions is satisfied:


(a)	the Obligor of such Receivable is located in the Province of Québec; or


(b)	such Receivable is payable to an address or an account in the Province of Québec;

" Receivable " means any claim or right to payment from an Obligor arising under a Contract, arising from the providing of financing and other services by the Seller to new, used and wholesale automobiles or other motor vehicle dealers, including the obligation to pay any finance charges and other obligations with respect thereto;

“ Records ” means all contracts, books, records, microfiche and other documents and information (including computer programmes, tapes, diskettes, data processing software and related property and rights) maintained by or on behalf of the Seller evidencing or otherwise relating to any Receivables, including the Contracts related thereto, or relating to any of the related Financed Vehicles, Obligors, Related Security, Collections or the Deposit Accounts and shall include all such records, information and material maintained or required to be maintained by the Servicer in respect thereof but excluding for greater certainty the financial statements of the Seller and its Affiliates;

" Recreational Vehicle " means [*];

“ Related Security ” means, with respect to any Québec Receivable:

the Related Vehicle and Proceeds Security;

all of the Seller's interest in all warranties, indemnities, service obligations and other contract rights issued or granted by, or otherwise existing under applicable law against, the Obligor or the manufacturer in respect of the related Financed Vehicle;

all guarantees and Security Interests (other than the Related Vehicle and Proceeds Security) from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Québec Receivable, or otherwise, together with all financing statements or other instruments describing any collateral securing such Receivable, and including all Security Interests (other than the Related Vehicle and Proceeds Security) granted by any Person (whether or not the primary Obligor on such Québec Receivable) under or

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in connection therewith and purporting to secure payment of such Québec Receivable;

all Records relating to such Québec Receivable, including all original Contracts;

all service contracts and other contracts and agreements relating to such Québec Receivable; and

all proceeds of or relating to any of the foregoing, including proceeds of or relating to the Québec Receivable;

" Tractors " means [*].

Definitions

Terms with initial capital letters in this Québec Assignment which are not defined herein shall have the meanings given to them in the Purchase Agreement.

SALE AND ALLOCATIONS

Assignment and Sale

The Seller hereby sells and assigns to the Trust, and the Trust hereby acquires from the Seller, the Québec Pool Assets. Such sale and assignment of the Québec Pool Assets constitutes an absolute sale and assignment of the Québec Pool Assets.

Notwithstanding anything to the contrary, whenever the expression “Trust’s Co-Ownership Interest” is used in the Purchase Agreement, it shall include a 100% ownership interest in the Quebec Receivables.

Purchase Price

The purchase price for the sale by the Seller to the Trust of the Québec Pool Assets hereunder shall be calculated and paid in accordance with the terms of the Purchase Agreement.

Entitlements

Quebec Collections shall be allocated with other Collections under Sections 2.5, 2.6, 2.8 and 2.9 of the Purchase Agreement provided that amounts allocated and paid to the Seller under Sections

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2.5(c) or 2.8 (c) of the Purchase Agreement in respect of Quebec Collections shall be paid to the Seller as additional Deferred Purchase Price rather than payments made in respect of the Seller’s Retained Interest.

Reconveyances

Following the Final Termination Date, the Trust shall, upon the written request of the Seller, reconvey to the Seller the Québec Pool Assets consisting of (i) the universality of all Québec Receivables arising on the Final Termination Date or thereafter (and excluding, for greater certainty, the universality of all Québec Receivables arising or existing at any time before the Final Termination Date) and all related Québec Collections, (ii) all Related Security with respect to each such Québec Receivable and (iii) all rights of action with respect to the foregoing. Moreover, upon the written request of the Seller and in furtherance of an optional repurchase of Pool Receivables under Section 6.3 of the Purchase Agreement, the Purchaser shall reconvey to the Seller all of the Quebec Pool Assets. Each reconveyance by the Trust to the Seller under this Section 0 shall be effected without any representation or warranty (express, implied, statutory or otherwise) except for the Trust’s warranty that the reconveyed assets are not subject to any lien, hypothec, charge, security interest, ownership interest, encumbrance or any other right or claim created by, through, or in favour of, the Trust. The Trust shall sign all documents required by the Seller in order to give effect to each such reconveyance, and shall make all requisite registrations and give all required notices to render it opposable to third parties.

MISCELLANEOUS

Purchase Agreement

This Québec Assignment shall be construed as having been executed in furtherance of the Purchase Agreement and shall form an integral part thereof, provided that the ownership of the Québec Pool Assets shall be determined in accordance with the terms of this Québec Assignment and not by the terms of the Purchase Agreement.

Notices

Notices for the purposes of this Québec Assignment shall be given in accordance with the Purchase Agreement.

Governing Law

This Québec Assignment shall be governed by and construed in accordance with the laws of the Province of Québec.

Severability

If, in any jurisdiction, any provision of this Québec Assignment or its application to any party to this Québec Assignment or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions of this Québec

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Assignment and without affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to other parties or circumstances.

Counterparts

This Québec Assignment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Québec Assignment by facsimile shall be effective as delivery of a manually executed counterpart of this Québec Assignment.

Successors and Assigns

This Québec Assignment may be assigned by the parties hereto only in accordance with the provisions governing the assignment of the Purchase Agreement.

Section Headings

Section headings in this Québec Assignment are included herein for convenience of reference only and shall not affect in any way the interpretation of any of the provisions hereof.

Paramountcy

In the event of an inconsistency or conflict between the terms of this Québec Assignment and the Purchase Agreement, the terms of this Québec Assignment shall govern.

