KAR Auction Services, Inc. (Form: 10-K, Received: 02/21/2019 11:07:46)

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, 2018
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 every Interactive Data File required to be submitted 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 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, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 $7,313,089,099 at June 30, 2018.

As of February 15, 2019 , 132,901,055 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 2019 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, 2018 .

Table of Contents

Index



		Page
Defined Terms		3

PART I

Item 1.	Business	4
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	33
Item 2.	Properties	33
Item 3.	Legal Proceedings	33

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	35
Item 6.	Selected Financial Data	37
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	114
Item 9A.	Controls and Procedures	114
Item 9B.	Other Information	114

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	115
Item 11.	Executive Compensation	117
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	117
Item 13.	Certain Relationships and Related Transactions, and Director Independence	117
Item 14.	Principal Accounting Fees and Services	117

PART IV

Item 15.	Exhibits, Financial Statement Schedules	118
Signatures		124

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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"), Nth Gen Software Inc. ("TradeRev") 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 and May 31, 2017, 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 senior secured term loan B-4 facility due March 11, 2021 ("Term Loan B-4"), the senior secured term loan B-5 facility due March 9, 2023 ("Term Loan B-5"), the $350 million, senior secured revolving credit facility due March 9, 2021 (the "revolving credit facility"), the $300 million, five-year senior secured revolving credit facility (the "2016 revolving credit facility") and the $250 million, five-year senior secured revolving credit facility (the "2014/2015 revolving credit facility"), the terms of which are set forth in the Credit Agreement. Term Loan B-1 and the 2014/2015 revolving credit facility were extinguished in March 2016 with proceeds received from Term Loan B-3. Term Loan B-2, Term Loan B-3 and the 2016 revolving credit facility were repaid in May 2017 with proceeds from Term Loan B-4, Term Loan B-5 and the senior notes (defined below);


•	"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");


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


•	"Senior notes" refers to the 5.125% senior notes due 2025 ($950 million aggregate principal outstanding at December 31, 2018).

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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 254 North American physical auction locations at December 31, 2018 , and multiple proprietary Internet venues. In 2018 , we facilitated the sale of approximately 6.0 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 older, high-mileage or damaged vehicles that are predominantly sold by automobile insurance companies, non-profit organizations, automobile dealers, vehicle leasing companies and rental and fleet car companies to licensed dismantlers, rebuilders, recyclers, exporters 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, 2018 , we had a North American network of 75 whole car auction locations and 179 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 14 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 2007. In 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 2004, ALLETE, Inc. sold 20% of ADESA to the public and then spun off their remaining 80% interest to shareholders. ADESA was acquired by the Company in 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 2007. In a series of transactions between 2012 and 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 total loss, 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 10.6 million and 11.1 million in 2016 and 2017 , 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 2018 have not yet been released. The NAAA industry volumes collected by the annual survey do not include online only volumes or mobile application volumes (e.g. Openlane and TradeRev). We have included online only volumes in the totals above for 2016 and 2017. We estimate that used vehicle auction volumes in North America in 2018 were approximately 11.6 million vehicles, including online only volumes and mobile application volumes.

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 can cost more to repair following an accident and insurance companies are more likely to declare a damaged vehicle a total loss. The percentage of claims resulting in total losses was approximately 18% in 2018 . 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 auction industry volumes will grow 5% to 7% annually, for the foreseeable future.

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, Inc. and ADESA together represent approximately 70% of the North American whole car auction market. We estimate that ADESA represents approximately 29% 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 approximately 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:

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•	Extend and integrate our platform


•	Leverage unique data and analytic capabilities


•	Continue to improve operating efficiency


•	Use 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 268 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.

•

Developing Alternative Marketplaces/Digital Channels : The Company continues to identify innovative venues for the exchange of used vehicles through internal development, targeted partnerships and acquisitions. For example, in 2017 we acquired the remaining interest in TradeRev, a mobile auction app and desktop solution that facilitates real time dealer-to-dealer vehicle auctions. In addition, with the increased use of vehicle sharing and the prospect of autonomous vehicles, we will look to identify opportunities to integrate our portfolio of service offerings with this emerging market segment. In February 2018, we acquired STRATIM Systems Inc., a mobility and fleet management software company that uses data analytics to help fleet owners manage, maintain and service their fleets.

•

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 120 countries. In addition, some of our recent acquisitions and the launch of ADESA U.K. have provided an initial foothold in Europe. In November 2018, we reached a definitive agreement to acquire Belgium-based CarsOnTheWeb and in January 2019 we completed the acquisition. The addition of CarsOnTheWeb places KAR in the major automotive marketplaces across Europe. We believe we are well positioned to grow internationally and 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.

•

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. ADESA is continuously investing in initiatives to upgrade our platforms. 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 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.

•

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. Over the last few years, the Company has completed a number of acquisitions and opened new sites.

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 data science team, coupled with the acquisition of CarCo Technologies, Inc. ("DRIVIN"), 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.

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In 2017, the Company acquired DRIVIN. DRIVIN aggregates automotive retail, pricing, registration and other market and economic data from a variety of public and proprietary sources. The insights generated from that data are deployed through predictive pricing, inventory management and vehicle matching tools that help customers buy, sell and source vehicles. The acquisition of DRIVIN and the combination of our analytic capabilities under the Data as a Service function will help maximize value through data science.

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.

The Company is focused on integrating its acquisitions. Since the time of acquisition, work has been underway to evaluate current levels of performance, resources, and productivity and ensure they are operating as efficiently and effectively as possible.

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 $749.8 million and $588.8 million of cash flow from operations for the twelve months ended December 31, 2018 and 2017, 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.

Targeted 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.

We paid cash dividends to shareholders of $188.3 million and $174.8 million for the years ended December 31, 2018 and 2017, respectively. In addition, we paid $150.0 million for the years ended December 31, 2018 and 2017, 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, 2018 were distributed as follows: ADESA 56%, IAA 35% and AFC 9%.

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 TradeRev, an online automotive remarketing system where dealers can launch and participate in real-time vehicle auctions at any time and 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.

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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 are typically based on a tiered structure with fees increasing with the sale price of the vehicle, while 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.
KAR Analytical Services		KAR 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 KAR'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.
Data as a Service		Our Data as a Service team aggregates automotive retail, pricing, registration and other market and economic data from a variety of public and proprietary sources. The insights generated from that data are deployed through predictive pricing, inventory management and vehicle matching tools that help customers buy, sell and source vehicles.

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.

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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.

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:



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.
TradeRev		An online automotive remarketing system where dealers can launch and participate in real-time vehicle auctions at any time.
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.

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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.

IAA

Overview

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

In exchange for agreed-upon processing and service fees, we sell damaged and total loss vehicles on behalf of vehicle sellers primarily on a consignment basis, meaning that our sellers continue to own their vehicles until they are sold to buyers through one of our marketplaces. We also offer our vehicle sellers a number of other services for which fees may be charged, including but not limited to total loss claims solutions (as described below), inspection services, and marketing and other administrative services. In addition to the fees we collect from our vehicle sellers, we also charge service fees to our buyers for each vehicle purchased based on a tiered structure that increases with the sales price of the vehicle. We likewise offer our buyers additional services for which we also charge service fees.

Vehicles are marketed to prospective buyers through our many marketplaces, 24 hours per day and seven days per week. Auctions are typically held weekly at most locations and are simulcast in a manner that allows bidders to participate both physically at the auction, and online via a desktop internet browser or through our proprietary mobile device applications. Certain vehicles are also offered for sale online via Timed Auctions, where bidders may bid on those vehicles for a fixed duration of time and via Buy Now where vehicles are offered for sale at a fixed price. All vehicles which are ready for auction are listed and available online on IAA’s Auction Center, allowing prospective bidders to preview and Proxy bid on vehicles prior to the actual auction event. IAA’s Auction Center includes an "Advanced Search" function that allows for filtering to quickly locate specific vehicles and offers buyers additional services such as Enhanced Vehicle Details that includes VIN details and Hollander Interchange parts data to help buyers make informed purchasing decisions. IAA’s Auction Center provides online buyers with an open, competitive bidding environment that reflects the dynamics of a live physical auction. Our mobile and online capabilities provide buyers flexibility in their purchasing options, exposing vehicles to bidders from around the globe and allowing bidders to participate in a greater number of auctions. Online inventory browsing and digital alerts (via email or through buyer app) reduce the time required to acquire vehicles and the broader market exposure and increased competitive bidding generally drive higher selling prices at auction. We believe the capabilities of our auction models maximize auction proceeds and returns to our vehicle sellers.

Tools and services focused on total loss claims have been developed to assist insurance sellers in improving policy holder satisfaction and more effectively managing costs during the total loss claims process. IAA Total Loss Solutions includes IAA Inspection Services™, IAA Title Services™ and additional service offerings within the suite of products. These products and services help to reduce total loss claims cycle time, provide transparency for the insured, and more deeply integrate sellers within IAA’s flagship salvage management tool, CSAToday®.

HBC is a salvage auction services 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 more of HBC’s vehicles are sold under purchase contracts as opposed to consignment based arrangements. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for additional financial information about geographic areas.

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

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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:



Services		Description
CSAToday®		IAA’s online reporting and analysis tool that gives seller customers the ability to manage their vehicle assets. It also provides a detailed overview of salvage performance and identifies factors influencing timeline efficiency and net returns.
IAA Market Value ^TM		A solution for seller customers looking to estimate the values of their vehicles. Part of the CSAToday app on iOS and Android devices, this tool utilizes user-provided information and our historical auction data to deliver results to their smartphones.
Mobile Vehicle Assignment		Gives customers the ability to assign a vehicle from their iOS or Android device through the CSAToday app. Simplifies the desktop assignment process to a five-swipe workflow that uses smartphone technology to minimize manual input.
BidFast®		A salvage valuation solution that comprehensively analyzes a vehicle to determine its value and provides a guaranteed bid for 60 days. Intended to be used for partial-loss conversions, denied coverage, subrogation file closure and owner-retained salvage.
Catastrophe (CAT) Services		To better service our insurance carrier partners, we 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 secure 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.
IAA Total Loss Solutions®		Provides insurance carrier customers with a comprehensive platform to process auto insurance claims efficiently, from the loss event to asset liquidation. Solutions include:
		- IAA Loss Advisor™
		- IAA Inspection Services ®
		- IAA Title Services ®
		- Title Procurement Dashboard
		- IAA Express Notary™
		- IAA Loan Payoff™
		- MyVehicleClaim.com
		- IAA Active Inventory Management
Multi-Channel Auction Model		Vehicles are offered simultaneously through a variety of channels to live and online buyers in a live auction format utilizing i-Bid LIVE ^SM and other web technology. We believe this exposes the vehicles to the maximum number of potential buyers.
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. A VIC is designed to minimize vehicle storage charges incurred by insurance company suppliers at the temporary storage facility or repair shop and to improve service time for the policyholder.
Transportation and Towing		Inbound logistics administration with actual services typically provided by third-party carriers.
Remarketing Market		Focuses on low-end, high mileage and damaged vehicles from 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.

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IAA also offers solutions focused on a diverse set of global buyer customers to provide the vehicles they need to fulfill their vehicle rebuild requirements, replacement part inventory or scrap demand. Some of the services provided by IAA include:



Services		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 damaged and total loss vehicles and other data. Buyers inspect and evaluate the damaged and total loss vehicle and listen to the auction while it is underway.
IAA Buy Now™		Provides a unit for sale for a specific price using analytical data. This model allows units to get exposure and sell between scheduled auctions.
IAA Timed Auctions™		Offering a unit for sale for a specified period of time. This model allows for competitive bidding and sale prior to our scheduled IAA Live and Online Auctions.
IAA Online Exclusive™		Offers units for sale via a live online auction. Using a live auctioneer simulcast over the internet, this model is designed to sell a specific segment of vehicles, such as recreational vehicles or boats.
IAA Screen Sale™		This method offers units for sale via a screen at one of our IAA branches. This method uses a live auctioneer selling vehicles to both live in-person and online bidders. This method is intended for buyers when units are off-site, such as located at a CAT yard.
IAA Live & Online™		This auction model is IAA’s traditional method of selling vehicles. This model is used by our branches allowing both live and online bidders to interact with a live auctioneer.
IAA Run & Drive®		As part of the live auction, operable vehicles run and drive through a dedicated lane to showcase sellers’ inventory and give buyers the chance to determine an item’s full value.
IAA High-Resolution Images™		Provides high-resolution images designed to improve buyer confidence to bid, while ensuring sellers’ inventory receives maximum exposure.
Vehicle Parts Search		Integrates Hollander Interchange™ Part Numbers into the search functionality of IAAI.com and helps buyer customers search IAA nationwide inventory for specific vehicle components.
IAA Fast Search		Enhanced vehicle search and filter options providing what we believe is the most comprehensive search tool in the industry.
IAA Cost Calculator™		Provides buyers with an estimate of total cost to make more informed bidding and buying decisions.
I-Pay®		A convenient, secure tool that allows buyers to make payments via the internet directly from any bank account in the United States. Available through the Auction Center and the IAA Buyer app.
IAA Transport™		An integrated shipping solution allowing buyers to schedule shipment of vehicles during the checkout process.

Customers

We obtain IAA's supply of vehicles from insurance companies, used vehicle dealers, rental car and fleet leasing companies, auto lenders, non-profit organizations 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 damaged and total loss 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

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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.

Internal Online Operating Solution

Our current IAA internal online operating solution includes:



IAA Technology		Description
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 auction processes and information flow with internal operational systems.

Competition

In the salvage sector, the competition includes Copart; Total Resource Auctions, a subsidiary of Cox Enterprises, Inc.; independent auctions and a limited number of used vehicle auctions that regularly remarket damaged and total loss vehicles. Additionally, some dismantlers of damaged and total loss 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 damaged and total loss 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.

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 2018 , AFC serviced approximately 1.8 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.

Preferred Warranties, Inc. is a vehicle service contract business. 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 2018 was approximately 1.8 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 2018 , approximately 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, 2018 , we serviced auctions through 127 locations which are conveniently located at or within

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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, 2018 , AFC had approximately 12,300 active dealers with an average line of credit of approximately $270,000 and no one dealer representing greater than 1.6% of our portfolio. An average of approximately 15 vehicles per active dealer was floorplanned with an approximate average value outstanding of $10,200 per vehicle as of December 31, 2018 .

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.

The extension of a credit line to a dealer starts with the underwriting process. Credit lines up to $600,000 are extended using a proprietary scoring model developed internally by AFC. Credit lines in excess of $600,000 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 $600,000, 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, approximately 90,000 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.

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AFC's securitization facility has been in place since 1996. AFC Funding Corporation had a committed facility of $1.70 billion from a third-party facility for U.S. finance receivables at December 31, 2018 . The agreement expires on January 28, 2022 .

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$175 million in financing for eligible finance receivables through a third-party conduit (separate from the U.S. facility). The agreement expires on January 28, 2022 . 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.

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.

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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, 2018 , we had a total of approximately 18,400 employees, of which approximately 14,100 were located in the U.S. and approximately 4,300 were located in Canada, Mexico and the United Kingdom. Approximately 79% of our workforce consists of full-time employees. Currently, less than 1% of our total 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.

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.

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

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 significantly 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. Our ability to successfully grow through investments in the area of emerging opportunities depends on many factors, including advancements in technology, regulatory changes and other factors that are difficult to predict, that may significantly affect the future of electrification, autonomy, and

mobility. 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, through its physical and online wholesale vehicle platforms, currently competes with online wholesale and retail vehicle selling platforms, including OVE.com and RMS Automotive (both affiliated with Cox Enterprises, Inc.), SmartAuction, mobile applications (including TradeRev) 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.

In the dealer-to-dealer auction market, our mobile application, TradeRev, currently competes with ACV Auctions, EBlock, Manheim Express, BacklotCars, Dealers' Forum, TradeHelper and others. The dealer-to-dealer space is experiencing a digital disruption. If TradeRev is unable to compete and gain market share in the dealer-to-dealer space, our business and revenues may be negatively impacted.

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.

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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 offers its customers competitive rates and fees and 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.

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. Understanding technology innovation is necessary to remain at the forefront of our industry. It is strategically significant that we lead the digital transformation/technology disruption occurring in our industry. 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. There can be no assurance that others will not acquire similar or superior technologies sooner than we do or that we will acquire technologies on an exclusive basis or at a significant price advantage. If we do not accurately predict, prepare and respond to new kinds of technology innovations, market developments and changing customer needs, our revenues, profitability and long-term competitiveness could be materially adversely affected.

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, expanding fleet mobility relationships, expanding our international footprint, 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 $749.8 million and $588.8 million of cash flow from operations for the years ended December 31, 2018 and 2017 , 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 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 and our ability to meet regulatory requirements for our customers. 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

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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 acquisitions of companies, products, services and technologies to expand our online, digital and mobile capabilities and the acquisition and integration of additional auction sites 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. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and they could materially adversely affect our business, financial condition and results of operations. Acquisitions may also have unanticipated tax, legal, regulatory and accounting ramifications, including as a result of recording goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges. 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.