Limitation of Liability

This Québec Assignment has been entered into by BNY Trust Company of Canada (the “Trustee” ) solely in its capacity as trustee of the Trust and by the Securitization Agent as agent for the Trust and is not binding on the Trustee or the Securitization Agent in any other capacity. Save and except where a claim is based on its own negligence or wilful misconduct, resort may not be had to, nor recourse or satisfaction be sought from, the private property of the Trustee or the Securitization Agent, or their respective directors, officers, employees, or agents, and resort will be had solely to the property of the Trust held in trust by the Trustee for the payment, performance or satisfaction of any liability or obligation of the Trust or the Trustee hereunder.

Language.

The parties hereby confirm their express wish that the present agreement and all documents, notices and agreements directly and indirectly related thereto be drawn up in English. Les parties reconnaissent leur volonté expresse que la présente convention ainsi que tous les documents, avis et conventions qui s'y rattachent directement ou indirectement soient rédigés en langue anglaise.

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The parties have executed this Québec Assignment as of February ___, 2010.



		AUTOMOTIVE FINANCE CANADA INC./FINANCEMENT D’AUTOMOBILES CANADA INC.
		By:
			Name:
			Title:

		By:
			Name:
			Title:



		BNY TRUST COMPANY OF CANADA, solely in its capacity as trustee of PRECISION TRUST, by its Securitization Agent, BMO NESBITT BURNS INC.
		By:
			Name:
			Title:

		By:
			Name:
			Title:

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SCHEDULE "H"

NET RECEIVABLES POOL BALANCE CALCULATION



	Net Receivables Pool Balance Calculation	In calculating NRPB, there should be no duplication of amounts previously reduced from a different category.

A.	Total Pool Receivables			(A)

B.	Specified Ineligible Receivables			(B)

C.	Total Pool Receivables excluding Specified Ineligible Receivables		(A) - (B)	(C)

D.	Accounts Payable (Title Status "T" from "Title Absent Exclusions Report")			(D)

E.	Total Pool Receivables excluding Specified Ineligible Receivables and Title Status "T"		(C) - (D)	(E)

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F.	ineligible Receivables
	Non-Canadian residents, governmental, or other ineligible obligors		f1
	Delinquent Receivables		f2
	Defaulted Receivables		f3
	Obligors with [*] Defaulted Receivables		f4
	Short-pays		f5
	NSF		f6
	Ineligible contract terms		f7
	Over [*] outstanding		f8
	Rental [*] on books		f9
	Other ineligible vehicle types		f19
	Sold out-of-trust		f11
	Obligors subject to bankruptcy or insolvency proceedings		f12
	Rental Receivables ([*])		f13
	Rental Receivables ([*])		f14
	Term [*] payoff		f15
		Total ineligible Receivables	(sum f)	(F)

G.	Eligible Receivables		(E) - (F)	(G)

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H.	Normal Concentration Percentage
	Obligor Name	Amount	Also, has Rental? Y/N	Concentration limit	Normal Concentration Percentage	Excess concentrations
	Retail Obligors
					[] (G)		h1
					[] (G)		h2
					[] (G)		h3
					[] (G)		h4
					[] (G)		h5
					[] (G)		h6
					[] (G)		h7
	Rental Obligors
					[] (G)		h8
					[] (G)		h9
					[] (G)		h10	(sum h)
					[] (G)		h11		(H)
					[] (G)		h12	Reduction to NRPB

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I.	Special Concentration Percentage - Special Obligors
	Obligor Name	Amount	Also, has Rental? Y/N	Concentration Limit	Special Concentration Percentage	Excess concentrations
	Retail Obligors
					[] (G)		i1
					[] (G)		i2
					[] (G)		i3
					[] (G)		i4
					[] (G)		i5
					[] (G)		i6
					[] (G)		i7
	Rental Obligors
					[] (G)		i8
					[] (G)		i9
					[] (G)		i10	(sum i)
					[] (G)		i11		(I)
					[] (G)		i12	Reduction to NRPB

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J.	All Obligors exceeding [] Normal Concentration Percentage (aggregate concentration limit [])
	Obligor Name	Amount	Concentration Limit	Normal Concentration Percentage	Value of Receivables included for Obligors exceeding [*]
				[] (G)		j1 (limited to 3%)
				[] (G)		j2 (limited to 2%)
				[] (G)		j3 (limited to 2%)
				[] (G)		j4 (limited to 2%)
				[] (G)		j5 (limited to 2%)
				[] (G)		j6 (limited to 2%)
				[] (G)		j7 (limited to 2%)
				[] (G)		j8 (limited to 2%)
				[] (G)		j9 (limited to 2%)
				[] (G)		j10 (limited to 2%)

	Total of Special Obligors exceeding [*]		(i)	(sum j)
	[*] Special Concentration Percentage x (G)		(ii)
	Excess concentration				if (i) > (ii), then (ii) - (i)			(J)
							Reduction to NRPB

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K.	Special Concentration Percentage - Specialty Vehicles

	Total Motorcycles (including all-terrain vehicles)		(i)
	All-Terrain Vehicles		(ii)
	All-Terrain Vehicles advance limit		(iii)	[*]
	All-Terrain Vehicles discounted amount		(ii) x (iii)		(iv)
	Total Motorcycles discounted amount				(i) - (ii) + (iv)		(x)
		Discounted amount					(ii) ([]-(iii))		k1
	Salvage Vehicles		(v)
	Advance Limit		(vi)	[*]
	Salvage Vehicles discounted amount				(v) x (vi)		(y)
		Discounted amount					(v) ([]-(vi))		k2

	Marine Crafts		(vii)
	Advance Limit		(viii)	[*]
	Marine Crafts discounted amount				(vii) x (viii)		(z)
		Discounted amount				(vii) ([]-(viii))			k3

	Specialty Vehicle Type	Amount		Concentration limit	Special Concentration Percentage	Excess concentrations
	[*]		l1		[] (G)		k4
	[*]		l2		[] (G)		k5
	[*]		l3		[] (G)		k6
	[*]		l4		[] (G)		k7
	[*]		l5		[] (G)		k8
	[*]		l6		[] (G)		k9
	[*]		l7		[] (G)		k10
	Excess concentration						(sum k)		(K)
								Reduction to NRPB

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L.	[*] Specialty Vehicle Aggregate Special Concentration Percentage
	Total Specialty Vehicles		(i)		sum (l1 - l7)
	Excess concentration		(ii)		from (k4 - k10)
	Total Specialty Vehicles, net of excess concentration		(i) - (ii)		(iii)
		[*] Special Concentration Percentage x (G)			(iv)
	Excess concentration					if (iii) > (iv), then (iv) - (iii)		(L)
							Reduction to NRPB


M.	Special Concentration Percentage - Rental Receivables

	Total Rental Receivables		(i)
	Obligor Rental Receivables excess concentrations		(ii)
	Total Rental Receivables, net of Obligor excess concentrations		(iii)		(i) - (ii)
	[] Special Concentration Percentage (G)		(iv)
	Excess concentration			if (iii) > (iv), then (iii) - (iv)				(M)
							Reduction to NRPB

N.	Special Concentration Percentage - Minimum Curtailment Payment

	Receivables (excluding Rental) w/ curtailment pymt [], but []		(i)
	[*] Special Concentration Percentage x (G)		(ii)
	Excess concentration			if (i) > (ii), then (i) - (ii)				(N)
							Reduction to NRPB

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O.	Special Concentration Percentage - Auction Credit

	Total Auction Credits	(i)
	[*] Special Concentration Percentage x (G)	(ii)
	Excess concentration		if (i) > (ii), then (i) - (ii)				(O)
						Reduction to NRPB

P.	Special Concentration Percentage - Term [*]

	Total Receivables outstanding [*]	(i)
	[*] Special Concentration Percentage x (G)	(ii)
	Excess concentration		if (i) > (ii), then (i) - (ii)				(P)
						Reduction to NRPB

Q.	Total of discounts and excess concentrations			(Sum H through P)			(Q)


	Net Receivables Pool Balance				(G) + (Q)

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EXHIBIT 10.33

KAR Auction Services, Inc.

2009 OMNIBUS STOCK AND INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

2017 AWARD

THIS AGREEMENT (the “Agreement”) is made between KAR Auction Services, Inc., a Delaware corporation (the “Company”), and [NAME] (the “Recipient”) pursuant to the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended (the “Plan”). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Plan. The parties hereto agree as follows:

1. Grant of Restricted Stock Units . The Company hereby grants to the Recipient [_______] Restricted Stock Units (the “Award”) as of [___________], 2017 (the “Grant Date”), subject to the terms and conditions of the Plan and this Agreement. The Restricted Stock Units shall vest based on the Company’s performance described in Section 4 and pursuant to the terms of this Agreement. A “Restricted Stock Unit” is an “Other Share-Based Award” under the Plan and each Restricted Stock Unit entitles the Recipient to a share of Common Stock upon vesting subject to the terms of this Agreement.

2. Restrictions . The Restricted Stock Units may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, whether voluntarily or involuntarily or by operation of law. The Recipient shall have no rights in the Common Stock underlying the Restricted Stock Units until the Award vests as described in Section 4 below or as otherwise provided in the Plan or this Agreement. The Recipient shall not have any voting rights with respect to the Restricted Stock Units.

3. Restricted Stock Unit Account . The Company shall maintain an account (the “Restricted Stock Unit Account” or “Account”) on its books in the name of the Recipient, which shall reflect the number of Restricted Stock Units awarded to the Recipient.

4. Period of Restriction . Subject to the Company achieving Operating Adjusted Net Income of more than $100,000,000 in its 2017 fiscal year (the “ Performance Threshold ”), the Recipient’s continuous employment with the Company through the following dates and the other provisions of the Plan and this Agreement, unless vested or forfeited earlier as described in Section 5 or 6 of this Agreement, as applicable, (i) one-third (1/3) of the Award shall become vested on the first anniversary of the Grant Date, (ii) an additional one-third (1/3) of the Award shall become vested on the second anniversary of the Grant Date and (iii) the final one-third (1/3) of the Award shall become vested on the third anniversary of the Grant Date. If the Company fails to achieve the Performance Threshold, no amounts will vest and the Award shall immediately terminate and be forfeited by the Recipient.

Upon vesting, all vested Restricted Stock Units shall cease to be considered Restricted Stock Units, subject to the terms and conditions of the Plan and this Agreement, and the Recipient shall be entitled to receive one share of Common Stock for each vested Restricted Stock Unit in the

Recipient’s Restricted Stock Unit Account. Such shares of Common Stock shall be paid to the Recipient as soon as practicable after the vesting date and, if applicable, certification by the Committee that the performance criteria have been met, but in no event later than March 15 of the year following the year in which the shares became vested.