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


•	incurring significantly higher capital expenditures, operating expenses and operating losses of the business acquired;


•	entering new markets with which we are unfamiliar;


•	incurring potential undiscovered liabilities at acquired businesses;


•	failing to maintain uniform standards, controls and policies;


•	incorporating acquired technology and rights into our offerings and unanticipated expenses related to such integration;


•	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. There can be no assurance that we will identify appropriate international targets, acquire such businesses on favorable terms, or be able to successfully grow and integrate such organizations into our business. 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, which 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;

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•	compliance with various privacy regulations, including the General Data Protection Regulation;


•	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.

Significant disruptions of information technology systems or breaches of information technology systems, infrastructure and business information could interfere with our operations and could compromise the confidentiality of private customer data or our proprietary information and adversely affect our business and reputation.

We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of our business processes and activities. The secure operation of these systems, and the processing and maintenance of the information processed by these systems, is critical to our business operations and strategy. 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. 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.

Despite security measures and business continuity plans, our systems may be vulnerable to damage, disruptions or shutdowns caused by hackers, computer viruses, or breaches due to errors or malfeasance by employees, third parties and others who have access to these systems. 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 compromise or result in the loss of the information processed by these systems and proprietary data, 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, including the California Consumer Privacy Act. We collect and store sensitive data, including the intellectual property, proprietary business information, proprietary business information of our customers, as well as personally identifiable information of our customers and employees, in data centers and on information technology networks. 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

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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.

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.

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 38% of vehicles sold in North America by ADESA in 2018, compared with approximately 30% in 2017. 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.

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 2018, 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 2018, 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% of IAA's revenue. 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.

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

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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.

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 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.

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.

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•

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.


•	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. Vehicles sold under purchase agreements were approximately 4% of total salvage vehicles sold for the year ended December 31, 2018. 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.

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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.

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 12% of our revenues were attributable to our Canadian operations for the year ended December 31, 2018 . 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% decrease in the average Canadian exchange rate for the year ended December 31, 2018 would have impacted net income by approximately $0.9 million.

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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.

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, 2018 , our total corporate debt was approximately $2.7 billion , exclusive of liabilities related to our securitization facilities which are not secured by the general assets of KAR, and we had $350.0 million of borrowing capacity under our senior secured credit facilities. In addition, we had related outstanding letters of credit in the aggregate amount of $32.9 million at December 31, 2018 , which would reduce the $350.0 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;

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•	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 and the indenture governing our senior notes 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 and the indenture governing our senior notes include, 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.

Future changes to U.S. tax laws, if adopted, could have an adverse effect on our business, financial condition, results of operations and cash flows.

The enactment of the Tax Cuts and Jobs Act of 2017 significantly reduced the Company's income taxes beginning in 2018. However, from time to time legislative proposals are made that would, if enacted, make significant changes to U.S. tax laws, including changes to U.S. corporate tax rates. Such proposed changes in the U.S. tax laws, if adopted, or other similar changes that reduce or eliminate deductions currently available to us, could adversely affect our business, financial condition, results of operations and cash flows.

Changes in interest rates or market conditions could adversely impact our profitability and business.

The U.S. Federal Reserve raised interest rates four times in 2018 and may raise interest rates again in 2019. Rising interest rates may have the effect of depressing the sales of new and used vehicles because many consumers finance their vehicle purchases and rising auto loan rates increase the cost of purchasing a vehicle. Likewise, when interest rates increase, the subprime borrowing market often tightens, making interest rates even higher for those with lower credit scores. If increased interest rates depress the sales of new and/or used vehicles, then used vehicle trade-ins to dealers and auction volumes could be negatively impacted. These factors could adversely affect ADESA’s revenues and profitability.

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.

As noted elsewhere, a portion of our indebtedness is at variable rates of interest. As such, increases in interest rates could also result in higher interest expenses for KAR.

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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 damaged and total loss 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 have increased our international buyer base. As a result, foreign buyers of damaged and total loss vehicles now represent a significant part of our total buyer base. Changes in laws and regulations that restrict the importation of damaged and total loss vehicles into foreign countries may reduce the demand for damaged and total loss vehicles and impact our ability to maintain or increase our international buyer base. The adoption of such 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.


•	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.

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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 depend on the continued and uninterrupted service from our workforce.

Prior to 2018, none of our employees were covered by collective bargaining agreements. In 2018, a group of employees, representing less than 1% of our total employees, ratified a collective bargaining agreement. If a significant number of our employees were to become unionized or collective bargaining agreement terms were to deviate significantly from our current compensation and benefits structure, 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 the Potential Spin-Off of IAA

Our plan to separate into two independent publicly-traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

On February 27, 2018, our board of directors approved a plan to separate our salvage vehicle auction business from our whole car auction business through a spin-off, which would result in two independent, publicly-traded companies. Completion of the spin-off will be contingent upon customary closing conditions, including, among other things, authorization and approval from our board of directors of the final terms of the spin-off, receipt of a legal opinion regarding the tax-free status of the spin-off, execution of intercompany agreements, the effectiveness of a registration statement on Form 10 with the SEC, and market and certain other conditions. For these and other reasons, the spin-off is not expected to be completed until some time in 2019, if at all.

Even if the spin-off is not completed, our ongoing businesses may be adversely affected and we may be subject to certain risks and consequences, including, among others, the following:


•	execution of the spin-off will require significant time and attention from management, which may distract management from the operation of our businesses and the execution of other initiatives that may have been beneficial to us;


•	we may experience unanticipated competitive developments, including changes in the conditions of our salvage vehicle auction and whole car auction business’s respective markets;


•	we may experience increased difficulties in attracting, retaining and motivating employees during the pendency of the spin-off and following its completion;


•	we will be required to pay certain costs and expenses relating to the spin-off, such as legal, accounting and other professional fees, and may be required to pay tax costs resulting from certain internal restructuring transactions whether or not the spin-off is completed; and


•	we may experience negative reactions from the financial markets if we fail to complete the spin-off.

Any of these factors could have a material adverse effect on our business, financial condition, results of operations and the price of our common stock.

The spin-off may not be beneficial.

We may not realize strategic, financial, operational or other benefits from the spin-off. As independent publicly-traded companies, the Company and IAA will be smaller, less diversified companies with a narrower business focus and may be more vulnerable to changing market conditions, which could materially and adversely affect their respective business, financial condition and results of operations.

As a result of the spin-off, the Company expects the trading price of KAR common stock immediately following the spin-off to be lower than the "regular-way" trading price of such stock immediately prior to the spin-off because the trading price will no longer reflect the value of IAA's business. There can be no assurance that the aggregate market value of the KAR common stock and the IAA common stock following the spin-off will be higher or lower than the market value of KAR common stock if the spin-off did not occur.

The spin-off may result in disruptions to, and negatively impact our relationships with, our customers and other business partners and the relationships with the customers and other business partners of IAA.

Uncertainty related to the spin-off may lead customers and other parties with which we currently do business or with which we and IAA may do business in the future to terminate or attempt to negotiate changes in existing business relationships, or consider entering into business relationships with parties other than us or IAA. These disruptions could have a material and adverse effect on our or IAA’s businesses, financial condition, results of operations and prospects. The effect of such disruptions could be exacerbated by any delays in the completion of the spin-off.

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The spin-off could result in substantial tax liability.

It is a condition to the spin-off that we receive an opinion of our tax counsel on the basis of certain facts, representations, covenants and assumptions set forth in such opinion, substantially to the effect that, for U.S. federal income tax purposes, the spin-off will qualify as a transaction that generally is tax-free to us and our stockholders, for U.S. federal income tax purposes, under Sections 368(a)(1)(D) and 355 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The opinion will rely on, among other things, various assumptions and representations as to factual matters made by us and the salvage vehicle auction business which, if inaccurate or incomplete in any material respect, could jeopardize the conclusions reached in such opinion. The opinion will not be binding on the Internal Revenue Service (the “IRS”), or the courts, and notwithstanding the tax opinion, there can be no assurance that the IRS or the courts will not challenge the qualification of the spin-off as a transaction under Sections 368(a)(1)(D) or 355 or other provisions of the Code or that any such challenge would not prevail. In addition, the IRS could determine on audit that the spin-off should be treated as a taxable transaction if it determines that any of the facts, assumptions, representations or covenants set forth in the tax opinion is not correct or has been violated, or that the spin-off should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution, or if the IRS were to disagree with the conclusions of the tax opinion.

If the spin-off is ultimately determined to be taxable, the spin-off could be treated as a taxable dividend to our stockholders for U.S. federal income tax purposes, and our stockholders could incur significant U.S. federal income tax liability. In addition, we and/or IAA could incur significant U.S. federal income tax liabilities or tax indemnification obligations, whether under applicable law or a tax matters agreement that we will enter into with IAA, if it is ultimately determined that certain related transactions were undertaken in anticipation of the spin-off are taxable.

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.

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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 132,887,029 shares of common stock were outstanding as of December 31, 2018 . 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 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.

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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, the indenture governing our senior notes 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 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, 2018, approximately $380.3 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.

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. The Company has entered into an agreement with a real estate developer to build a new corporate office in Carmel, Indiana, with the lease expected to begin in 2019. At December 31, 2018 , properties utilized by the ADESA business segment include 75 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 75 acres of land per site.

IAA is headquartered in Westchester, Illinois, with office space being leased through 2027. At December 31, 2018 , properties utilized by the IAA business segment include 179 salvage vehicle auction facilities in the United States and Canada, most of which are leased. IAA also includes HBC, which operates from 14 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 127 locations in North America at December 31, 2018 , 90 are physically located at auction facilities (including 63 at ADESA and 12 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 believed 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 estimated 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 was 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 were beginning to conduct an injury assessment for natural resource damages in the LDW. The Notice of Intent indicated that the decision of the trustees to proceed with this natural resources injury assessment followed a pre-assessment screen performed by the trustees. Shortly thereafter, in a letter dated August 16, 2016, EPA issued a status update to the PRPs at the LDW Site. The letter stated that EPA expected 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. The EPA previously anticipated that the pre-design work would be completed sometime during 2018, and the Company is not aware of any further information regarding that schedule. Accordingly, RD/RA negotiations with all PRPs may begin sometime in 2019. At this time, the Company has not received any further notices from the EPA and 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, 2019 , there were two stockholders 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 the holders of record.

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, 2018 :



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	—	$	—	—	$	219.7
November 1 - November 30	1,763,578	56.70		1,763,578	119.7
December 1 - December 31	—	—		—	119.7
Total	1,763,578	$	56.70	1,763,578

(1)

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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, 2013 and ending on December 31, 2018 , 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 12/31/2013		12/31/2014		12/31/2015		12/31/2016		12/31/2017		12/31/2018
KAR Auction Services, Inc.	$	100	$	121.10	$	133.22	$	157.90	$	192.54	$	186.59
S&P 400 Midcap Index	$	100	$	109.77	$	107.38	$	129.65	$	150.71	$	134.01
S&P 500 Index	$	100	$	113.69	$	115.26	$	129.05	$	157.22	$	150.33

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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, Inc.

For the Years Ended December 31, 2018 , 2017 , 2016 , 2015 and 2014

The following consolidated financial data for the years ended December 31, 2018 , 2017 , 2016 , 2015 and 2014 is based on our audited financial statements.



	Year Ended December 31,
(Dollars in millions except per share amounts)	2018		2017		2016		2015		2014
Operations:
Operating revenues
ADESA	$	2,101.9	$	1,937.5	$	1,765.3	$	1,427.8	$	1,271.0
IAA	1,326.8		1,219.2		1,098.0		994.4		895.9
AFC	340.9		301.3		286.8		268.4		250.1
Total operating revenues	$	3,769.6	$	3,458.0	$	3,150.1	$	2,690.6	$	2,417.0
Operating expenses (exclusive of depreciation and amortization)	2,875.5		2,627.4		2,410.5		2,050.5		1,842.7
Operating profit	624.2		566.0		499.0		427.3		377.7
Interest expense	192.0		164.0		138.8		91.4		86.2

Net income	328.0		362.0		222.4		214.6		169.3
Net income per share
Basic	2.44		2.66		1.62		1.53		1.21
Diluted	2.42		2.62		1.60		1.51		1.19
Weighted average shares outstanding
Basic	134.3		136.3		137.6		140.1		140.2
Diluted	135.7		138.0		139.1		142.3		141.8
Cash dividends declared per common share	1.40		1.31		1.19		1.08		1.02



	As of December 31,
	2018		2017		2016		2015		2014
Financial Position:
Working capital ⁽¹⁾	$	689.4	$	748.2	$	506.2	$	232.2	$	490.2
Total assets	7,206.2		6,984.3		6,557.6		5,771.5		5,334.8
Total debt, net of unamortized debt issuance costs/discounts	2,667.4		2,680.1		2,470.3		1,865.1		1,743.5
Total stockholders' equity	1,464.2		1,484.9		1,397.3		1,386.1		1,547.1



	Year Ended December 31,
	2018		2017		2016		2015		2014
Other Financial Data:
Net cash provided by operating activities	$	749.8	$	588.8	$	378.0	$	482.1	$	435.4
Capital expenditures	198.0		152.2		155.1		134.7		101.0
Depreciation and amortization	269.9		264.6		240.6		212.8		196.6

___________________________________________________________________


⁽¹⁾	Working capital is defined as current assets less current liabilities.

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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; the potential spin-off of our salvage auction business; anticipated cost savings, revenue increases, credit losses and capital expenditures; dividend declarations and payments; common stock repurchases; tax rates and assumptions; 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 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;


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


•	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;


•	any losses of key personnel;


•	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;


•	the taxable nature of the potential spin-off of our salvage auction business (as described further below) and our ability to successfully complete the spin-off within the expected time frame or at all;


•	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 2019.

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 75 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 TradeRev, an online automotive remarketing system where dealers can launch and participate in real-time vehicle auctions at any time and 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 179 salvage vehicle auction sites in the United States and Canada at December 31, 2018. IAA also includes HBC, which operates from 14 locations in the United Kingdom. The salvage auctions facilitate the remarketing of damaged vehicles designated as total losses by insurance companies, charity donation vehicles,

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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. Another important component of the IAA service offering is the ability to process large volumes of total loss vehicles in a short period of time following catastrophic events such as hurricanes, tornadoes, floods, hail storms, fires or other natural disasters.


•	The AFC segment provides short-term, inventory-secured financing, known as floorplan financing, primarily to independent used vehicle dealers. At December 31, 2018, AFC conducted business at 127 locations in the United States and Canada. The Company also sells vehicle service contracts through 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.

Potential Spin-off of IAA

In February 2018, the Company announced that its board of directors had approved a plan to pursue the separation of its salvage auction business, currently operated by IAA, through a spin-off. The Company also announced that the separation was subject to customary regulatory approvals, the execution of intercompany agreements between the Company and the new salvage auction company ("IAA Spinco"), final approval of the board of directors and other customary matters. The Company continues to work on and evaluate the spin-off and the options available to the Company for maximizing shareholder value. While at this time the Company expects to complete the spin-off in 2019, the Company may, at any time and for any reason until the proposed transaction is complete, abandon, modify or change the terms of the spin-off.

It is currently expected that IAA Spinco will have total net debt of approximately 3.5 times Adjusted EBITDA. The actual amount of debt that will be issued by IAA Spinco will be determined at a future date when capital is raised for IAA Spinco. This is subject to approval by the board of directors at the time of the issuance of debt and completion of the spin-off. The total net leverage levels for IAA Spinco and KAR are expected to maintain the current corporate debt rating of BB-/B1 currently held by KAR for both entities. The Company expects to provide additional information on the expected dividend policies and the target leverage levels of each enterprise as we get closer to completion of the spin-off. There can be no assurance as to whether or when the spin-off will occur. IAA Spinco filed its initial Registration Statement on Form 10 on June 28, 2018, Amendment No. 1 to its Registration Statement on Form 10 on August 30, 2018 and Amendment No. 2 to its Registration Statement on Form 10 on November 20, 2018.

Industry Trends

Whole Car

Used vehicles sold in North America through whole car auctions, including online only sales, were approximately 10.6 million and 11.1 million in 2016 and 2017, respectively. Data for the whole car auction industry is collected by the NAAA through an annual survey. NAAA industry volumes for 2018 have not yet been released. The NAAA industry volumes collected by the annual survey do not include online only volumes or mobile application volumes (e.g. Openlane and TradeRev). We have included online only volumes in the totals above for 2016 and 2017. We estimate that used vehicle auction volumes in North America in 2018 were approximately 11.6 million vehicles, including online only volumes and mobile application volumes. We expect that used vehicle auction volumes in North America, including online only volumes and mobile application volumes, will be over 11 million units in 2019, 2020 and 2021. Our estimates are based on information from the Bureau of Economic Analysis, IHS Automotive, Kontos Total Market Estimates, NAAA's annual survey and management estimates.

In addition to the traditional whole car auction market described above, which we estimate has sold near 11 million units in each of the last few years, mobile applications, such as TradeRev, may provide an opportunity to expand our total addressable market for whole car by approximately 5 million units. We are incurring costs to grow TradeRev in the U.S. and Canada. TradeRev incurred operating losses of $15.7 million and $53.0 million for the three months and year ended December 31, 2018, respectively.

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Salvage

Vehicles deemed a total loss by automobile insurance companies represent the largest category of vehicles sold in the salvage vehicle auction industry. Based on data from CCC Information Services, the percentage of claims resulting in total losses was approximately 18% in 2018, 18% in 2017 and 17% in 2016. 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. We believe that salvage auction industry volumes will grow 5% to 7% annually, for the foreseeable future.

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, proceeds, revenue and gross profit at salvage auctions may be negatively impacted, which could adversely affect the level of profitability. For the year ended December 31, 2018, the price per ton of crushed auto bodies in North America ranged from $187 to $215 and finished December 2018 at $192. In comparison, for the year ended December 31, 2017, the price per ton of crushed auto bodies in North America ranged from $156 to $188.

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. AFC's North American dealer base was comprised of approximately 15,800 dealers in 2018, and loan transactions, which includes both loans paid off and loans curtailed, were approximately 1,800,000 in 2018.

Key challenges for the independent used vehicle dealer include demand for used vehicles, disruptions in pricing of used vehicle inventory, lack of access to consumer financing and increased competition resulting from consolidation in the used vehicle dealer industry. 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.

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.

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, 2018 and 2017 :



	Year Ended December 31,
(Dollars in millions except per share amounts)	2018			2017
Revenues
ADESA	$	2,101.9		$	1,937.5
IAA	1,326.8			1,219.2
AFC	340.9			301.3
Total revenues	3,769.6			3,458.0
Cost of services*	2,142.7			1,987.2
Gross profit*	1,626.9			1,470.8
Selling, general and administrative	732.8			640.2
Depreciation and amortization	269.9			264.6
Operating profit	624.2			566.0
Interest expense	192.0			164.0
Other income, net	(3.5		)	(1.9		)
Loss on extinguishment of debt	—			27.5
Gain on previously held equity interest value	—			(21.6		)
Income before income taxes	435.7			398.0
Income taxes	107.7			36.0
Net income	$	328.0		$	362.0
Net income per share
Basic	$	2.44		$	2.66
Diluted	$	2.42		$	2.62

* Exclusive of depreciation and amortization

Overview

For the year ended December 31, 2018 , we had revenue of $3,769.6 million compared with revenue of $3,458.0 million for the year ended December 31, 2017 , an increase of 9% . Businesses acquired accounted for an increase in revenue of $26.4 million or 1% of revenue. 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 $5.3 million , or 2% , to $269.9 million for the year ended December 31, 2018 , compared with $264.6 million for the year ended December 31, 2017 . 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 2017 and 2018.

Interest Expense

Interest expense increased $28.0 million , or 17% , to $192.0 million for the year ended December 31, 2018 , compared with $164.0 million for the year ended December 31, 2017 . The increase was primarily attributable to an increase of approximately $80 million in the average outstanding balance of corporate debt for the year ended December 31, 2018 compared with the year ended December 31, 2017, as well as an increase in the weighted average interest rate for the same period of approximately 0.49%. In addition, there was an increase in interest expense at AFC of $16.0 million, which resulted from an increase in interest rates and increased borrowings under the U.S. securitization agreement for the year ended December 31, 2018 , as compared with the year ended December 31, 2017 . The increases in interest expense were partially offset by $3.2 million received from the counterparties to the interest rate cap agreements and an increase of $2.6 million in the fair values of our interest rate caps which were recognized as a reduction of interest expense.

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Loss on Extinguishment of Debt

In May 2017, we amended our Credit Agreement and recorded a $27.5 million pretax charge resulting from the write-off of unamortized debt issue costs and debt discounts associated with Term Loan B-2 and Term Loan B-3.

Gain on Previously Held Equity Interest Value

In October 2017, we acquired the remaining 50% interest in TradeRev and our previously held 50% interest was re-measured at fair value, resulting in a gain of $21.6 million.

Income Taxes

We had an effective tax rate of 24.7% for the year ended December 31, 2018 , compared with an effective tax rate of 9.0% for the year ended December 31, 2017 . Our effective tax rate was higher for the year ended December 31, 2018 as compared with the year ended December 31, 2017, primarily as a result of the enactment of the Tax Cuts and Jobs Act of 2017 in the fourth quarter of 2017. As a result, in 2017 we recognized a tax benefit of $102.7 million relating to the re-measurement of deferred tax assets and liabilities and $11.1 million of expense associated with a one-time deemed repatriation transition tax on the accumulated unrepatriated and untaxed earnings of our foreign subsidiaries. Additionally, the effective tax rate for the year ended December 31, 2017 was favorably impacted by a reduction in income taxes on undistributed foreign earnings.

Impact of Foreign Currency

The average Canadian exchange rate for the year ended December 31, 2018 was consistent with the rate for the year ended December 31, 2017. As such, the Canadian exchange rate did not significantly impact the reporting of our Canadian operations in U.S. dollars.

ADESA Results



	Year Ended December 31,
(Dollars in millions, except per vehicle amounts)	2018			2017
ADESA revenue	$	2,101.9		$	1,937.5
Cost of services*	1,230.8			1,123.9
Gross profit*	871.1			813.6
Selling, general and administrative	435.8			360.0
Depreciation and amortization	127.5			113.1
Operating profit	$	307.8		$	340.5
Vehicles sold	3,472,000			3,180,000
Physical auction vehicles sold	2,168,000			2,242,000
Online only vehicles sold	1,304,000			938,000
Dealer consignment mix at physical auctions	42		%	45		%
Conversion rate at North American physical auctions	61.6		%	60.4		%
Physical auction revenue per vehicle sold, excluding purchased vehicles	$	844		$	775
Online only revenue per vehicle sold, excluding ADESA Assurance Program vehicles	$	121		$	113

* Exclusive of depreciation and amortization

Revenue

Revenue from ADESA increased $164.4 million , or 8% , to $2,101.9 million for the year ended December 31, 2018 , compared with $1,937.5 million for the year ended December 31, 2017 . The increase in revenue was primarily a result of a 9% increase in the number of vehicles sold (6% increase excluding acquisitions) and average revenue per vehicle sold was consistent. Businesses acquired in the last 12 months accounted for an increase in revenue of $26.4 million.

The increase in vehicles sold was primarily attributable to a 14% increase in institutional volume, including vehicles sold on our online only platform and dealer consignment units sold were consistent (9% decrease excluding acquisitions) for the year ended December 31, 2018 compared with the year ended December 31, 2017 . Online sales volume for ADESA represented approximately 54% of the total vehicles sold in 2018 , compared with approximately 46% in 2017 . "Online sales" includes the

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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) vehicles sold on the TradeRev platform (TradeRev was acquired in the fourth quarter of 2017); (iv) simultaneously broadcasting video and audio of the physical auctions to online bidders (LiveBlock ^® ); and (v) bulletin-board or real-time online auctions (DealerBlock ^® ). Upstream selling, midstream selling and TradeRev sales, which represent online only sales, accounted for approximately 72% of ADESA's online sales volume. ADESA sold approximately 1,304,000 (including approximately 117,000 from TradeRev) and 938,000 vehicles through its online only offerings in 2018 and 2017 , respectively. For the year ended December 31, 2018 , dealer consignment vehicles represented approximately 42% of used vehicles sold at ADESA physical auction locations, compared with approximately 45% for the year ended December 31, 2017 . Vehicles sold at physical auction locations decreased 3% in 2018 , compared with 2017 . 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, increased to 61.6% for the year ended December 31, 2018 , compared with 60.4% for the year ended December 31, 2017 .

Physical auction revenue per vehicle sold increased $69, or 9%, to $844 for the year ended December 31, 2018 , compared with $775 for the year ended December 31, 2017 . 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 excludes 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 and auction fees related to higher average transaction prices.

Online only auction revenue per vehicle sold increased $9 to $139 for the year ended December 31, 2018 , compared with $130 for the year ended December 31, 2017 . 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 the inclusion of TradeRev sales. Excluding vehicles purchased as part of the ADESA Assurance Program, online only revenue per vehicle would have been $121 and $113 for the year ended December 31, 2018 and 2017 , respectively. The $8 increase in online only revenue per vehicle was attributable to increased revenue per vehicle for units sold on the TradeRev platform.

Gross Profit

For the year ended December 31, 2018 , gross profit for ADESA increased $57.5 million , or 7% , to $871.1 million , compared with $813.6 million for the year ended December 31, 2017 . Gross profit for ADESA was 41.4% of revenue for the year ended December 31, 2018 , compared with 42.0% of revenue for the year ended December 31, 2017 . Gross profit as a percentage of revenue decreased for the year ended December 31, 2018 as compared with the year ended December 31, 2017 as a result of an increase in lower margin related services, an increase in purchase vehicles primarily related to ADESA Assurance and incentives to promote TradeRev.

Selling, General and Administrative

Selling, general and administrative expenses for the ADESA segment increased $75.8 million , or 21% , to $435.8 million for the year ended December 31, 2018 , compared with $360.0 million for the year ended December 31, 2017 , primarily due to increases in selling, general and administrative expenses associated with acquisitions of $52.2 million, compensation expense of $16.7 million, marketing expense of $3.1 million, information technology costs of $2.8 million, benefit and other employee related expenses of $1.4 million, supplies expense of $1.2 million, stock-based compensation expense of $0.8 million and other miscellaneous expenses aggregating $4.5 million, partially offset by decreases in incentive-based compensation expense of $5.0 million and non-income based taxes of $1.9 million.

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IAA Results



	Year Ended December 31,
(Dollars in millions)	2018		2017
IAA revenue	$	1,326.8	$	1,219.2
Cost of services*	821.2		778.1
Gross profit*	505.6		441.1
Selling, general and administrative	114.3		107.1
Depreciation and amortization	97.4		93.1
Operating profit	$	293.9	$	240.9
Vehicles sold	2,480,000		2,369,000

* Exclusive of depreciation and amortization

Revenue

Revenue from IAA increased $107.6 million , or 9% , to $1,326.8 million for the year ended December 31, 2018 , compared with $1,219.2 million for the year ended December 31, 2017 . The increase in revenue was a result of an increase in vehicles sold of approximately 5% for the year ended December 31, 2018 . Revenue per vehicle sold increased 4% for the year ended December 31, 2018 compared with the year ended December 31, 2017, partially offset by a decrease of $5.2 million from HBC, which included an increase in revenue of $1.3 million due to fluctuations in the U.K. exchange rate. IAA's North American same-store total loss vehicle inventory increased approximately 1% at December 31, 2018 , as compared to December 31, 2017 . Vehicles sold under purchase agreements were approximately 4% and 5% of total salvage vehicles sold for the year ended December 31, 2018 and 2017 , respectively. North American online sales volumes for IAA for the years ended December 31, 2018 and 2017 each represented over 60% of the total vehicles sold by IAA.

Gross Profit

For the year ended December 31, 2018 , gross profit at IAA increased to $505.6 million , or 38.1% of revenue, compared with $441.1 million , or 36.2% of revenue, for the year ended December 31, 2017 . The increase in gross profit was mainly attributable to a 9% increase in revenue, partially offset by a 6% increase in cost of services, which included costs associated with purchase contract vehicles and organic volume growth.

Excluding HBC, IAA's gross profit margin was 38.6% and 36.9% for the year ended December 31, 2018 and 2017 , respectively. For the year ended December 31, 2018 and 2017 , HBC had revenue of approximately $32.7 million and $37.9 million, respectively, and cost of services of approximately $26.6 million and $32.2 million, respectively, as fewer of HBC's vehicles were sold under purchase contracts. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchase contracts.

IAA experienced a reduction in gross profit of $6.8 million and $0.3 million for the year ended December 31, 2018 and 2017, respectively, related to catastrophic events. Excluding these events (and HBC as noted above), IAA's gross profit margin was 39.5% and 38.3% for the year ended December 31, 2018 and 2017, respectively.

Selling, General and Administrative

Selling, general and administrative expenses at IAA increased $7.2 million , or 7% , to $114.3 million for the year ended December 31, 2018 , compared with $107.1 million for the year ended December 31, 2017 . The increase in selling, general and administrative expenses was primarily attributable to increases in compensation expense of $3.0 million, bad debt expense of $1.6 million, incentive-based compensation expense of $1.0 million, supply expenses of $0.8 million, information technology costs of $0.7 and other miscellaneous expenses aggregating $2.4 million, partially offset by decreases in telecom costs of $1.2 million and professional fees of $1.1 million.

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AFC Results



	Year Ended December 31,
(Dollars in millions except volumes and per loan amounts)	2018			2017
AFC revenue
Interest and fee income	$	327.3		$	290.3
Other revenue	13.1			11.8
Provision for credit losses	(32.9		)	(33.9		)
Other service revenue	33.4			33.1
Total AFC revenue	340.9			301.3
Cost of services*	90.7			85.2
Gross profit*	250.2			216.1
Selling, general and administrative	30.7			30.9
Depreciation and amortization	16.0			31.3
Operating profit	$	203.5		$	153.9
Loan transactions	1,760,000			1,688,000
Revenue per loan transaction, excluding "Other service revenue"	$	175		$	159

* Exclusive of depreciation and amortization

Revenue

For the year ended December 31, 2018 , AFC revenue increased $39.6 million , or 13% , to $340.9 million , compared with $301.3 million for the year ended December 31, 2017 . The increase in revenue was the result of a 10% increase in revenue per loan transaction and a 4% increase in loan transactions.

Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $16, or 10%. The decrease in provision for credit losses, which is a reduction of revenue, resulted in an increase in revenue per loan transaction of $1 for the year ended December 31, 2018. The remaining $15 increase in revenue per loan transaction was primarily the result of increases in fee revenue and interest yield as a result of prime rate increases, as well as an increase in average loan values. Revenue per loan transaction excludes "Other service revenue."

The provision for credit losses decreased to 1.7% of the average managed receivables for the year ended December 31, 2018 from 1.9% for the year ended December 31, 2017 . The provision for credit losses is expected to be under 2%, 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, 2018 , gross profit for the AFC segment increased $34.1 million , or 16% , to $250.2 million , or 73.4% of revenue, compared with $216.1 million , or 71.7% of revenue, for the year ended December 31, 2017 , primarily as a result of a 13% increase in revenue, which includes the decreased provision for credit losses, partially offset by a 6% increase in cost of services. The increase in cost of services was the result of increases in compensation expense of $3.4 million, incentive-based compensation expense of $1.0 million, collection costs of $0.5 million and other expenses aggregating $0.7 million, partially offset by a decrease in PWI expenses of $0.1 million.

Selling, General and Administrative

Selling, general and administrative expenses at AFC decreased $0.2 million , or 1% , to $30.7 million for the year ended December 31, 2018 , compared with $30.9 million for the year ended December 31, 2017 .

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Holding Company Results



	Year Ended December 31,
(Dollars in millions)	2018			2017
Selling, general and administrative	$	152.0		$	142.2
Depreciation and amortization	29.0			27.1
Operating loss	$	(181.0	)	$	(169.3	)

Selling, General and Administrative

For the year ended December 31, 2018 , selling, general and administrative expenses at the holding company increased $9.8 million , or 7% , to $152.0 million , compared with $142.2 million for the year ended December 31, 2017 , primarily as a result of increases in professional fees associated with the IAA spin-off of $8.1 million, information technology costs of $3.8 million, compensation expense of $3.4 million and other professional fees of $2.9 million, partially offset by decreases in medical expenses of $4.3 million, stock-based compensation expense of $2.6 million and incentive-based compensation expense of $1.5 million.

Overview of Results of KAR Auction Services, Inc. for the Years Ended December 31, 2017 and 2016 :



	Year Ended December 31,
(Dollars in millions except per share amounts)	2017			2016
Revenues
ADESA	$	1,937.5		$	1,765.3
IAA	1,219.2			1,098.0
AFC	301.3			286.8
Total revenues	3,458.0			3,150.1
Cost of services*	1,987.2			1,827.4
Gross profit*	1,470.8			1,322.7
Selling, general and administrative	640.2			583.1
Depreciation and amortization	264.6			240.6
Operating profit	566.0			499.0
Interest expense	164.0			138.8
Other income, net	(1.9		)	(0.5		)
Loss on extinguishment of debt	27.5			5.4
Gain on previously held equity interest value	(21.6		)	—
Income before income taxes	398.0			355.3
Income taxes	36.0			132.9
Net income	$	362.0		$	222.4
Net income per share
Basic	$	2.66		$	1.62
Diluted	$	2.62		$	1.60

* Exclusive of depreciation and amortization

Overview

For the year ended December 31, 2017, we had revenue of $3,458.0 million compared with revenue of $3,150.1 million for the year ended December 31, 2016, an increase of 10%. Businesses acquired accounted for an increase in revenue of $89.6 million or 3% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.

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Depreciation and Amortization

Depreciation and amortization increased $24.0 million, or 10%, to $264.6 million for the year ended December 31, 2017, compared with $240.6 million for the year ended December 31, 2016. 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 2016 and 2017.

Interest Expense

Interest expense increased $25.2 million, or 18%, to $164.0 million for the year ended December 31, 2017, compared with $138.8 million for the year ended December 31, 2016. The increase was primarily attributable to an increase of approximately $273 million in the average outstanding balance of corporate debt for the year ended December 31, 2017 compared with the year ended December 31, 2016, as well as an increase in the weighted average interest rate for the same period of approximately 0.24%. In addition, there was an increase in interest expense at AFC of $9.5 million, which resulted from an increase in interest rates, increased borrowings and increased committed liquidity under the U.S. securitization agreement for the year ended December 31, 2017 as compared with the year ended December 31, 2016.

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 2014/2015 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.

Gain on Previously Held Equity Interest Value

In October 2017, we acquired the remaining 50% interest in TradeRev and our previously held 50% interest was re-measured at fair value, resulting in a gain of $21.6 million.