“Operating Adjusted Net Income” shall mean the Company’s operating adjusted net income as reported in the Company's earnings release or annually to the Board of Directors in the event adjusted earnings per share is not included in a publicly released document.

5. Termination of Employment .

(a) If, from the Grant Date until the third anniversary of the Grant Date, the Recipient experiences a termination of employment with the Company and its Affiliates on account of the Recipient’s death or Disability, then all unvested Restricted Stock Units outstanding as of the date of such termination of employment shall immediately vest in full.

(b) If, from the Grant Date until the third anniversary of the Grant Date, the Recipient experiences a termination of employment with the Company and its Affiliates by reason of the Recipient’s Retirement or Early Retirement Date (as defined below) and provided that the performance criteria in Section 4 is met as certified by the Committee, then all unvested Restricted Stock Units that would have vested in the 12 months following his or her termination date will immediately vest, with (1) all Restricted Stock Units vesting that were scheduled to vest on the first anniversary of the Grant Date occurring in such 12 month period and (2) a pro rata amount of the Restricted Stock Units vesting that were scheduled to vest on the next anniversary of the Grant Date occurring thereafter (if any), equal to (A) the total number of unvested Restricted Stock Units that would have vested on such anniversary of the Grant Date, multiplied by (B) a fraction, the numerator of which is the number of full calendar months after the anniversary of the Grant Date described in (1) above, once the additional 12 months of post-termination vesting credit has been applied, and the denominator of which is 12. For purposes of clarity and as an example of the application of the additional 12 months of vesting credit described above, if a Recipient terminates employment by reason of Retirement or an Early Retirement Date 18 months after the Grant Date (and the performance criteria in Section 4 has been met), the Recipient will immediately vest in (i) the Restricted Stock Units scheduled to vest on the 2 ^nd anniversary of the Grant Date and (ii) 6/12 (or ½) of the Restricted Stock Units scheduled to vest on the 3 ^rd anniversary of the Grant Date. The Recipient’s “Early Retirement Date” is the date of his or her voluntary termination of employment after attaining a combination of years of age and service with the Company and its Affiliates of at least 70, with a minimum age of 60; provided, that, notwithstanding any language to the contrary in the Plan, the Recipient’s years of service with a company prior to it becoming an Affiliate will qualify as service towards attainment of an Early Retirement Date if and only if the Recipient has provided at least five years of service with the Company or another company that was an Affiliate at the time of service.

(c) If, from the Grant Date until the third anniversary of the Grant Date, the Recipient experiences a termination of employment with the Company and its Affiliates for any reason other

those set forth in Section 5(a) and 5(b) above or Section 6 below, then the Recipient shall forfeit any unvested Restricted Stock Units outstanding as of the date of such termination of employment.

6. Vesting upon Change in Control . Upon a Change in Control occurring from the Grant Date until the third anniversary of the Grant Date and prior to the Recipient’s termination of employment with the Company and its Affiliates, (i) the Performance Threshold shall be deemed achieved and (ii) all unvested Restricted Stock Units may be assumed or replaced by the Company or its successor with a substantially similar equity or cash incentive award and the same vesting terms as the unvested Restricted Stock Units. If such unvested Restricted Stock Units are assumed or replaced in a Change in Control and the Recipient’s employment with the Company or its successor is terminated without Cause or by the Recipient for Good Reason (as defined in the Recipient’s employment agreement with the Company, to the extent applicable) prior to the third anniversary of the Grant Date, the assumed or replaced award shall become fully vested on the date of such termination of employment and shall be paid to Recipient as soon as administratively feasible thereafter (but in no event later than March 15 of the year following the year in which the such termination of employment occurs). To the extent any unvested Restricted Stock Units are not assumed or replaced by the Company or its successor upon a Change in Control as set forth above, then such unvested Restricted Stock Units shall immediately become vested on the date of such Change in Control and shall be paid to the Recipient as soon as administratively feasible thereafter (but in no event later than March 15 of the year following the year in which such Change in Control occurs).

7. Adjustment in Capitalization . In the event of any change in the Common Stock through stock dividends or stock splits, a corporate split-off or split-up, or recapitalization, merger, consolidation, exchange of shares, or a similar event, the number of Restricted Stock Units subject to this Agreement shall be equitably adjusted by the Committee.

8. Delivery of Stock Certificates . Subject to the requirements of Sections 9 and 10 below, the Company may, if applicable, cause to be issued and delivered to a brokerage account for the benefit of the Recipient certificates or electronic book entry credit for the shares of Common Stock that correspond to the vested Restricted Stock Units.

9. Tax Withholding . Whenever Common Stock is to be issued, a payment is to be made, or any other vesting or payment event occurs under this Agreement, the Company or any Subsidiary shall withhold, or, with the consent of the Committee, require the Recipient to remit to the Company or such Subsidiary, an amount sufficient to satisfy the federal, state, and local withholding tax requirements relating to such transaction, and the Company or such Subsidiary may defer any payment or issuance of Common Stock until such requirements are satisfied; provided that the amount of any such withholding shall not exceed the maximum statutory withholding rate applicable with respect to the Recipient.

10. Securities Laws . This Award is a private offer that may be accepted only by a Recipient who satisfies the eligibility requirements outlined in the Plan and the Committee’s administrative procedures. The future value of Common Stock acquired under the Plan is unknown and could increase or decrease.