Income Taxes

We had an effective tax rate of 9.0% for the year ended December 31, 2017, compared with an effective tax rate of 37.4% for the year ended December 31, 2016. Our effective tax rate was lower for the year ended December 31, 2017 as compared with the year ended December 31, 2016, primarily as a result of the enactment of the Tax Cuts and Jobs Act of 2017 in the fourth quarter of 2017. As a result, we recognized a tax benefit of $102.7 million relating to the re-measurement of deferred tax assets and liabilities and $11.1 million of expense associated with a one-time deemed repatriation transition tax on the accumulated unrepatriated and untaxed earnings of our foreign subsidiaries. We also recognized $6.4 million of excess tax benefits from employee stock-based compensation as a discrete item in our income tax expense for the year ended December 31, 2017. Additionally, the effective tax rate for the year ended December 31, 2017 was favorably impacted by a reduction in income taxes on undistributed foreign earnings.

Impact of Foreign Currency

The strengthening of the Canadian dollar has impacted the reporting of our Canadian operations in U.S. dollars. For the year ended December 31, 2017, fluctuations in the Canadian exchange rate increased revenue by $7.6 million, operating profit by $2.7 million, net income by $1.6 million and net income per diluted share by $0.01.

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ADESA Results



	Year Ended December 31,
(Dollars in millions, except per vehicle amounts)	2017			2016
ADESA revenue	$	1,937.5		$	1,765.3
Cost of services*	1,123.9			1,036.5
Gross profit*	813.6			728.8
Selling, general and administrative	360.0			327.0
Depreciation and amortization	113.1			100.0
Operating profit	$	340.5		$	301.8
Vehicles sold	3,180,000			2,885,000
Physical auction vehicles sold	2,242,000			2,142,000
Online only vehicles sold	938,000			743,000
Dealer consignment mix at physical auctions	45		%	48		%
Conversion rate at North American physical auctions	60.4		%	58.0		%
Physical auction revenue per vehicle sold, excluding purchased vehicles	$	775		$	753
Online only revenue per vehicle sold, excluding ADESA Assurance Program vehicles	$	113		$	110

* Exclusive of depreciation and amortization

Revenue

Revenue from ADESA increased $172.2 million, or 10%, to $1,937.5 million for the year ended December 31, 2017, compared with $1,765.3 million for the year ended December 31, 2016. The increase in revenue was primarily a result of a 10% increase in the number of vehicles sold (5% increase excluding acquisitions), partially offset by a less than 1% decrease in average revenue per vehicle sold as the mix of vehicles sold online increased as compared to the number of vehicles sold at physical auction. Businesses acquired accounted for an increase in revenue of $89.6 million. Revenue increased $5.5 million due to fluctuations in the Canadian exchange rate.

The increase in vehicles sold was primarily attributable to a 15% increase in institutional volume (11% increase excluding acquisitions), including vehicles sold on our online only platform, as well as a 1% increase in dealer consignment units sold (7% decrease excluding acquisitions) for the year ended December 31, 2017 compared with the year ended December 31, 2016. Online sales volume for ADESA represented approximately 46% of the total vehicles sold in 2017, compared with approximately 42% in 2016. "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) vehicles sold on the TradeRev platform; (iv) simultaneously broadcasting video and audio of the physical auctions to online bidders (LiveBlock ^® ); and (v) bulletin-board or real-time online auctions (DealerBlock ^® ). Upstream selling, midstream selling and TradeRev sales, which represent online only sales, accounted for approximately 66% of ADESA's online sales volume. ADESA sold approximately 938,000 and 743,000 vehicles (including 2% from acquisitions in the fourth quarter of 2017) through its online only offerings in 2017 and 2016, respectively, of which approximately 471,000 and 385,000 represented vehicle sales to grounding dealers in 2017 and 2016, respectively. For the year ended December 31, 2017, dealer consignment vehicles represented approximately 45% of used vehicles sold at ADESA physical auction locations, compared with approximately 48% for the year ended December 31, 2016. Vehicles sold at physical auction locations increased 5% (2% decrease excluding acquisitions) in 2017, compared with 2016. 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, increased to 60.4% for the year ended December 31, 2017, compared with 58.0% for the year ended December 31, 2016.

Physical auction revenue per vehicle sold increased $22, or 3%, to $775 for the year ended December 31, 2017, compared with $753 for the year ended December 31, 2016. 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 excludes the sale of purchased vehicles. The increase in physical auction revenue per vehicle sold was primarily attributable to an increase in auction fees related to higher average transaction prices and lower margin ancillary and other related services revenue and an increase in physical auction revenue per vehicle sold of $2 due to fluctuations in the Canadian exchange rate.

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Online only auction revenue per vehicle sold increased $6 to $130 for the year ended December 31, 2017, compared with $124 for the year ended December 31, 2016. 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 the inclusion of TradeRev sales. Excluding vehicles purchased as part of the ADESA Assurance Program, online only revenue per vehicle would have been $113 and $110 for the year ended December 31, 2017 and 2016, respectively. The $3 increase in online only revenue per vehicle was attributable to increased revenue per vehicle for units sold on the TradeRev platform.

Gross Profit

For the year ended December 31, 2017, gross profit for ADESA increased $84.8 million, or 12%, to $813.6 million, compared with $728.8 million for the year ended December 31, 2016. Gross profit for ADESA was 42.0% of revenue for the year ended December 31, 2017, compared with 41.3% of revenue for the year ended December 31, 2016. The increase in gross profit percentage was mainly attributable to the increased mix of online only volume. Online only sales have a higher gross profit percentage than physical auction sales.

Selling, General and Administrative

Selling, general and administrative expenses for the ADESA segment increased $33.0 million, or 10%, to $360.0 million for the year ended December 31, 2017, compared with $327.0 million for the year ended December 31, 2016, primarily due to increases in selling, general and administrative expenses associated with acquisitions of $27.7 million, compensation expense of $7.1 million, stock-based compensation expense of $2.6 million, information technology costs of $2.4 million, benefit-related expenses of $1.0 million, fluctuations in the Canadian exchange rate of $1.0 million and other miscellaneous expenses aggregating $4.6 million, partially offset by decreases in bad debt expense of $4.5 million, incentive-based compensation expense of $4.4 million, marketing expenses of $2.5 million and professional fees of $2.0 million.

IAA Results



	Year Ended December 31,
(Dollars in millions)	2017		2016
IAA revenue	$	1,219.2	$	1,098.0
Cost of services*	778.1		708.0
Gross profit*	441.1		390.0
Selling, general and administrative	107.1		104.2
Depreciation and amortization	93.1		87.9
Operating profit	$	240.9	$	197.9
Vehicles sold	2,369,000		2,184,000

* Exclusive of depreciation and amortization

Revenue

Revenue from IAA increased $121.2 million, or 11%, to $1,219.2 million for the year ended December 31, 2017, compared with $1,098.0 million for the year ended December 31, 2016. The increase in revenue was a result of an increase in vehicles sold of approximately 8% for the year ended December 31, 2017. Revenue per vehicle sold increased 2% for the year ended December 31, 2017 compared with the year ended December 31, 2016, and included an increase in revenue of $1.7 million due to fluctuations in the Canadian exchange rate, partially offset by a decrease of $13.7 million from HBC including a decrease in revenue of $2.0 million due to fluctuations in the U.K. exchange rate. IAA's North American same-store total loss vehicle inventory increased approximately 3% at December 31, 2017, as compared to December 31, 2016, in part related to the timing of catastrophic events. Vehicles sold under purchase agreements were approximately 5% and 7% of total salvage vehicles sold for the year ended December 31, 2017 and 2016, respectively. North American online sales volumes for IAA for the years ended December 31, 2017 and 2016 represented approximately 60% of the total vehicles sold by IAA.

Gross Profit

For the year ended December 31, 2017, gross profit at IAA increased to $441.1 million, or 36.2% of revenue, compared with $390.0 million, or 35.5% of revenue, for the year ended December 31, 2016. The increase in gross profit was mainly attributable to an 11% increase in revenue, partially offset by a 10% increase in cost of services, which included costs

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associated with purchase contract vehicles, costs incurred to store and process vehicles for Hurricanes Harvey and Irma and organic volume growth.

Excluding HBC, IAA's gross profit margin was 36.9% and 36.7% for the year ended December 31, 2017 and 2016, respectively. For the year ended December 31, 2017 and 2016, HBC had revenue of approximately $37.9 million and $51.6 million, respectively, and cost of services of approximately $32.2 million and $45.8 million, respectively, as fewer of HBC's vehicles were sold under purchase contracts. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchase contracts.

IAA sold over 65,000 vehicles and recorded approximately $45.1 million of revenue and a $0.3 million gross loss for the year ended December 31, 2017 related to catastrophic events in Texas and Florida. Excluding these events (and HBC as noted above), IAA's gross profit margin was 38.3% for the year ended December 31, 2017. IAA incurred significant costs in Texas and Florida in response to Hurricanes Harvey and Irma. Costs were incurred for real estate, security, lot operations and related support. These costs were incurred in advance of revenue. IAA recovered these excess costs incurred as vehicles were sold in 2017 and in the first quarter of 2018.

Selling, General and Administrative

Selling, general and administrative expenses at IAA increased $2.9 million, or 3%, to $107.1 million for the year ended December 31, 2017, compared with $104.2 million for the year ended December 31, 2016. The increase in selling, general and administrative expenses was primarily attributable to an increase in compensation expense of $3.2 million, incentive-based compensation expense of $2.1 million and stock-based compensation expense of $1.3 million, partially offset by decreases in employee related expenses of $1.5 million, bad debt expense of $0.9 million and other miscellaneous expenses aggregating $1.3 million.

AFC Results



	Year Ended December 31,
(Dollars in millions except volumes and per loan amounts)	2017			2016
AFC revenue
Interest and fee income	$	290.3		$	275.1
Other revenue	11.8			10.3
Provision for credit losses	(33.9		)	(30.7		)
Other service revenue	33.1			32.1
Total AFC revenue	301.3			286.8
Cost of services*	85.2			82.9
Gross profit*	216.1			203.9
Selling, general and administrative	30.9			28.7
Depreciation and amortization	31.3			31.1
Operating profit	$	153.9		$	144.1
Loan transactions	1,688,000			1,718,000
Revenue per loan transaction, excluding "Other service revenue"	$	159		$	148

* Exclusive of depreciation and amortization

Revenue

For the year ended December 31, 2017, AFC revenue increased $14.5 million, or 5%, to $301.3 million, compared with $286.8 million for the year ended December 31, 2016. The increase in revenue was the result of a 7% increase in revenue per loan transactions and an increase of 3% in "Other service revenue" generated by PWI, partially offset by a decrease in loan transactions of 2%. The increase in revenue and revenue per loan transaction included the impact of an increase in revenue of $0.4 million due to fluctuations in the Canadian exchange rate. In addition, managed receivables increased to $1,912.6 million at December 31, 2017 from $1,792.2 million at December 31, 2016.

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Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $11, or 7%. The provision for credit losses, which is a reduction of revenue, resulted in a reduction of revenue per loan transaction of $2 for the year ended December 31, 2017. The remaining $13 increase in revenue per loan transaction was primarily the result of increases in fee revenue and interest yield as a result of prime rate increases. Revenue per loan transaction excludes "Other service revenue."

The provision for credit losses increased to 1.9% of the average managed receivables for the year ended December 31, 2017 from 1.8% for the year ended December 31, 2016. The provision for credit losses is expected to be under 2%, 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, 2017, gross profit for the AFC segment increased $12.2 million, or 6%, to $216.1 million, or 71.7% of revenue, compared with $203.9 million, or 71.1% of revenue, for the year ended December 31, 2016, primarily as a result of a 5% increase in revenue, which includes the increased provision for credit losses, partially offset by a 3% increase in cost of services. The increase in cost of services was the result of increases in compensation expense of $1.7 million, lot checks of $1.1 million and collection costs of $0.9 million, partially offset by decreases in PWI expenses of $1.1 million and other expenses aggregating $0.3 million. The floorplan lending business gross profit margin percentage was 77.6% for the year ended December 31, 2017 and was consistent with the prior year.

Selling, General and Administrative

Selling, general and administrative expenses at AFC increased $2.2 million, or 8%, to $30.9 million for the year ended December 31, 2017, compared with $28.7 million for the year ended December 31, 2016. The increase was primarily attributable to increases in compensation expense of $0.8 million, stock-based compensation expense of $0.8 million, incentive-based compensation of $0.4 million and an increase in selling, general and administrative costs at PWI of $0.4 million, partially offset by a decrease in other miscellaneous expenses aggregating $0.2 million.

Holding Company Results



	Year Ended December 31,
(Dollars in millions)	2017			2016
Selling, general and administrative	$	142.2		$	123.2
Depreciation and amortization	27.1			21.6
Operating loss	$	(169.3	)	$	(144.8	)

Selling, General and Administrative

For the year ended December 31, 2017, selling, general and administrative expenses at the holding company increased $19.0 million, or 15%, to $142.2 million, compared with $123.2 million for the year ended December 31, 2016, primarily as a result of increases in compensation expense of $11.5 million, information technology costs of $5.7 million, incentive-based compensation expense of $1.7 million and stock-based compensation expense of $1.5 million, partially offset by a decrease in other miscellaneous expenses of $1.4 million. The Company increased Holding Company expenses to support the growing businesses of KAR. The increase in expenses related 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 Three Months Ended December 31, 2018 and 2017 :



	Three Months Ended December 31,
(Dollars in millions except per share amounts)	2018		2017
Revenues
ADESA	$	508.5	$	473.2
IAA	335.2		335.4
AFC	85.3		81.8
Total revenues	929.0		890.4
Cost of services*	543.2		525.1
Gross profit*	385.8		365.3
Selling, general and administrative	176.6		172.5
Depreciation and amortization	67.1		69.4
Operating profit	142.1		123.4
Interest expense	52.8		42.1
Other (income) expense, net	1.0		(0.2		)
Gain on previously held equity interest value	—		(21.6		)
Income before income taxes	88.3		103.1
Income taxes	21.0		(69.7		)
Net income	$	67.3	$	172.8
Net income per share
Basic	$	0.50	$	1.28
Diluted	$	0.50	$	1.27

* Exclusive of depreciation and amortization

Overview

For the three months ended December 31, 2018 , we had revenue of $929.0 million compared with revenue of $890.4 million for the three months ended December 31, 2017 , an increase of 4%. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.

Gain on Previously Held Equity Interest Value

In October 2017, we acquired the remaining 50% interest in TradeRev and our previously held 50% interest was re-measured at fair value, resulting in a gain of $21.6 million.

Income Taxes

We had an effective tax rate of 23.8% for the three months ended December 31, 2018 , compared with an effective tax rate of (67.6%) for the three months ended December 31, 2017 . Our effective tax rate was higher for the three months ended December 31, 2018 as compared with the three months ended December 31, 2017, primarily as a result of the enactment of the Tax Cuts and Jobs Act of 2017 in the fourth quarter of 2017. As a result, in the fourth quarter of 2017, we recognized a tax benefit of $102.7 million relating to the re-measurement of deferred tax assets and liabilities and $11.1 million of expense associated with a one-time deemed repatriation transition tax on the accumulated unrepatriated and untaxed earnings of our foreign subsidiaries. Additionally, the effective tax rate for the three months ended December 31, 2017 was favorably impacted by a reduction in income taxes on undistributed foreign earnings.

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ADESA Results



	Three Months Ended December 31,
(Dollars in millions, except per vehicle amounts)	2018			2017
ADESA revenue	$	508.5		$	473.2
Cost of services*	309.8			281.7
Gross profit*	198.7			191.5
Selling, general and administrative	106.9			99.9
Depreciation and amortization	33.1			30.6
Operating profit	$	58.7		$	61.0
Vehicles sold	811,000			744,000
Physical auction vehicles sold	505,000			507,000
Online only vehicles sold	306,000			237,000
Dealer consignment mix at physical auctions	40		%	44		%
Conversion rate at North American physical auctions	58.5		%	57.3		%
Physical auction revenue per vehicle sold, excluding purchased vehicles	$	868		$	822
Online only revenue per vehicle sold, excluding ADESA Assurance Program vehicles	$	122		$	122

* Exclusive of depreciation and amortization

Revenue

Revenue from ADESA increased $35.3 million, or 7%, to $508.5 million for the three months ended December 31, 2018 , compared with $473.2 million for the three months ended December 31, 2017 . The increase in revenue was primarily a result of a 9% increase in the number of vehicles sold, partially offset by a 1% decrease in average revenue per vehicle sold as the mix of vehicles sold online increased as compared to the number of vehicles sold at physical auction. Revenue decreased $2.2 million due to fluctuations in the Canadian exchange rate.

The increase in vehicles sold was primarily attributable to a 15% increase in institutional volume, including vehicles sold on our online only platform for the three months ended December 31, 2018 compared with the three months ended December 31, 2017 . Dealer consignment units sold decreased 4% for the three months ended December 31, 2018 compared with the three months ended December 31, 2017 . Online sales volume for ADESA represented approximately 54% of the total vehicles sold in the fourth quarter of 2018 , compared with approximately 49% in the fourth quarter of 2017 . "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) vehicles sold on the TradeRev platform; (iv) simultaneously broadcasting video and audio of the physical auctions to online bidders (LiveBlock ^® ); and (v) bulletin-board or real-time online auctions (DealerBlock ^® ). Upstream selling, midstream selling and TradeRev sales, which represent online only sales, accounted for approximately 71% of ADESA's online sales volume. ADESA sold approximately 306,000 (including 31,000 from TradeRev in the fourth quarter of 2018 compared with 19,000 in the fourth quarter of 2017) and 237,000 vehicles through its online only offerings in the fourth quarter of 2018 and 2017 , respectively. For the three months ended December 31, 2018 , dealer consignment vehicles represented approximately 40% of used vehicles sold at ADESA physical auction locations, compared with approximately 44% for the three months ended December 31, 2017 . Vehicles sold at physical auction locations remained consistent in the fourth quarter of 2018 , compared with the fourth quarter of 2017 . 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, increased to 58.5% for the three months ended December 31, 2018 , compared with 57.3% for the three months ended December 31, 2017 .

Physical auction revenue per vehicle sold increased $46, or 6%, to $868 for the three months ended December 31, 2018 , compared with $822 for the three months ended December 31, 2017 . 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 excludes 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 and auction fees related to higher average transaction prices, partially offset by a decrease in physical auction revenue per vehicle sold of $4 due to fluctuations in the Canadian exchange rate.

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Online only auction revenue per vehicle sold decreased $12 to $136 for the three months ended December 31, 2018 , compared with $148 for the three months ended December 31, 2017 . The decrease in online only auction revenue per vehicle sold was attributable to a decrease in purchased vehicles associated with the ADESA Assurance Program in the fourth quarter of 2018. Excluding vehicles purchased as part of the ADESA Assurance Program, online only revenue per vehicle would have been $122 for the three months ended December 31, 2018 and 2017 .

Gross Profit

For the three months ended December 31, 2018 , gross profit for ADESA increased $7.2 million, or 4%, to $198.7 million , compared with $191.5 million for the three months ended December 31, 2017 . Gross profit for ADESA was 39.1% of revenue for the three months ended December 31, 2018 , compared with 40.5% of revenue for the three months ended December 31, 2017 . Gross profit as a percentage of revenue decreased for the three months ended December 31, 2018 as compared with the three months ended December 31, 2017 as a result of an increase in lower margin related services, an increase in purchase vehicles at the physical auctions primarily related to ADESA Assurance and incentives to promote TradeRev.

Selling, General and Administrative

Selling, general and administrative expenses for the ADESA segment increased $7.0 million, or 7%, to $106.9 million for the three months ended December 31, 2018 , compared with $99.9 million for the three months ended December 31, 2017 , primarily due to increases in costs associated with TradeRev aggregating $6.3 million, compensation expense of $5.5 million, selling, general and administrative expenses associated with acquisitions of $1.5 million, professional fees of $1.1 million, marketing expense of $1.0 million, information technology costs of $0.8 million and other miscellaneous expenses aggregating $1.7 million, partially offset by decreases in incentive-based compensation expense of $8.2 million, bad debt expense of $1.1 million, non-income based taxes of $0.8 million and fluctuations in the Canadian exchange rate of $0.8 million.

IAA Results



	Three Months Ended December 31,
(Dollars in millions)	2018		2017
IAA revenue	$	335.2	$	335.4
Cost of services*	210.9		222.7
Gross profit*	124.3		112.7
Selling, general and administrative	26.3		27.2
Depreciation and amortization	24.3		23.9
Operating profit	$	73.7	$	61.6
Vehicles sold	617,000		635,000

* Exclusive of depreciation and amortization

Revenue

Revenue from IAA decreased $0.2 million, or less than 1%, to $335.2 million for the three months ended December 31, 2018 , compared with $335.4 million for the three months ended December 31, 2017 . The decrease in revenue was a result of a decrease in vehicles sold of approximately 3% (7% increase excluding vehicles sold from catastrophic weather events in 2018 and 2017) for the three months ended December 31, 2018. Revenue per vehicle sold increased 3% for the three months ended December 31, 2018 compared with the three months ended December 31, 2017, and included a decrease in revenue of $1.0 million due to fluctuations in the Canadian exchange rate and a decrease in revenue of $0.2 million due to fluctuations in the U.K. exchange rate. Vehicles sold under purchase agreements were approximately 4% of total salvage vehicles sold for the three months ended December 31, 2018 and 2017 . North American online sales volumes for IAA for the three months ended December 31, 2018 and 2017 each represented over 60% of the total vehicles sold by IAA.

Gross Profit

For the three months ended December 31, 2018 , gross profit at IAA increased to $124.3 million , or 37.1% of revenue, compared with $112.7 million , or 33.6% of revenue, for the three months ended December 31, 2017 .

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Excluding HBC, IAA's gross profit margin was 37.5% and 33.9% for the three months ended December 31, 2018 and 2017 , respectively. For the three months ended December 31, 2018 and 2017 , HBC had revenue of approximately $7.6 million, and cost of services of approximately $6.2 million and $6.1 million, respectively.

IAA experienced a reduction in gross profit of $2.7 million and an increase in gross profit of $4.0 million for the three months ended December 31, 2018 and 2017 , respectively, related to catastrophic events. Excluding these events (and HBC as noted above), IAA's gross profit margin was 38.8% and 37.9% for the three months ended December 31, 2018 and 2017, respectively.

Selling, General and Administrative

Selling, general and administrative expenses at IAA decreased $0.9 million, or 3%, to $26.3 million for the three months ended December 31, 2018 , compared with $27.2 million for the three months ended December 31, 2017 . The decrease in selling, general and administrative expenses was primarily attributable to decreases in incentive-based compensation expense of $0.8 million and professional fees of $0.4 million, partially offset by an increase in other miscellaneous expenses aggregating $0.3 million.

AFC Results



	Three Months Ended December 31,
(Dollars in millions except volumes and per loan amounts)	2018			2017
AFC revenue
Interest and fee income	$	84.2		$	77.2
Other revenue	3.5			2.9
Provision for credit losses	(10.8		)	(6.4		)
Other service revenue	8.4			8.1
Total AFC revenue	85.3			81.8
Cost of services*	22.5			20.7
Gross profit*	62.8			61.1
Selling, general and administrative	7.1			8.5
Depreciation and amortization	2.4			7.8
Operating profit	$	53.3		$	44.8
Loan transactions	428,000			414,000
Revenue per loan transaction, excluding "Other service revenue"	$	180		$	178

* Exclusive of depreciation and amortization

Revenue

For the three months ended December 31, 2018 , AFC revenue increased $3.5 million, or 4%, to $85.3 million , compared with $81.8 million for the three months ended December 31, 2017 . The increase in revenue was the result of a 1% increase in revenue per loan transaction, a 3% increase in loan transactions and a 4% increase in "Other service revenue" generated by PWI. The increase in revenue and revenue per loan transaction included the impact of a decrease in revenue of $0.2 million due to fluctuations in the Canadian exchange rate.

Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $2, or 1%. The increase in provision for credit losses, which is a reduction of revenue, resulted in a decrease in revenue per loan transaction of $10 for the three months ended December 31, 2018 . The remaining $12 increase in revenue per loan transaction was primarily the result of an increase in interest yield as a result of prime rate increases, as well as an increase in average loan values and average portfolio duration. Revenue per loan transaction excludes "Other service revenue."

The provision for credit losses increased to 2.2% of the average managed receivables for the three months ended December 31, 2018 from 1.4% for the three months ended December 31, 2017 . The provision for credit losses is expected to be under 2%, annually, of the average managed receivables balance. However, the actual losses in any particular quarter could deviate from this range.

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Gross Profit

For the three months ended December 31, 2018 , gross profit for the AFC segment increased $1.7 million, or 3%, to $62.8 million , or 73.6% of revenue, compared with $61.1 million , or 74.7% of revenue, for the three months ended December 31, 2017 , primarily as a result of a 4% increase in revenue, partially offset by a 9% increase in cost of services. The increase in cost of services was the result of increases in compensation expense of $0.5 million, incentive-based compensation expense of $0.4 million, an increase in PWI expenses of $0.3 million and other expenses aggregating $0.6 million.

Selling, General and Administrative

Selling, general and administrative expenses at AFC decreased $1.4 million, or 16%, to $7.1 million for the three months ended December 31, 2018 , compared with $8.5 million for the three months ended December 31, 2017 . The decrease in selling, general and administrative expenses was primarily attributable to decreases in compensation expense of $1.1 and other miscellaneous expenses aggregating $0.3 million.

Holding Company Results



	Three Months Ended December 31,
(Dollars in millions)	2018			2017
Selling, general and administrative	$	36.3		$	36.9
Depreciation and amortization	7.3			7.1
Operating loss	$	(43.6	)	$	(44.0	)

Selling, General and Administrative

For the three months ended December 31, 2018 , selling, general and administrative expenses at the holding company decreased $0.6 million, or 2%, to $36.3 million , compared with $36.9 million for the three months ended December 31, 2017 , primarily as a result of decreases in stock-based compensation expense of $2.0 million, incentive-based compensation expense of $1.6 million and other miscellaneous expenses aggregating $0.8 million, partially offset by increases in other professional fees of $1.6 million, professional fees associated with the IAA spin-off of $1.3 million and compensation expense of $0.9 million.

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)	2018		2017
Cash and cash equivalents	$	337.1	$	317.2
Restricted cash	27.6		19.4
Working capital	689.4		748.2
Amounts available under Credit Facility*	350.0		350.0
Cash flow from operations for the year ended	749.8		588.8


*	There were related outstanding letters of credit totaling approximately $32.9 million and $42.8 million at December 31, 2018 and 2017 , 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.

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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.

Approximately $123.7 million of available cash was held by our foreign subsidiaries at December 31, 2018. If funds held by our foreign subsidiaries were to be repatriated, state and local income tax expense and foreign withholding tax expense would need to be recognized, net of any applicable foreign tax credits.

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."

Impact of the Tax Cuts and Jobs Act of 2017

As a result of the enactment of the Tax Cuts and Jobs Act of 2017, we estimate that our future effective tax rate will be 26% - 28%. The major provisions affecting the Company include a reduction in our federal income tax rate, the immediate expensing of certain capital expenditures and a reduced deduction for certain executive compensation. The Company recorded an obligation for approximately $11.1 million in U.S. income taxes for unremitted foreign earnings as of December 31, 2017, which was paid in 2018. In future years, there will be no federal U.S. taxes on funds repatriated from foreign operations; however, state and local income tax expense and withholding tax expense would be recognized, net of any applicable foreign tax credits.

Credit Facilities

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 $90 million is available for swing line loans.

Both Term Loan B-4 and Term Loan B-5 are payable in quarterly installments equal to 0.25% of their respective original aggregate principal amounts. Such payments commenced on September 30, 2017, 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 $4.8 million and $7.0 million of Term Loan B-4 and Term Loan B-5, respectively, for the year ended December 31, 2018 . 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-4 and Term Loan B-5 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-4 bears interest at Adjusted LIBOR (as defined in the Credit

Agreement) plus 2.25%, Term Loan B-5 at Adjusted LIBOR plus 2.50% and revolving loan borrowings at Adjusted LIBOR plus 2.0%. However, for specified types of borrowings, the Company may elect to make Term Loan B-4 borrowings at a Base Rate (as defined in the Credit Agreement) plus 1.25%, Term Loan B-5 at a Base Rate plus 1.50% and revolving loan

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borrowings at a Base Rate plus 1.0%. The rates on Term Loan B-4 and Term Loan B-5 were 5.06% and 5.31% at December 31, 2018 , respectively . In addition, if the Company's Consolidated Senior Secured Leverage Ratio (as defined in the Credit Agreement) which is based on a net debt calculation, increases to levels specified in the Credit Agreement, the applicable interest rate on the revolving credit facility will step up by 25 basis points. The Company also pays a commitment fee of 30 to 35 basis points, payable quarterly, on the average daily unused amount of the revolving credit facility based on the Company's Consolidated Senior Secured Leverage Ratio as described above.

On December 31, 2018 , $704.4 million w as outstanding on Term Loan B-4, $1,031.5 million was outstanding on Term Loan B-5 a nd there were no borrowings on the revolving credit facility. In addition, we had related outstanding letters of credit in the aggregate amount of $32.9 million and $42.8 million at December 31, 2018 and December 31, 2017 , respectively, which reduce the amount available for borrowings under the revolving credit facilit y. Our C anadian operations also have a C$8 million line of credit which wa s undrawn at December 31, 2018 . However, there were related letters of credit outstanding totaling approxima tely C$1.0 million at December 31, 2018 , which reduce amounts available under the Canadian line of credit.

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, 2018 the ratio could not exceed 3.5 to 1.0. Our consolidated senior secured leverage ratio, including capital lease obligations of $55.6 million, was 1.86 to 1.0 at December 31, 2018 .

In addition, the Credit Agreement and the indenture governing our senior notes contain 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 and the indenture governing our senior notes 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 and the indenture governing our senior notes at December 31, 2018 .

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.

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Senior Notes

On May 31, 2017, we issued $950 million of 5.125% senior notes due June 1, 2025. The Company will pay interest on the senior notes semi-annually in arrears on June 1 and December 1 of each year, which commenced on December 1, 2017. We may redeem the senior notes, in whole or in part, at any time prior to June 1, 2020 at a redemption price equal to 100% of the principal amount plus a make-whole premium and thereafter at a premium that declines ratably to par in 2023. The senior notes are guaranteed by the Subsidiary Guarantors.

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. The agreement expires on January 28, 2022 . AFC Funding Corporation had committed liquidity of $1.70 billion for U.S. finance receivables at December 31, 2018 .

In December 2018, AFC and AFC Funding Corporation entered into the Eighth Amended and Restated Receivables Purchase Agreement (the "Receivables Purchase Agreement"). The Receivables Purchase Agreement increased AFC Funding's U.S. committed liquidity from $1.50 billion to $1.70 billion and extended the facility's maturity date from January 31, 2020 to January 28, 2022 . In addition, the definition of eligible receivables was expanded. We capitalized approximately $11.6 million of costs in connection with the 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$175 million at December 31, 2018 . In December 2018, AFCI entered into Amending Agreement No. 2 to the Fourth Amended and Restated Receivables Purchase Agreement (the "Canadian Receivable Purchase Agreement"). The Canadian Receivables Purchase Agreement increased AFCI's committed liquidity from C$125 million to C$175 million and extended the facility's maturity date from January 31, 2020 to January 28, 2022. In addition, the definition of eligible receivables was expanded. We capitalized approximately $0.9 million of costs in connection with the Canadian Receivables Purchase 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 $2,014.8 million and $1,912.6 million at December 31, 2018 and December 31, 2017 , respectively. AFC's allowance for losses wa s $14.0 million and $13.0 million at December 31, 2018 and December 31, 2017 , respectively.

As of December 31, 2018 and December 31, 2017 , $1,973.2 million and $1,893.2 million , respectively, of finance receivables and a cash reserve of 1 percent of the obligations collateralized by finance receivables served as security for the $1,445.3 million and $1,358.1 million of obligations collateralized by finance receivables at December 31, 2018 and December 31, 2017 , respectively. There were unamortized securitization issuance costs of approximately $19.4 million and $13.3 million at December 31, 2018 and December 31, 2017 , 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, 2018 , 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."

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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.