Neither the Plan nor any offering materials related to the Plan may be distributed to the public. The Common Stock should be resold only on the New York Stock Exchange and should not be resold to the public except in full compliance with local securities laws.

11. No Guarantee of Employment . Nothing in this Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate the Recipient’s employment at any time, or confer upon the Recipient any right to continue in the employ of the Company or any Subsidiary.

12. Compliance with Code Section 409A . Notwithstanding any provision of the Plan or this Agreement to the contrary, the Award is intended to be exempt from or, in the alternative, comply with Code Section 409A and the interpretive guidance thereunder, including the exceptions for stock rights and short-term deferrals. The Plan and the Agreement will be construed and interpreted in accordance with such intent. References in the Plan and this Agreement to “termination of employment” and similar terms shall mean a “separation from service” within the meaning of that term under Code Section 409A. Any payment or distribution that is to be made to a Recipient who is a “specified employee” of the Company within the meaning of that term under Code Section 409A and as determined by the Committee, on account of a “separation from service” under Code Section 409A, may not be made before the date which is six months after the date of such “separation from service,” unless the payment or distribution is exempt from the application of Code Section 409A by reason of the short-term deferral exemption or otherwise.

13. Dividend Equivalents . If the Company declares a cash dividend on its shares, then, on the payment date of the dividend, the Recipient will be credited with dividend equivalents equal to the amount of cash dividend per share multiplied by the number of Restricted Stock Units credited to the Recipient through the record date. The dollar amount credited to the Recipient under the preceding sentence will be credited to an account (“Dividend Account”) established for the Recipient for bookkeeping purposes only on the books of the Company. The amounts credited to the Dividend Account will be credited as of the last day of each month with interest, compounded monthly, until the amount credited to the Dividend Account is paid to the Recipient. The rate of interest credited under the previous sentence will be the prime rate of interest as reported by the Midwest edition of the Wall Street Journal for the second business day of each quarter on an annual basis. The balance in the Dividend Account will be subject to the same terms regarding vesting and forfeiture as the Recipient’s Restricted Stock Units awarded under the accompanying letter and this document, and will be paid in cash in a single sum at the time that the shares of Common Stock associated with the Recipient’s Restricted Stock Units are delivered (or forfeited at the time that the Recipient’s Restricted Stock Units are forfeited).

14. No Fractional Shares . No fractional shares of Common Stock shall be issued or delivered under this Agreement. The Committee shall determine whether cash or other property shall be issued or paid in lieu of such fractional shares of Common Stock or whether such fractional shares of Common Stock or any rights thereto shall be forfeited or otherwise eliminated.

15. Amendment . The Committee may at any time amend, modify or terminate this Agreement; provided, however, that no such action of the Committee shall adversely affect the Recipient’s rights under this Agreement without the consent of the Recipient. The Committee, to the extent it deems necessary or advisable in its sole discretion, reserves the right, but shall not be required, to unilaterally amend or modify this Agreement so that the Award qualifies for exemption from or complies with Code Section 409A; provided, however, that the Committee and the Company make no representations that the Award shall be exempt from or comply with Code Section 409A and make no undertaking to preclude Code Section 409A from applying to the Award.

16. Plan Terms and Committee Authority . This Agreement and the rights of the Recipient hereunder are subject to all of the terms and conditions of the Plan, as it may be amended from time to time, as well as to such policies, rules and regulations as the Committee may adopt for administration of the Plan, including but not limited to any stock ownership and stock holding guidelines. It is expressly understood that the Committee is authorized to administer, construe and make all determinations necessary or appropriate for the administration of the Plan and this Agreement, all of which shall be binding upon the Recipient. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan. The Recipient hereby acknowledges receipt of a copy of the Plan and this Agreement.

17. Severability . If any provision of this Agreement is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or the Agreement under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Board’s determination, materially altering the intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or person, and the remainder of the Agreement shall remain in full force and effect.

18. Governing Law and Jurisdiction . The Plan and this Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, United States of America. The jurisdiction and venue for any disputes arising under, or any action brought to enforce (or otherwise relating to), the Plan will be exclusively in the courts in the State of Indiana, County of Hamilton, United States of America, including the Federal Courts located therein (should Federal jurisdiction exist).

19. Successors . All obligations of the Company under this Agreement will be binding on any successor to the Company, whether the existence of the successor results from a direct or indirect purchase of all or substantially all of the business or assets of the Company or both, or a merger, consolidation or otherwise.

20. Erroneously Awarded Compensation . This Award shall be subject to any compensation recovery policy adopted by the Company to comply with applicable law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or to comport with good corporate governances practices, as such policy may be amended from time to time.

[signature page follows]

IN WITNESS WHEREOF, the Recipient and the Company have executed this Agreement as of this ___ day of [________], 2017.



_______________________________	KAR AUCTION SERVICES, INC. By: _______________________________
[NAME]	Its: _______________________________

EXHIBIT 10.38

KAR Auction Services, Inc.

2009 OMNIBUS STOCK AND INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT

2017 AWARD

1. Grant of Restricted Stock Units . The Company hereby grants to the Recipient a target number of [_______] Restricted Stock Units (the “Award”) as of [___________], 2017, subject to the terms and conditions of the Plan and this Agreement. The Restricted Stock Units shall vest based on the Company’s performance during the “Period of Restriction,” as specified in Section 4 and pursuant to the terms of this Agreement. A “Restricted Stock Unit” is an “Other Share-Based Award” under the Plan and each Restricted Stock Unit entitles the Recipient to a share of Common Stock upon vesting subject to the terms of this Agreement.