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



	Three Months Ended December 31, 2018
(Dollars in millions)	ADESA		IAA			AFC			Corporate			Consolidated
Net income (loss)	$	38.1	$	47.8		$	29.5		$	(48.1	)	$	67.3
Add back:
Income taxes	11.1		16.0			8.7			(14.8		)	21.0
Interest expense, net of interest income	0.1		—			16.3			35.1			51.5
Depreciation and amortization	33.1		24.3			2.4			7.3			67.1
Intercompany interest	4.2		9.6			(1.1		)	(12.7		)	—
EBITDA	86.6		97.7			55.8			(33.2		)	206.9
Intercompany charges	4.3		—			—			(4.3		)	—
Non-cash stock-based compensation	2.4		1.0			0.6			1.5			5.5
Acquisition related costs	1.1		—			—			1.0			2.1
Securitization interest	—		—			(14.5		)	—			(14.5		)
Severance	1.7		—			0.1			—			1.8
IAA separation costs	—		—			—			1.3			1.3
Foreign currency gains/losses	1.9		0.2			—			1.8			3.9
Other	0.8		(1.2		)	—			—			(0.4		)
Total addbacks	12.2		—			(13.8		)	1.3			(0.3		)
Adjusted EBITDA	$	98.8	$	97.7		$	42.0		$	(31.9	)	$	206.6



	Three Months Ended December 31, 2017
(Dollars in millions)	ADESA			IAA			AFC			Corporate			Consolidated
Net income (loss)	$	108.9		$	68.5		$	42.3		$	(46.9	)	$	172.8
Add back:
Income taxes	(39.5		)	(16.5		)	(9.3		)	(4.4		)	(69.7		)
Interest expense, net of interest income	0.4			—			11.8			29.6			41.8
Depreciation and amortization	30.6			23.9			7.8			7.1			69.4
Intercompany interest	8.7			9.5			(0.1		)	(18.1		)	—
EBITDA	109.1			85.4			52.5			(32.7		)	214.3
Intercompany charges	4.0			—			—			(4.0		)	—
Non-cash stock-based compensation	2.2			1.1			0.8			3.6			7.7
Acquisition related costs	1.4			—			—			0.3			1.7
Securitization interest	—			—			(9.9		)	—			(9.9		)
Minority interest	0.1			—			—			—			0.1
Gain on previously held equity interest value	(21.6		)	—			—			—			(21.6		)
Severance	0.6			0.1			0.2			—			0.9
Other	(0.1		)	0.8			0.7			—			1.4
Total addbacks	(13.4		)	2.0			(8.2		)	(0.1		)	(19.7		)
Adjusted EBITDA	$	95.7		$	87.4		$	44.3		$	(32.8	)	$	194.6

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	Year Ended December 31, 2018
(Dollars in millions)	ADESA		IAA			AFC			Corporate			Consolidated
Net income (loss)	$	203.3	$	192.3		$	112.0		$	(179.6	)	$	328.0
Add back:
Income taxes	69.1		64.2			35.4			(61.0		)	107.7
Interest expense, net of interest income	1.0		—			59.3			127.8			188.1
Depreciation and amortization	127.5		97.4			16.0			29.0			269.9
Intercompany interest	19.8		37.9			(3.2		)	(54.5		)	—
EBITDA	420.7		391.8			219.5			(138.3		)	893.7
Intercompany charges	15.3		—			—			(15.3		)	—
Non-cash stock-based compensation	9.3		3.9			2.3			8.8			24.3
Acquisition related costs	4.8		—			—			2.5			7.3
Securitization interest	—		—			(51.5		)	—			(51.5		)
Severance	5.0		0.1			0.6			0.1			5.8
IAA separation costs	—		—			—			8.1			8.1
Foreign currency gains/losses	1.9		0.2			—			1.8			3.9
Other	2.8		(0.5		)	—			—			2.3
Total addbacks	39.1		3.7			(48.6		)	6.0			0.2
Adjusted EBITDA	$	459.8	$	395.5		$	170.9		$	(132.3	)	$	893.9



	Year Ended December 31, 2017
(Dollars in millions)	ADESA			IAA		AFC			Corporate			Consolidated
Net income (loss)	$	260.9		$	166.0	$	103.9		$	(168.8	)	$	362.0
Add back:
Income taxes	52.9			38.0		26.6			(81.5		)	36.0
Interest expense, net of interest income	—			—		43.6			119.0			162.6
Depreciation and amortization	113.1			93.1		31.3			27.1			264.6
Intercompany interest	35.8			37.8		(20.2		)	(53.4		)	—
EBITDA	462.7			334.9		185.2			(157.6		)	825.2
Intercompany charges	11.6			—		—			(11.6		)	—
Non-cash stock-based compensation	7.3			3.9		2.6			11.4			25.2
Loss on extinguishment of debt	—			—		—			27.5			27.5
Acquisition related costs	5.2			—		—			1.6			6.8
Securitization interest	—			—		(34.9		)	—			(34.9		)
Minority interest	4.4			—		—			—			4.4
Gain on previously held equity interest value	(21.6		)	—		—			—			(21.6		)
Severance	2.3			0.3		0.3			—			2.9
Other	1.4			0.4		0.7			—			2.5
Total addbacks	10.6			4.6		(31.3		)	28.9			12.8
Adjusted EBITDA	$	473.3		$	339.5	$	153.9		$	(128.7	)	$	838.0

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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, 2018			June 30, 2018			September 30, 2018			December 31, 2018			December 31, 2018
Net income (loss)	$	90.0		$	93.2		$	77.5		$	67.3		$	328.0
Add back:
Income taxes	26.4			35.2			25.1			21.0			107.7
Interest expense, net of interest income	41.3			47.5			47.8			51.5			188.1
Depreciation and amortization	70.3			66.9			65.6			67.1			269.9
EBITDA	228.0			242.8			216.0			206.9			893.7
Non-cash stock-based compensation	6.7			5.3			6.8			5.5			24.3
Acquisition related costs	2.2			1.5			1.5			2.1			7.3
Securitization interest	(11.4		)	(12.7		)	(12.9		)	(14.5		)	(51.5		)
(Gain)/Loss on asset sales	0.4			0.3			0.2			0.2			1.1
Severance	1.5			1.0			1.5			1.8			5.8
IAA separation costs	1.1			3.6			2.1			1.3			8.1
Foreign currency gains/losses	—			—			—			3.9			3.9
Other	0.9			0.4			0.5			(0.6		)	1.2
Total addbacks	1.4			(0.6		)	(0.3		)	(0.3		)	0.2
Adjusted EBITDA	$	229.4		$	242.2		$	215.7		$	206.6		$	893.9

Summary of Cash Flows



	Year Ended December 31,
(Dollars in millions)	2018			2017
Net cash provided by (used by):
Operating activities	$	749.8		$	588.8
Investing activities	(381.2		)	(378.3		)
Financing activities	(320.1		)	(107.6		)
Effect of exchange rate on cash	(20.4		)	14.0
Net increase in cash, cash equivalents and restricted cash	$	28.1		$	116.9

Cash flow from operating activities was $749.8 million for the year ended December 31, 2018, compared with $588.8 million for the year ended December 31, 2017. The increase 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, as well as a net increase in non-cash item adjustments, partially offset by decreased profitability.

Net cash used by investing activities was $381.2 million for the year ended December 31, 2018, compared with $378.3 million for the year ended December 31, 2017. The increase in net cash used by investing activities was primarily attributable to:


•	an increase in cash used for capital expenditures of approximately $45.8 million;

partially offset by:


•	a decrease in cash used for acquisitions of approximately $28.1 million; and


•	a decrease in the additional finance receivables held for investment of approximately $9.9 million.

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Net cash used by financing activities was $320.1 million for the year ended December 31, 2018, compared with $107.6 million for the year ended December 31, 2017. The increase in net cash used by financing activities was primarily attributable to:


•	the approximately $177.2 million of net cash received from the refinancing and repayment activities in 2017;


•	a net decrease in book overdrafts in 2018 compared with a net increase in book overdrafts in 2017, resulting in a change of approximately $17.2 million;


•	an increase in dividend payments of approximately $13.5 million; and


•	an increase in contingent payments of approximately $11.3 million;

partially offset by:


•	an increase in the additional obligations collateralized by finance receivables of approximately $36.4 million.

Capital Expenditures

Capital expenditures for the years ended December 31, 2018 and 2017 approximated $198.0 million and $152.2 million , respectively. Capital expenditures in 2018 included $25.5 million for the purchase of IAA property in Florida for use during catastrophic events. 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 $200 million for fiscal year 2019 . Approximately half of the 2019 capital expenditures are expected to relate to technology-based investments. Anticipated capital expenditures are primarily attributable to improvements and expansion at the Company's 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 $0.35 per share using cash flow from operations, representing an annualized dividend of $1.40 per share. The following dividend information has been released for 2018 and 2019:


•	On February 19, 2019, the Company announced a cash dividend of $0.35 per share that is payable on April 4, 2019, to stockholders of record at the close of business on March 22, 2019.


•	On November 6, 2018, the Company announced a cash dividend of $0.35 per share that was paid on January 4, 2019, to stockholders of record at the close of business on December 20, 2018.


•	On August 7, 2018, the Company announced a cash dividend of $0.35 per share that was paid on October 3, 2018, to stockholders of record at the close of business on September 20, 2018.


•	On May 8, 2018, the Company announced a cash dividend of $0.35 per share that was paid on July 5, 2018, to stockholders of record at the close of business on June 21, 2018.


•	On February 20, 2018, the Company announced a cash dividend of $0.35 per share that was paid on April 4, 2018, to stockholders of record at the close of business on March 22, 2018.

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 and the indenture governing our senior notes, 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.

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Acquisitions

In February 2018, the Company completed the acquisition of STRATIM Systems Inc. ("STRATIM"). STRATIM is a mobility and fleet management software company based in San Francisco, California that uses data analytics to help fleet owners manage, maintain and service their fleets. The addition of STRATIM supplements KAR’s broad portfolio of wholesale used vehicle physical, online and digital auction marketplaces and ancillary service providers.

In November 2018, the Company completed the acquisition of Clearplan. Clearplan’s digital platform provides recovery agents, drivers, forwarders and automotive lenders a centralized, mobile, cloud-based hub for repossession workflow and logistics management. The acquisition brings innovative new mobile technology and real-time data analytics to KAR’s portfolio of software as a service capabilities including Recovery Database Network (RDN).

The purchased assets included accounts receivable, computer equipment and software. 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 2018, net of cash acquired, was approximately $45.2 million . The purchase price for the acquired businesses was allocated to acquired assets and liabilities based upon fair values, including $10.5 million to intangible assets, representing the fair value of acquired customer relationships of $6.3 million , software of $4.0 million and tradenames of $0.2 million , which are being amortized over their expected useful lives. The acquisitions resulted in goodwill of $32.1 million . The goodwill is recorded in the ADESA Auctions reportable segment. 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, 2018 .

Recent Developments

In November 2018, the Company reached a definitive agreement to acquire Belgium-based CarsOnTheWeb ("COTW"). On January 31, 2019, the Company completed the acquisition. COTW is an online auction company serving the wholesale vehicle sector in Continental Europe that seamlessly connects OEMs, fleet owners, wholesalers and dealers. The transaction was valued at approximately 91 million euros in cash and up to an additional 65 million euros over a specified period contingent on certain terms, conditions and COTW performance. The acquisition advances KAR’s international strategy and extends its strong North American and U.K.-based portfolio of physical, online and digital auction marketplaces.

In January 2019, the Company also acquired Dent-ology. Dent-ology enhances our mobile reconditioning capabilities and bolsters our offerings to include wheel repair and expanded hail catastrophe response services.

The purchase accounting related to these acquisitions is incomplete. Financial results for the acquisitions will be included in our consolidated financial statements beginning in the first quarter of 2019.

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Contractual Obligations

The table below sets forth a summary of our contractual debt and lease obligations as of December 31, 2018 . 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, 2018 (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
$350 million revolving credit facility	$	—	$	—	$	—	$	—	$	—
Term Loan B-4 (a)	704.4		5.3		699.1		—		—
Term Loan B-5 (a)	1,031.5		7.8		21.0		1,002.7		—
Senior notes (a)	950.0		—		—		—		950.0
Capital lease obligations (b)	59.0		27.5		31.3		0.2		—
Interest payments relating to long-term debt (c)	622.4		139.9		250.1		163.4		69.0
Operating leases (d)	1,400.9		147.9		254.7		218.1		780.2
Other long-term liabilities	6.5		2.2		4.3		—		—
Total contractual cash obligations	$	4,774.7	$	330.6	$	1,260.5	$	1,384.4	$	1,799.2

________________________________________


(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, 2018 .

(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.

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: (1) allowance for credit losses; (2) business combinations; (3) goodwill and other intangible assets; and (4) legal proceedings and other loss contingencies.

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, 2018 , which are included in this Annual Report on Form 10-K.

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Allowance for Credit Losses

We maintain an allowance for credit losses 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 allowance for credit losses is 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.

AFC controls credit risk through credit approvals, credit limits, underwriting and collateral management monitoring procedures, including approximately 90,000 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 finance receivables for the year ended December 31, 2018 , our provision for credit losses would have increased by approximately $3.2 million in 2018 .

Business Combinations

When we acquire businesses, we estimate and recognize the fair values of tangible assets acquired, liabilities assumed and identifiable intangible assets acquired. The excess of the purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. The purchase accounting process requires management to make significant estimates and assumptions in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets and contingent consideration.

Critical estimates are often developed using valuation models that 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, growth rates, 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 could affect the accuracy or validity of such estimates. Depending on the facts and circumstances, we may engage an independent valuation expert to assist in valuing significant assets and liabilities.

Goodwill and Other Intangible Assets

We assess goodwill for impairment annually during the second quarter or whenever events or changes in circumstances indicate that impairment may exist. 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. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that a reporting unit’s fair value is not more likely than not greater than its carrying value, then we calculate the estimated fair value of the reporting unit using discounted cash flows and market approaches.

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for a reporting unit in a given year is influenced by a number of factors, including the size of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition. If we perform a quantitative assessment of a reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and apply judgment when estimating future cash flows and earnings, including projected revenue growth and operating expenses related to existing businesses, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate based on the estimated cost of capital that reflects the risk profile of the related business. Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, strategic initiatives and changes in economic conditions. These estimates, as well as the selection of comparable companies and valuation multiples used in the market approach are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies. In 2018, we performed a quantitative impairment assessment for our reporting units. Based on our goodwill assessments, the Company has not identified a reporting unit for which the goodwill was impaired in 2018, 2017 or 2016.

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As with goodwill, we assess indefinite-lived tradenames for impairment annually during the second quarter or whenever events or changes in circumstances indicate that impairment may exist. When assessing indefinite-lived tradenames for impairment using a qualitative assessment, we evaluate if changes in events or circumstances have occurred that indicate that impairment may exist. If we do not perform a qualitative impairment assessment or if changes in events and circumstances indicate that a quantitative assessment should be performed, management is required to calculate the fair value of the tradename asset group. The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the tradename asset group's forecasted growth, and royalty rates, which are adjusted for our particular facts and circumstances. The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business. These estimates are highly subjective, and our ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies.

We review other intangible assets for possible impairment whenever circumstances indicate that their carrying amount may not be recoverable. If it is determined that the carrying amount of an other intangible 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.

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 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.

Off-Balance Sheet Arrangements

As of December 31, 2018 , 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

For a description of new accounting standards that could affect the Company, reference the "New Accounting Standards" section of Note 2 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

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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 positively affected net income by approximately $0.4 million and $1.6 million for the year ended December 31, 2018 and 2017 , respectively. A 1% decrease in the average Canadian exchange rate for the year ended December 31, 2018 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 2017, we entered into two interest rate caps with an aggregate notional amount of $800 million to manage our exposure to interest rate movements on our variable rate Credit Facility when three-month LIBOR exceeds 2.0%. The interest rate cap agreements each had an effective date of September 30, 2017 and each mature on September 30, 2019. We paid an aggregate amount of approximately $1.0 million for the caps in August 2017.

In March 2017, we entered into two interest rate caps 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 2.0%. The interest rate cap agreements each had an effective date of March 31, 2017 and each mature on March 31, 2019. We paid an aggregate amount of approximately $0.7 million for the caps in April 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, 2018 would have resulted in an increase in interest expense of approximately $6.0 million. As of December 31, 2018 , the three-month LIBOR rate on Term Loan B-4 and Term Loan B-5 exceeded the 2.0% cap rates. As such, $1.2 billion of our $1.7 billion in variable rate debt is not exposed to interest rate movements as long as three-month LIBOR remains above 2.0% for the duration of the caps.

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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, 2018, 2017 and 2016	74

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017 and 2016	75

Consolidated Balance Sheets as of December 31, 2018 and 2017	76

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2018, 2017 and 2016	78

Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016	79

Notes to Consolidated Financial Statements	80

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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, 2018 , 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, 2018 . During our assessment, we did not identify any material weaknesses in our internal control over financial reporting.

We have excluded the STRATIM and Clearplan acquisitions from our assessment of internal control over financial reporting as of December 31, 2018 because we are continuing to integrate the acquisitions into our corporate processes. The total assets of the 2018 acquisitions represent 0.6% and the total revenues of the 2018 acquisitions represent 0.1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2018. 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, 2018 , also audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2018 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

To the Stockholders and Board of Directors

KAR Auction Services, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of KAR Auction Services, Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, 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, 2018, and the related notes (collectively, the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired STRATIM and Clearplan ("2018 acquisitions") during 2018, and management excluded from its assessment of internal control over financial reporting as of December 31, 2018, the 2018 acquisitions’ internal control over financial reporting associated with total assets of 0.6% and total revenues of 0.1% of the related amounts included in the consolidated financial statements of KAR Auction Services, Inc. and subsidiaries as of and for the year ended December 31, 2018. 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 2018 acquisitions.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2018, the Company has changed its method of accounting for revenue from contracts with customers due to the adoption of Financial Accounting Standards Board Accounting Standard Codification Topic 606, Revenue from Contracts with Customers.

Basis for Opinions

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 the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

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Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ KPMG LLP

We have served as the Company's auditor since 2007.

Indianapolis, Indiana

February 21, 2019

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KAR Auction Services, Inc.