2. Restrictions . The Restricted Stock Units may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, whether voluntarily or involuntarily or by operation of law. The Recipient shall have no rights in the Common Stock underlying the Restricted Stock Units until the termination of the Period of Restriction specified in Section 4 below or as otherwise provided in the Plan or this Agreement. The Recipient shall not have any voting rights with respect to the Restricted Stock Units.

4. Period of Restriction . Subject to the provisions of the Plan and this Agreement, unless vested or forfeited earlier as described in Section 5 and 6 of this Agreement, as applicable, the number of Restricted Stock Units that shall become vested shall be calculated in accordance with the chart below, based on the Company’s “Cumulative Operating Adjusted Net Income Per Share” for the “Measurement Period,” calculated as of the “Measurement Date” (each as defined below). If the Company’s Cumulative Operating Adjusted Net Income Per Share falls between Threshold and Target or between Target and Maximum levels of performance, the number of Restricted Stock Units that vest shall be calculated using straight-line interpolation. Such vesting shall occur upon certification by the Committee that the applicable performance criteria have been met.



Cumulative Operating Adjusted Net Income Per Share During the Measurement Period	Number of Restricted Stock Units Vesting
Below Threshold: Below $[____]	0
Threshold: $[____]	[0.5x]
Target: $[____]	[x]
Maximum: Greater than or equal to $[____]	[2x]

x = [Target number of Restricted Stock Units]

“Cumulative Operating Adjusted Net Income Per Share” shall mean the sum of the Company’s Operating Adjusted Net Income Per Share for the three fiscal years in the Measurement Period. “Operating Adjusted Net Income Per Share” for a fiscal year is calculated by dividing Operating Adjusted Net Income by the weighted average diluted common shares outstanding per year. “Operating Adjusted Net Income” for a fiscal year, as calculated and reported in the Company’s annual earnings release, is equal to the Company’s net income as reported in the Form 10-K filed by the Company with respect to such fiscal year, adjusted to (i) exclude gains/losses from certain nonrecurring and unbudgeted capital transactions, including debt prepayment, debt refinancing, share repurchases and related financing costs not contemplated in the long term incentive targets, (ii) exclude amortization expense associated with acquired intangible assets recorded during purchase accounting of acquisitions, (iii) exclude acquisition contingent consideration, (iv) exclude the impact of significant acts of God or other events outside of the Company’s control that may affect the overall economic environment, (v) exclude significant asset impairments, (vi) exclude the impact of adoption of new accounting standards, and (vii) exclude the impact of tax rate changes caused by changes in the tax legislation.

“Measurement Period” shall mean the period commencing on January 1, 2017 and ending on the Measurement Date.

“Measurement Date” shall mean December 31, 2019.

5. Termination of Employment .

(a) If, from January 1, 2017 until the “Payment Date” (as defined in Section 8), the Recipient experiences a termination of employment by the Company and its Affiliates by reason of Disability or death, then the Recipient shall be entitled to receive, on the Payment Date, all shares of Common Stock the Recipient would have been entitled to under Section 4 if he or she had remained employed until the last day of the Period of Restriction (based on actual performance during the Period of Restriction, as described in Section 4).

(b) If, from January 1, 2017 until the “Payment Date” (as defined in Section 8), the Recipient experiences a termination of employment with the Company and its Affiliates by reason of Retirement or Early Retirement Date (as defined below), then the Recipient shall be entitled to receive, on the Payment Date, a number of shares of Common Stock the Recipient would have been entitled to under Section 4 if he or she had remained employed until the last day of the Period of Restriction (based on actual performance during the Period of Restriction, as described in Section 4) multiplied by a fraction, the numerator of which shall be the number of full calendar months during the period from January 1, 2017 through the date the Recipient’s employment terminated plus 12 (provided the numerator shall in no event exceed 36) and the denominator of which shall be 36, the total number of months in the Period of Restriction. The Recipient’s “Early Retirement Date” is the date of his or her voluntary termination of employment after attaining a combination of years of age and service with the Company and its Affiliates of at least 70, with a minimum age of 60; provided, that, notwithstanding any language to the contrary in the Plan, the Recipient’s years of service with a company prior to it becoming an Affiliate will qualify as service towards attainment of an Early Retirement Date if and only if the Recipient has provided at least five years of service with the Company or another company that was an Affiliate at the time of service.

(c) Prior to a Change in Control, if, from January 1, 2017 until the “Payment Date” (as defined in Section 8), the Recipient experiences a termination of employment with the Company and its Affiliates by the Company without Cause or by the Recipient for Good Reason (as defined in the Recipient’s employment agreement with the Company, to the extent applicable), then the Recipient shall be entitled to receive, on the Payment Date, a number of shares of Common Stock the Recipient would have been entitled to under Section 4 if he or she had remained employed until the last day of the Period of Restriction (based on actual performance during the Period of Restriction, as described in Section 4) multiplied by a fraction, the numerator of which shall be the number of full calendar months during the period from January 1, 2017 through the date the Recipient’s employment terminated and the denominator of which shall be 36, the total number of months in the Period of Restriction.

(d) If, from January 1, 2017 until the “Payment Date” (as defined in Section 8), the Recipient experiences a termination of employment with the Company and its Affiliates for any reason other than those set forth in Sections 5(a), 5(b) or 5(c) above or Section 6 below, then the Recipient shall forfeit any Restricted Stock Units that are subject to the Period of Restriction on the date of such termination of employment.