Consolidated Statements of Income

(In millions, except per share data)



	Year Ended December 31,
	2018			2017			2016
Operating revenues
ADESA Auction Services	$	2,101.9		$	1,937.5		$	1,765.3
IAA Salvage Services	1,326.8			1,219.2			1,098.0
AFC	340.9			301.3			286.8
Total operating revenues	3,769.6			3,458.0			3,150.1
Operating expenses
Cost of services (exclusive of depreciation and amortization)	2,142.7			1,987.2			1,827.4
Selling, general and administrative	732.8			640.2			583.1
Depreciation and amortization	269.9			264.6			240.6
Total operating expenses	3,145.4			2,892.0			2,651.1
Operating profit	624.2			566.0			499.0
Interest expense	192.0			164.0			138.8
Other income, net	(3.5		)	(1.9		)	(0.5		)
Loss on extinguishment of debt	—			27.5			5.4
Gain on previously held equity interest value	—			(21.6		)	—
Income before income taxes	435.7			398.0			355.3
Income taxes	107.7			36.0			132.9
Net income	$	328.0		$	362.0		$	222.4
Net income per share
Basic	$	2.44		$	2.66		$	1.62
Diluted	$	2.42		$	2.62		$	1.60
Dividends declared per common share	$	1.40		$	1.31		$	1.19

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,
	2018			2017		2016
Net income	$	328.0		$	362.0	$	222.4
Other comprehensive income (loss)
Foreign currency translation gain (loss)	(36.1		)	24.1		(9.1		)
Comprehensive income	$	291.9		$	386.1	$	213.3

See accompanying notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Balance Sheets

(In millions)



	December 31,
	2018		2017
Assets
Current assets
Cash and cash equivalents	$	337.1	$	317.2
Restricted cash	27.6		19.4
Trade receivables, net of allowances of $12.0 and $11.2	765.6		725.5
Finance receivables, net of allowances of $14.0 and $13.0	2,000.8		1,899.6
Other current assets	183.1		175.7
Total current assets	3,314.2		3,137.4
Other assets
Goodwill	2,213.7		2,191.7
Customer relationships, net of accumulated amortization of $873.7 and $805.0	302.3		375.6
Other intangible assets, net of accumulated amortization of $403.5 and $338.7	358.5		350.6
Other assets	41.3		20.8
Total other assets	2,915.8		2,938.7
Property and equipment, net of accumulated depreciation of $856.6 and $755.1	976.2		908.2
Total assets	$	7,206.2	$	6,984.3

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,
	2018			2017
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	820.3		$	682.7
Accrued employee benefits and compensation expenses	102.5			104.4
Accrued interest	7.9			7.3
Other accrued expenses	186.3			171.5
Income taxes payable	2.9			5.8
Dividends payable	46.5			47.0
Obligations collateralized by finance receivables	1,445.3			1,358.1
Current maturities of long-term debt	13.1			12.4
Total current liabilities	2,624.8			2,389.2
Non-current liabilities
Long-term debt	2,654.3			2,667.7
Deferred income tax liabilities	188.4			192.7
Other liabilities	274.5			249.8
Total non-current liabilities	3,117.2			3,110.2
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:
132,887,029 (2018)
134,315,118 (2017)	1.3			1.3
Additional paid-in capital	1,131.9			1,251.8
Retained earnings	392.3			257.0
Accumulated other comprehensive loss	(61.3		)	(25.2		)
Total stockholders' equity	1,464.2			1,484.9
Total liabilities and stockholders' equity	$	7,206.2		$	6,984.3

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			Retained Earnings			Accumulated Other Comprehensive Loss			Total
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	1.7					17.1									17.1
Surrender of RSUs for taxes	(0.2	)				(10.5		)							(10.5		)
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
Net income									362.0						362.0
Other comprehensive income												24.1			24.1
Issuance of common stock under stock plans	1.1					11.4									11.4
Surrender of RSUs for taxes	(0.1	)				(5.9		)							(5.9		)
Stock-based compensation expense						24.2									24.2
Repurchase and retirement of common stock	(3.3	)	(0.1		)	(149.9		)							(150.0		)
Dividends earned under stock plans						0.9			(0.9		)				—
Cash dividends declared to stockholders ($1.31 per share)									(178.2		)				(178.2		)
Balance at December 31, 2017	134.3		1.3			1,251.8			257.0			(25.2		)	1,484.9
Cumulative effect adjustment for adoption of ASC Topic 606, net of tax									(3.0		)				(3.0		)
Net income									328.0						328.0
Other comprehensive loss												(36.1		)	(36.1		)
Issuance of common stock under stock plans	1.5					15.0									15.0
Surrender of RSUs for taxes	(0.2	)				(10.2		)							(10.2		)
Stock-based compensation expense						23.4									23.4
Repurchase and retirement of common stock	(2.7	)				(150.0		)							(150.0		)
Dividends earned under stock plans						1.9			(1.9		)				—
Cash dividends declared to stockholders ($1.40 per share)									(187.8		)				(187.8		)
Balance at December 31, 2018	132.9		$	1.3		$	1,131.9		$	392.3		$	(61.3	)	$	1,464.2

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,
	2018			2017			2016
Operating activities
Net income	$	328.0		$	362.0		$	222.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	269.9			264.6			240.6
Provision for credit losses	39.1			38.5			40.5
Deferred income taxes	0.1			(93.5		)	(4.2		)
Amortization of debt issuance costs	10.6			10.4			8.8
Stock-based compensation	23.4			24.2			18.1
(Gain) loss on disposal of fixed assets	(0.8		)	(0.8		)	0.1
Loss on extinguishment of debt	—			27.5			5.4
Gain on previously held equity interest value	—			(21.6		)	—
Other non-cash, net	0.2			8.1			9.5
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables and other assets	(66.5		)	(57.4		)	(194.7		)
Accounts payable and accrued expenses	145.8			26.8			31.5
Net cash provided by operating activities	749.8			588.8			378.0
Investing activities
Net increase in finance receivables held for investment	(138.6		)	(148.5		)	(176.4		)
Acquisition of businesses (net of cash acquired)	(45.2		)	(73.3		)	(432.1		)
Purchases of property, equipment and computer software	(198.0		)	(152.2		)	(155.1		)
Advance to equity method investee	—			(5.0		)	—
Proceeds from the sale of property and equipment	0.6			0.7			—
Net cash used by investing activities	(381.2		)	(378.3		)	(763.6		)
Financing activities
Net (decrease) increase in book overdrafts	(8.9		)	8.3			17.7
Net decrease in borrowings from lines of credit	—			(80.5		)	(59.5		)
Net increase in obligations collateralized by finance receivables	101.4			65.0			96.8
Proceeds from long-term debt	—			2,717.0			1,336.5
Payments for debt issuance costs/amendments	(12.5		)	(22.6		)	(32.8		)
Payments on long-term debt	(17.0		)	(2,436.7		)	(662.6		)
Payments on capital leases	(31.3		)	(30.1		)	(25.6		)
Payments of contingent consideration and deferred acquisition costs	(18.3		)	(7.0		)	(3.6		)
Initial net investment for interest rate caps	—			(1.7		)	—
Issuance of common stock under stock plans	15.0			11.4			17.1
Tax withholding payments for vested RSUs	(10.2		)	(5.9		)	(10.5		)
Repurchase and retirement of common stock	(150.0		)	(150.0		)	(80.4		)
Dividends paid to stockholders	(188.3		)	(174.8		)	(157.1		)
Net cash (used by) provided by financing activities	(320.1		)	(107.6		)	436.0
Effect of exchange rate changes on cash	(20.4		)	14.0			(1.9		)
Net increase in cash, cash equivalents and restricted cash	28.1			116.9			48.5
Cash, cash equivalents and restricted cash at beginning of period	336.6			219.7			171.2
Cash, cash equivalents and restricted cash at end of period	$	364.7		$	336.6		$	219.7
Cash paid for interest, net of proceeds from interest rate caps	$	180.8		$	147.1		$	124.5
Cash paid for taxes, net of refunds	$	121.9		$	126.0		$	121.6

See accompanying notes to consolidated financial statements

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements

December 31, 2018 , 2017 and 2016

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"), Nth Gen Software Inc. ("TradeRev") 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 and May 31, 2017, 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 senior secured term loan B-4 facility due March 11, 2021 ("Term Loan B-4"), the senior secured term loan B-5 facility due March 9, 2023 ("Term Loan B-5"), the $350 million , senior secured revolving credit facility due March 9, 2021 (the "revolving credit facility"), the $300 million , five -year senior secured revolving credit facility (the "2016 revolving credit facility") and the $250 million , five -year senior secured revolving credit facility (the "2014/2015 revolving credit facility"), the terms of which are set forth in the Credit Agreement. Term Loan B-1 and the 2014/2015 revolving credit facility were extinguished in March 2016 with proceeds received from Term Loan B-3. Term Loan B-2, Term Loan B-3 and the 2016 revolving credit facility were repaid in May 2017 with proceeds from Term Loan B-4, Term Loan B-5 and the senior notes (defined below);


•	"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");


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


•	"Senior notes" refers to the 5.125% senior notes due 2025 ( $950 million aggregate principal outstanding at December 31, 2018).

Business and Nature of Operations

As of December 31, 2018 , we have a North American network of 75 ADESA whole car auction sites and 179 IAA salvage vehicle auction sites; in addition, we offer online auctions for both whole car and salvage vehicles. ADESA also includes TradeRev, an online automotive remarketing system where dealers can launch and participate in real-time vehicle auctions at any time and ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom. IAA also includes HBC Vehicle Services Limited, which operates from 14 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

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

customers, the Company 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 127 locations throughout the United States and Canada as of December 31, 2018 . Floorplan financing supports independent used vehicle dealers in North America who purchase vehicles at ADESA, IAA, TradeRev, 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.

Potential Spin-off of IAA

The Company expects to complete the spin-off in 2019. The Company may, at any time and for any reason until the proposed transaction is complete, abandon, modify or change the terms of the spin-off. There can be no assurance as to whether or when the spin-off will occur. IAA Spinco filed its initial Registration Statement on Form 10 on June 28, 2018, Amendment No. 1 to its Registration Statement on Form 10 on August 30, 2018 and Amendment No. 2 to its Registration Statement on Form 10 on November 20, 2018.

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 changes in litigation and other loss contingencies.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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 four 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.

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 $3.9 million for the year ended December 31, 2018 , a gain of $0.8 million for the year ended December 31, 2017 and a loss of $0.7 million for the year ended December 31, 2016 . 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

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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 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, the senior notes 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. Debt issuance costs are presented as a direct reduction from the carrying amount of the related debt liability.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

Other Assets

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

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 trade payables and 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 $153.8 million and $162.7 million at December 31, 2018 and 2017 , 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. 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

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. Topic 606 also requires additional disclosures to help financial statement users better understand the nature, amount, timing and uncertainty of revenue that is recognized. In preparation for the adoption of Topic 606, we assessed our contracts with customers, evaluated our revenue streams and compared current accounting practices to those required under the new standard. As a result of these efforts, we identified certain impacts to the presentation and timing of revenue recognition for a contract liability (deferred revenue) related to a material right associated with certain volume-related rebates. We have implemented the appropriate changes to our processes and controls to support recognition and disclosure under Topic 606.

We adopted Topic 606 in the first quarter of 2018 using the modified retrospective transition method and recognized the cumulative effect of initially applying the new standard as a decrease of $3.0 million to the opening balance of retained earnings . Prior periods have not been retrospectively adjusted.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

There were no material contract assets, contract liabilities or deferred contract costs recorded on the consolidated balance sheet as of December 31, 2018 . For each of our primary revenue streams, cash flows are consistent with the timing of revenue recognition.

For the year ended December 31, 2018 , revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less and contracts where revenue is recognized as invoiced, is not material.

Revenue is recognized when control of the promised goods or services are transferred to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company generates its revenues from contracts with customers. In contracts with multiple performance obligations, the Company identifies each performance obligation and evaluates whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined. The Company allocates the transaction price to each distinct performance obligation proportionately based on the estimated standalone selling price for each performance obligation. The Company then determines how the goods or services are transferred to the customer in order to determine the timing of revenue recognition.

ADESA Auction Services

The performance obligation contained within the ADESA auction contracts for sellers is facilitating the remarketing of vehicles, including titling, administration and sale at auction. The remarketing performance obligation is satisfied at the point in time the vehicle is sold through the auction process. The ADESA ancillary services contracts include services such as inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification and collateral recovery services. The performance obligations related to these services are subject to separate contracts and are satisfied at the point in time the services are completed.

Most of the vehicles that are sold through auctions are 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 records only its auction fees as revenue because it has no influence on the vehicle auction selling price agreed to by the seller and the buyer at the auction. Our buyer fees are typically based on a tiered structure with fees increasing with the sale price of the vehicle, while seller fees are typically fixed. ADESA generally enforces its rights to payment for seller transactions through net settlement provisions following the sale of a vehicle.

IAA Salvage Services

The performance obligation contained within the IAA auction contracts for sellers is facilitating the remarketing of salvage vehicles, including the inbound tow, processing, storage, titling, enhancing and sale at auction. The remarketing performance obligation is satisfied at the point in time the vehicle is sold through the auction process. Related costs are deferred and recognized at the time of sale.

Contracts with buyers are generally established via purchase at auction, subject to standard terms and conditions. These contracts contain a single performance obligation, which is satisfied at a point in time when the vehicle is purchased through the auction process. Buyers pay a registration fee to access the auctions for a one-year term in addition to the fees paid upon purchase of a vehicle. The performance obligation to provide access to the auctions, associated with the registration, is satisfied ratably over the one-year contractual term of the buyer agreement.

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 records only its auction fees as revenue because it has no influence on the vehicle auction selling price agreed to by the seller and the buyer at the auction. Our buyer fees are typically based on a tiered structure with fees increasing with the sale price of the vehicle, while seller fees are typically fixed. IAA generally enforces its rights to payment for seller transactions through net settlement provisions following the sale of a vehicle.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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)	2018			2017			2016
Interest and fee income	$	327.3		$	290.3		$	275.1
Other revenue	13.1			11.8			10.3
Provision for credit losses	(32.9		)	(33.9		)	(30.7		)
Other service revenue	33.4			33.1			32.1
	$	340.9		$	301.3		$	286.8

Interest and fee income

Revenues associated with interest and fee income are accounted for in accordance with ASC 310-20, Nonrefundable Fees and Other Costs, and therefore are not subject to evaluation under Topic 606. 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 estimated life of the finance receivable.

Other revenue

Other revenue includes lot check fees, filing fees, lien holder payoff services and other related program fees, 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 receives advance payments for vehicle service contracts and unearned revenue is deferred and recognized over the terms of the contracts utilizing a historical earnings curve. The average term of the contracts originated in 2018 was approximately 1.8 years and PWI had unearned revenue of $34.0 million at December 31, 2018 .

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 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.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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. We also recognize the impact of forfeitures as they occur and excess tax benefits and tax deficiencies related to employee stock-based compensation within income tax expense.

New Accounting Standards

In May 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting , which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance is expected to reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Changes that do not impact the fair value, vesting conditions or classification of an award will not require modification accounting. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU 2017-09 in the first quarter of 2018 and the adoption did not have a material impact on the consolidated financial statements.

In November 2016, the 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. The Company adopted ASU 2016-18 in the first quarter of 2018 and the adoption resulted in an increase of $1.5 million and $1.7 million in net cash used by investing activities for the years ended December 31, 2017 and 2016 , respectively. The increase related to reclassifying the changes in our restricted cash balance from investing activities to the cash and cash equivalents balances within the consolidated statements of cash flows.

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. The Company adopted ASU 2016-15 in the first quarter of 2018 and the adoption did not have a material impact on the consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2018-15 will have on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by eliminating Step 2 (implied fair value measurement). Instead goodwill impairment would be measured as the amount by which a reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance is effective for annual periods

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of ASU 2017-04 will have a material impact on the consolidated financial statements.

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, however we do not expect that it will have a material impact based on the short-term nature of AFC's loans.

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. As permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements , the Company expects to apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption relating to the derecognition of existing liabilities and assets associated with certain sale leaseback transactions that currently do not qualify for sale accounting. In addition, the Company currently expects to recognize additional operating liabilities of approximately $1 billion with related right of use assets of approximately $900 million based on the present value of the remaining minimum rental payments for existing operating leases. In addition, our Credit Agreement specifies that the net debt covenant shall continue to be calculated as if the accounting standard had not been adopted 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.

Note 3—Acquisitions and Equity Method Investment

2018 Acquisitions

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

2017 Acquisitions

In April 2017, the Company purchased all of the stock of CarCo Technologies, Inc. (“DRIVIN”). DRIVIN aggregates automotive retail, pricing, registration and other market and economic data from a variety of public and proprietary sources. The insights generated from that data are deployed through predictive pricing, inventory management and vehicle matching tools that help customers buy, sell and source vehicles.

In May 2017, the Company acquired Dependable Auto Shippers ("DAS"). DAS provides vehicle transportation services for corporate and personal vehicle transportation needs.

In October 2017, the Company acquired the remaining 50% interest in Nth Gen Software Inc. ("TradeRev"). TradeRev brings mobile and digital technology to the Company’s portfolio of whole car and salvage auctions, floorplan financing solutions, and other ancillary and related services. The Company plans to further integrate those capabilities into TradeRev to expand its digital business and strengthen its share in the dealer-to-dealer market. The Company entered into operating lease obligations related to various facilities through 2028. I nitial annual lease payments for the various facilities are approximately $1.8 million per year.

In December 2017, the Company acquired POIS, Inc. POIS provides loan payoff and lien release technology with a focus on helping insurance companies settle liens faster to improve cycle time/inventory turns.

Certain of the purchase agreements included contingent payments related to vehicle volumes subsequent to the purchase date. The purchased assets included accounts receivable, inventory, customer relationships, tradenames, software 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 2017, net of cash acquired, was approximately $103.9 million , which included deferred payments with a fair value of $6.6 million and estimated contingent payments with a fair value of $24.0 million . The maximum amount of undiscounted contingent payments related to these acquisitions could approximate $60.0 million . The purchase price for the acquired businesses was allocated to acquired assets and liabilities based upon fair values, including $29.4 million to intangible assets, representing the fair value of acquired customer relationships of $3.1 million , software of $24.0 million and tradenames of $2.3 million , which are being amortized over their expected useful lives. The acquisitions resulted in aggregate goodwill of $130.7 million . The goodwill is recorded in the ADESA Auctions reportable segment. 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, 2017.