6. Vesting upon Change in Control . Upon a Change in Control occurring during the Measurement Period and prior to the Recipient’s termination of employment with the Company

and its Affiliates, the Restricted Stock Units may be assumed or replaced by the Company or its successor for a substantially similar equity or cash incentive award that (i) is based on the Target number of Restricted Stock Units and (ii) will be subject only to service-based vesting through a date not later than the Measurement Date. If such Restricted Stock Units are assumed or replaced in a Change in Control and the Recipient’s employment with the Company or its successor is terminated without Cause or by the Recipient for Good Reason (as defined in the Recipient’s employment agreement with the Company, to the extent applicable) prior to the Measurement Date, the assumed or replaced award shall become fully vested based on the Target level of performance on the date of such termination of employment and shall be paid to Recipient as soon as administratively feasible thereafter (but in no event later than March 15 of the year following the year in which the such termination of employment occurs). To the extent any Restricted Stock Units are not assumed or replaced by the Company or its successor upon a Change in Control as set forth above (including any Restricted Stock Units that remain outstanding under Sections 5(b) and 5(c)), or the Recipient’s employment is terminated without cause effective as of the consummation of such Change in Control, then the Target number of Restricted Stock Units shall become immediately vested on the date of such Change in Control and shall be paid to the Recipient as soon as administratively feasible thereafter (but in no event later than March 15 of the year following the year in which such Change in Control occurs).

8. Delivery of Stock Certificates . Subject to the requirements of Sections 9 and 10 below, as promptly as practicable after the Committee certifies that Restricted Stock Units ceased to be subject to the Period of Restriction in accordance with this Agreement, but in no event later than March 15 of the year following the year in which the shares became vested (the “Payment Date”), the Company may, if applicable, cause to be issued and delivered to a brokerage account for the benefit of the Recipient certificates or electronic book entry credit for the shares of Common Stock that correspond to the vested Restricted Stock Units.

13. Dividend Equivalents . The Recipient will accrue dividend equivalents with respect to the Award. Dividend equivalents represent the right to receive additional shares of Common Stock in the future, subject to the terms and conditions of this Agreement. Dividend equivalents will be determined based on the dividends that the Recipient would have received, had the Recipient held shares of Common Stock equal to the vested number of Restricted Stock Units from January 1, 2017 until the earlier to occur of the Payment Date or the date of a Change in Control, and assuming that the dividends were reinvested in Common Stock (and any dividends on such shares were reinvested in Common Stock). The dividend equivalents will be subject to the same transfer restrictions and forfeiture and vesting conditions as specified in this Agreement.

[signature page follows]

IN WITNESS WHEREOF, the Recipient and the Company have executed this Agreement as of this ___ day of ________, 2017.



_______________________________	KAR AUCTION SERVICES, INC. By: _______________________________
[NAME]	Its: _______________________________

EXHIBIT 21.1

Subsidiaries of KAR Auction Services, Inc.

The following is a list of subsidiaries of KAR Auction Services, Inc. (a Delaware corporation) as of December 31, 2016 :



Name		State or Jurisdiction of Incorporation or Organization
ADESA, Inc.		Delaware
ADESA Corporation, LLC		Indiana
A.D.E. of Ark-La-Tex, Inc.		Louisiana
A.D.E. of Knoxville, LLC		Tennessee
ADESA Ark-La-Tex, LLC		Louisiana
ADESA Arkansas, LLC		Delaware
ADESA Atlanta, LLC		New Jersey
ADESA Birmingham, LLC		Alabama
ADESA California, LLC		California
ADESA Charlotte, LLC		North Carolina
ADESA Colorado, LLC		Colorado
ADESA Dealer Services, LLC		Indiana
ADESA Des Moines, LLC		Iowa
ADESA Florida, LLC		Florida
ADESA Illinois, LLC		Illinois
ADESA Impact Texas, LLC		Texas
ADESA Indianapolis, LLC		Indiana
ADESA Lansing, LLC		Michigan
ADESA Lexington, LLC		Kentucky
ADESA Mexico, LLC		Indiana
ADESA Minnesota, LLC		Minnesota
ADESA Missouri, LLC		Missouri
ADESA Nevada, LLC		Nevada
ADESA New Jersey, LLC		New Jersey
ADESA New York, LLC		New York
ADESA Ohio, LLC		Ohio
ADESA Oklahoma, LLC		Oklahoma
ADESA Pennsylvania, LLC		Pennsylvania
ADESA Phoenix, LLC		New Jersey
ADESA San Diego, LLC		California
ADESA- South Florida, LLC		Indiana
ADESA Texas, Inc.		Texas
ADESA Virginia, LLC		Virginia
ADESA Wisconsin, LLC		Wisconsin
AFC CAL, LLC		California
Asset Holdings III, L.P.		Ohio
Auto Dealers Exchange of Concord, LLC		Massachusetts
Auto Dealers Exchange of Memphis, LLC		Tennessee
Automotive Finance Consumer Division, LLC		Indiana
Automotive Finance Corporation		Indiana
Automotive Recovery Services, Inc.		Indiana
AUTONIQ, LLC		Virginia
AutoVIN, Inc.		Indiana



Name		State or Jurisdiction of Incorporation or Organization
MobileTrac LLC		Delaware
PAR, Inc.		Indiana
Axle Holdings, Inc.		Delaware
Axle Holdings Acquisition Company, LLC		Delaware
Insurance Auto Auctions, Inc.		Illinois
Insurance Auto Auctions Corp.		Delaware
Insurance Auto Auctions Tennessee LLC		Tennessee
Insurance Auto Auctions of Georgia LLC		Georgia
IAA Acquisition Corp.		Delaware
IAA Services, Inc.		Illinois
Auto Disposal Systems, Inc.		Ohio
High Tech National, LLC		Indiana
HT Locksmiths, Inc.		Indiana
Sioux Falls Auto Auction, Inc.		South Dakota
Tri-State Auction Co., Inc.		North Dakota
Zabel & Associates, Inc.		North Dakota
LiveBlock Auctions International, Inc.		Nevada
LiveBlock Auctions Canada Ltd.		Saskatchewan
WFEA Holdings, Inc.		Alberta
CarBuyCo, LLC		North Carolina
AFC Funding Corporation		Indiana
AuctionTrac, LLC		Indiana
OPENLANE, Inc.		Delaware
CarsArrive Network, Inc.		Georgia
Recovery Database Network, Inc.		Delaware
OPENLANE Canada Co.		Nova Scotia
OPENLANE Canada Inc.		Ontario
NEPO Auto Centre, Inc.		Ontario
Auction Vehicles of Mexico, S. de R.L. de C.V.		Federal District of Mexico
Adesur S. de R.L. de C.V.		Federal District of Mexico
2540-0714 Quebec Inc.		Quebec
504811 NB Ltd.		New Brunswick
51937 Newfoundland & Labrador Limited		Newfoundland
79378 Manitoba Inc.		Manitoba
ADESA Auctions Canada Corporation		Nova Scotia
ADESA Montreal Corporation		Nova Scotia
ADESA Quebec Corporation		Quebec
ADESA Remarketing Services Inc.		Ontario
AutoVIN Canada Inc.		Nova Scotia
Automotive Finance Canada Inc.		Ontario
Impact Auto Auctions Ltd.		Ontario
Impact Auto Auctions Sudbury Ltd.		Ontario
Suburban Auto Parts Inc.		Ontario
1st Interactive Design Limited		United Kingdom
Holding & Barnes PLC		United Kingdom
HBC Vehicle Services Limited		United Kingdom
Preferred Warranties, Inc.		Pennsylvania



Name		State or Jurisdiction of Incorporation or Organization
Preferred Nationwide Reinsurance Company, Ltd.		Turks and Caicos
Preferred Warranties of Florida, Inc.		Florida
PWI Holdings, Inc.		Pennsylvania
Superior Warranties, Inc.		Pennsylvania
Automotive Key Controls, LLC		Indiana
High Tech Locksmiths Canada ULC		Alberta
ADESA Idaho, LLC		Idaho
ADESA Oregon, LLC		Oregon
ADESA Utah, LLC		Utah
KAR Auction Services International Limited		United Kingdom
KAR International Holdings Limited		United Kingdom
ADESA Remarketing Limited		United Kingdom
Gilbert Mitchell Holdings Limited		United Kingdom
Gilbert Mitchell Limited		United Kingdom
2544972 Ontario Inc.		Ontario
1099983 B.C. Unlimited Liability Company		British Columbia
Impact Newco US, LLC		Delaware

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

KAR Auction Services, Inc.:

We consent to the incorporation by reference in registration statements (No. 333-164032, No. 333-168523 and No. 333-196668) on Form S-8 of KAR Auction Services, Inc., of our report dated February 23, 2017 , with respect to the consolidated balance sheets of KAR Auction Services, Inc. and subsidiaries as of December 31, 2016 and 2015 , and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2016 , and the effectiveness of internal control over financial reporting as of December 31, 2016 , which report appears in the December 31, 2016 annual report on Form 10-K of KAR Auction Services, Inc.

Our audit report on internal control over financial reporting as of December 31, 2016, contains an explanatory paragraph that states that management has excluded from its assessment of internal control over financial reporting as of December 31, 2016, the 2016 acquisitions' internal control over financial reporting associated with total assets of 6.5% (of which 5.2% represents goodwill and intangibles included within the scope of the assessment) and total revenues of 3.5% included in the consolidated financial statements of KAR Auction Services, Inc. and subsidiaries as of and for the year ended December 31, 2016. Our audit of internal control over financial reporting of KAR Auction Services, Inc. and subsidiaries also excluded an evaluation of the internal control over financial reporting of the 2016 acquisitions.

/s/ KPMG LLP

Indianapolis, Indiana

February 23, 2017

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James P. Hallett, certify that:


1)	I have reviewed this Annual Report on Form 10-K of KAR Auction Services, Inc.;


2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4)	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5)	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ JAMES P. HALLETT

James P. Hallett

Chief Executive Officer

Date: February 23, 2017

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Eric M. Loughmiller, certify that:


1)	I have reviewed this Annual Report on Form 10-K of KAR Auction Services, Inc.;


2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4)	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5)	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ ERIC M. LOUGHMILLER

Eric M. Loughmiller

Executive Vice President and Chief Financial Officer

Date: February 23, 2017

EXHIBIT 32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of KAR Auction Services, Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James P. Hallett, as Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1)	The report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and


2)	the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JAMES P. HALLETT

James P. Hallett

Chief Executive Officer

Date: February 23, 2017

EXHIBIT 32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of KAR Auction Services, Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eric M. Loughmiller, as Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1)	The report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and


2)	the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ ERIC M. LOUGHMILLER

Eric M. Loughmiller

Executive Vice President and Chief Financial Officer

Date: February 23, 2017