2016 Acquisitions

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, 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,

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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 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 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.

Equity Method Investment

For the first nine months of 2017, ADESA held a 50% interest in TradeRev. In addition, ADESA also had 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. Prior to acquiring the rest of the business in October 2017, the Company accounted for TradeRev as an equity method investment because we had the ability to exercise significant influence over operating and financial policies but did not have a controlling financial interest. At the date of acquisition, the carrying amount of the investment was $18.4 million . Upon acquisition, our previously held interest in TradeRev was re-measured at fair value, resulting in a non-cash gain of $21.6 million . The fair value of our previously held interest in TradeRev was developed in consultation with independent valuation specialists who used a discounted cash flow methodology. The gain has been recognized as "Gain on previously held equity interest value" in the consolidated statement of income for the year ended December 31, 2017.

The Company’s share in the net losses of TradeRev in 2017, through the date of acquisition, was $4.4 million and the Company's share in the net losses of TradeRev for fiscal year 2016 was $3.8 million . 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 determined that the KAR Auction Services, Inc. PRSUs, RSUs, service options and exit options should be classified as equity awards.

The compensation cost that was charged against income for all stock-based compensation plans was $23.4 million , $24.2 million and $18.1 million for the years ended December 31, 2018 , 2017 and 2016 , respectively, and the total income tax benefit recognized in the consolidated statement of income for options, PRSUs and RSUs was approximately $4.8 million , $6.1 million and $6.9 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. We did not capitalize any stock-based compensation cost in the years ended December 31, 2018 , 2017 or 2016 .

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



	Year Ended December 31,
	2018		2017		2016
PRSUs	$	12.0	$	13.2	$	10.3
RSUs	11.2		9.5		5.9
Service options	0.2		1.5		1.9
Total stock-based compensation expense	$	23.4	$	24.2	$	18.1

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, which was approved by shareholders and amended and restated in June 2014, is intended to provide

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

equity and/or cash-based awards to our executive officers and key employees. The maximum number of shares that may be issued pursuant to awards under the Omnibus Plan is 12.5 million , of which approximately 5.3 million shares remained available for future grants as of December 31, 2018. The Omnibus Plan provides for the grant of stock 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 2018, we granted a target amount of approximately 0.2 million PRSUs to certain executive officers and management of the Company. The PRSUs generally vest if and to the extent that the Company's three -year cumulative operating adjusted net income per share attains certain specified goals. The weighted average grant date fair value of the PRSUs was $54.32 per share, which was determined using the closing price of the Company's common stock on the dates of grant.

In 2017, we granted a target amount of approximately 0.2 million PRSUs to certain executive officers and management of the Company. The PRSUs generally vest if and to the extent that the Company's three -year cumulative operating adjusted net income per share attains certain specified goals. The weighted average grant date fair value of the PRSUs was $44.64 per share, which was determined using the closing price of the Company's common stock on the dates of grant.

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 cumulative operating adjusted net income 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 vested in 2018 based on attainment of the Company's three -year cumulative adjusted net income per share 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 vested three years from the grant date to the extent that the Company's total shareholder return relative to that of companies within the S&P 500 Index exceeded certain levels over the same period. The other half of the PRSUs vested to the extent that the Company's three -year adjusted earnings per share attained 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.

As of December 31, 2018, an estimated $11.1 million of unrecognized compensation expense related to nonvested PRSUs is expected to be recognized over a weighted average term of approximately 1.7 years. Dividend equivalents accrue on the PRSUs and are subject to the same vesting and forfeiture terms as the PRSUs.

RSUs

In 2018, 2017 and 2016, approximately 0.3 million RSUs were granted to certain executive officers and management of the Company. The RSUs are contingent upon continued employment and generally 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 $54.28 per share, $44.03 per share and $34.91 per share in 2018, 2017 and 2016, respectively. Dividend equivalents accrue on the RSUs and are subject to the same vesting and forfeiture terms as the RSUs.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

The following table summarizes RSU activity, excluding dividend equivalents, under the Omnibus Plan for the year ended December 31, 2018:



Restricted Stock Units	Number		Weighted Average Grant Date Fair Value
RSUs at January 1, 2018	531,218		$	40.18
Granted	322,732		54.28
Vested	(243,556	)	39.16
Forfeited	(77,330	)	49.20
RSUs at December 31, 2018	533,064		$	47.87

As of December 31, 2018, there was approximately $14.9 million of unrecognized compensation expense related to nonvested RSUs which is expected to be recognized over a weighted average term of 1.8 years. The fair value of shares that vested during the years ended December 31, 2018, 2017 and 2016 was $29.7 million , $14.7 million and $22.5 million , respectively.

Service Options

The outstanding service options granted under the Omnibus Plan have a ten year life and are fully vested and exercisable.

Exit Options

The outstanding exit options granted in 2010 under the Omnibus Plan have a ten year life and are fully vested and exercisable.

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

We adopted the KAR Auction Services, Inc. Stock Incentive Plan (the "Plan") in May 2007. Awards granted since the adoption of the Plan were non-qualified stock options, and with the inception of the Omnibus Plan, no further grants will be awarded under the Plan. The Plan provided two types of stock options: service-related options and performance-related exit options. All of the outstanding service option and exit option grants under the Plan occurred prior to 2010 and have a ten year life. In addition, all of the service options and exit options outstanding under the Plan are fully vested and exercisable.

Service Options Summary

The following table summarizes service option activity under the Omnibus Plan and the Plan for the year ended December 31, 2018 :



Service Options	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2018	1,379,589		$	23.54
Granted	—		N/A
Exercised	(364,295	)	21.01
Forfeited	(10,515	)	30.44
Canceled	(1,125	)	16.39
Outstanding at December 31, 2018	1,003,654		$	24.36	4.3 years	$	23.4
Exercisable at December 31, 2018	1,003,654		$	24.36	4.3 years	$	23.4

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

total intrinsic value of service options exercised during the years ended December 31, 2018 , 2017 and 2016 was $13.1 million , $8.1 million and $9.6 million , respectively. The fair market value of all vested and exercisable service options at December 31, 2018 and 2017 was $47.9 million and $55.3 million , respectively. All compensation expense related to the service options has been recognized.

Exit Options Summary

The following table summarizes exit option activity under the Omnibus Plan and the Plan for the year ended December 31, 2018 :



Exit Options	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2018	545,576		$	12.46
Granted	—		N/A
Exercised	(527,736	)	12.42
Forfeited	—		N/A
Canceled	(3,375	)	16.39
Outstanding at December 31, 2018	14,465		$	12.85	1.0 year	$	0.5
Exercisable at December 31, 2018	14,465		$	12.85	1.0 year	$	0.5

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, 2018 . 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 $47.72 on December 31, 2018 . The total intrinsic value of exit options exercised during the years ended December 31, 2018 , 2017 and 2016 was $23.9 million , $14.7 million and $23.8 million , respectively. The fair market value of all vested and exercisable exit options at December 31, 2018 and 2017 was $0.7 million and $27.6 million , respectively. All compensation expense related to the exit options was recognized prior to 2015.

KAR Auction Services, Inc. Employee Stock Purchase Plan

We adopted the KAR Auction Services, Inc. Employee Stock Purchase Plan ("ESPP") in December 2009. The ESPP, which was approved by shareholders, is designed to provide an incentive to attract, retain and reward eligible employees and is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. A maximum of 1,000,000 shares of our common stock have been reserved for issuance under the ESPP, of which 370,738 shares remained available for future ESPP purchases as of December 31, 2018 . 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. A participant's annual contribution to the ESPP may not exceed $25,000 per year. Unless terminated earlier, the ESPP will terminate on December 31, 2028. In accordance with ASC 718, Compensation—Stock Compensation , the entire 15% purchase discount is recorded as compensation expense.

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. In 2018, 2017 and 2016 we repurchased and retired 2,695,978 , 3,279,089 and 1,931,200 shares of common stock, respectively, in the open market at a weighted average price of $55.64 , $45.74 and $41.61 per share, respectively, 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

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. 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.

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,
	2018		2017		2016
Net income	$	328.0	$	362.0	$	222.4
Weighted average common shares outstanding	134.3		136.3		137.6
Effect of dilutive stock options and restricted stock awards	1.4		1.7		1.5
Weighted average common shares outstanding and potential common shares	135.7		138.0		139.1
Net income per share
Basic	$	2.44	$	2.66	$	1.62
Diluted	$	2.42	$	2.62	$	1.60

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, 2018 , 2017 and 2016 , respectively. In addition, approximately 0.5 million PRSUs were excluded from the calculation of diluted net income per share for the years ended December 31, 2018 , 2017 and 2016 . Total options outstanding at December 31, 2018 , 2017 and 2016 were 1.0 million , 1.9 million and 2.7 million , respectively.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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,
	2018			2017			2016
Allowance for Credit Losses
Balance at beginning of period	$	13.0		$	12.0		$	9.0
Provision for credit losses	32.9			33.9			30.7
Recoveries	6.9			5.3			4.2
Less charge-offs	(38.8		)	(38.2		)	(31.9		)
Balance at end of period	$	14.0		$	13.0		$	12.0

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

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



	Year Ended December 31,
	2018			2017			2016
Allowance for Doubtful Accounts
Balance at beginning of period	$	11.2		$	13.0		$	6.6
Provision for credit losses	6.2			4.6			9.8
Less net charge-offs	(5.4		)	(6.4		)	(3.4		)
Balance at end of period	$	12.0		$	11.2		$	13.0

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

In December 2016, AFC and AFC Funding Corporation entered into the Seventh Amended and Restated Receivables Purchase Agreement. The Seventh Amended and Restated Receivables Purchase Agreement increased AFC Funding's U.S. committed liquidity and extended the facility's maturity date. 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 Seventh Amended and Restated 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. In March 2016, we also capitalized approximately $0.8 million of costs in connection with an amendment to the agreement.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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$175 million at December 31, 2018 . In December 2018, AFCI entered into Amending Agreement No. 2 to the Fourth Amended and Restated Receivables Purchase Agreement (the "Canadian Receivable Purchase Agreement"). The Canadian Receivables Purchase Agreement increased AFCI's committed liquidity from C$125 million to C$175 million and extended the facility's maturity date from January 31, 2020 to January 28, 2022. In addition, the definition of eligible receivables was expanded. We capitalized approximately $0.9 million of costs in connection with the Canadian Receivables Purchase Agreement. In December 2016, AFCI entered into the Fourth Amended and Restated Receivables Purchase Agreement. The Fourth Amended and Restated Receivables Purchase Agreement extended the facility's maturity date. We capitalized approximately $0.7 million of costs in connection with the Fourth 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.

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, 2018				Net Credit Losses During 2018
	Total Amount of:
(in millions)	Receivables		Receivables Delinquent
Floorplan receivables	$	2,001.9	$	15.9	$	31.9
Other loans	12.9		—		—
Total receivables managed	$	2,014.8	$	15.9	$	31.9



	December 31, 2017				Net Credit Losses During 2017
	Total Amount of:
(in millions)	Receivables		Receivables Delinquent
Floorplan receivables	$	1,901.1	$	12.1	$	32.9
Other loans	11.5		—		—
Total receivables managed	$	1,912.6	$	12.1	$	32.9

AFC's allowance for losses was $14.0 million and $13.0 million at December 31, 2018 and 2017 , respectively.

As of December 31, 2018 and 2017 , $1,973.2 million and $1,893.2 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, 2018			December 31, 2017
Obligations collateralized by finance receivables, gross	$	1,464.7		$	1,371.4
Unamortized securitization issuance costs	(19.4		)	(13.3		)
Obligations collateralized by finance receivables	$	1,445.3		$	1,358.1

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

Note 8—Goodwill and Other Intangible Assets

Goodwill consisted of the following ( in millions ):



	ADESA Auctions			IAA			AFC		Total
Balance at December 31, 2016	$	1,256.9		$	536.4		$	263.7	$	2,057.0
Increase for acquisition activity	130.7			—			—		130.7
Other	2.8			1.2			—		4.0
Balance at December 31, 2017	$	1,390.4		$	537.6		$	263.7	$	2,191.7
Increase for acquisition activity	32.1			—			—		32.1
Other	(9.3		)	(0.8		)	—		(10.1		)
Balance at December 31, 2018	$	1,413.2		$	536.8		$	263.7	$	2,213.7

Goodwill represents the excess cost over fair value of identifiable net assets of businesses acquired. Goodwill increased in 2018 and 2017 primarily as a result of acquisitions. A portion of the goodwill resulting from the businesses acquired in 2018 and 2017 is expected to be deductible for tax purposes. The "other" category includes the impact of fluctuations in exchange rates.

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



		December 31, 2018							December 31, 2017
	Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization			Carrying Value		Gross Carrying Amount		Accumulated Amortization			Carrying Value
Customer relationships	5 - 19	$	1,176.0	$	(873.7	)	$	302.3	$	1,180.6	$	(805.0	)	$	375.6

The decrease in customer relationships in 2018 is primarily a result of continued amortization. The increase in customer relationships in 2017 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, 2018							December 31, 2017
	Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization			Carrying Value		Gross Carrying Amount		Accumulated Amortization			Carrying Value
Tradenames	2 - Indefinite	$	203.4	$	(10.3	)	$	193.1	$	203.4	$	(8.6	)	$	194.8
Computer software & technology	3 - 13	543.6		(378.5		)	165.1		470.9		(315.6		)	155.3
Covenants not to compete	1 - 5	15.0		(14.7		)	0.3		15.0		(14.5		)	0.5
Total		$	762.0	$	(403.5	)	$	358.5	$	689.3	$	(338.7	)	$	350.6

Other intangibles increased in 2018 and 2017 primarily as a result of computer software additions and acquisitions, partially offset by the amortization of existing intangibles. The carrying amount of tradenames with an indefinite life was approximately $187.5 million at December 31, 2018 and 2017.

Amortization expense for customer relationships and other intangibles was $155.4 million , $162.6 million and $151.0 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. Estimated amortization expense on existing intangible assets for the next five years is $137.4 million for 2019 , $102.0 million for 2020 , $59.3 million for 2021 , $38.0 million for 2022 and $34.8 million for 2023 .

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

Note 9—Property and Equipment

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



	Useful Lives (in years)	December 31,
	Useful Lives (in years)	2018			2017
Land		$	295.4		$	270.9
Buildings	5 - 40	245.5			249.5
Land improvements	5 - 20	173.3			173.8
Building and leasehold improvements	3 - 33	520.7			436.8
Furniture, fixtures and equipment	1 - 10	520.9			456.4
Vehicles	3 - 10	22.5			22.3
Construction in progress		54.5			53.6
		1,832.8			1,663.3
Accumulated depreciation		(856.6		)	(755.1		)
Property and equipment, net		$	976.2		$	908.2

Depreciation expense for the years ended December 31, 2018 , 2017 and 2016 was $114.5 million , $102.0 million and $89.6 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	2018			2017
Furniture, fixtures and equipment	$	210.1		$	180.0
Accumulated depreciation	(145.6		)	(119.2		)
Capital lease assets	$	64.5		$	60.8

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 had insurance coverage that limited the total exposure to overall automobile, general liability and workers' compensation claims in 2016. 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,
	2018			2017			2016
Balance at beginning of period	$	45.3		$	43.1		$	36.1
Net payments	(85.0		)	(85.2		)	(76.5		)
Expense	84.0			87.4			83.5
Balance at end of period	$	44.3		$	45.3		$	43.1

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Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

Individual stop-loss coverage for medical benefits was $0.5 million in 2018 , 2017 and 2016. 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 2018 , 2017 and 2016 policy years. Once the $1.0 million corridor deductible is met for workers' compensation claims, the deductible reverts back to $0.5 million per occurrence. These retentions are aggregated for workers’ compensation, automobile and general liability claims at approximately $31.5 million in 2018 and $30.0 million in 2017. If these aggregates are met, the insurance company would pay the next $7.5 million . The aggregate policy for combined automobile, general liability and workers' compensation program for 2016 limited the Company's exposure to $30.4 million .

Note 11—Long-Term Debt

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



				December 31,
	Interest Rate*		Maturity	2018			2017
Term Loan B-4	Adjusted LIBOR	+ 2.25%	March 11, 2021	$	704.4		$	711.3
Term Loan B-5	Adjusted LIBOR	+ 2.50%	March 9, 2023	1,031.5			1,041.6
Revolving credit facility	Adjusted LIBOR	+ 2.0%	March 9, 2021	—			—
Senior notes		5.125%	June 1, 2025	950.0			950.0
Canadian line of credit	CAD Prime	+ 0.50%	Repayable upon demand	—			—
Total debt				2,685.9			2,702.9
Unamortized debt issuance costs				(18.5		)	(22.8		)
Current portion of long-term debt				(13.1		)	(12.4		)
Long-term debt				$	2,654.3		$	2,667.7

*The interest rates presented in the table above represent the rates in place at December 31, 2018 . The weighted average interest rate on our variable rate debt was 5.21% and 4.15% at December 31, 2018 and 2017 , respectively.

On May 31, 2017, the Company used proceeds from the issuance of $950 million senior notes and proceeds from the issuance of $1,767 million in the aggregate of Term Loan B-4 and Term Loan B-5 to repay Term Loan B-2 and Term Loan B-3 in full and to repay the outstanding balance on the revolving credit facility.

Credit Facility

On May 31, 2017, we entered into an Incremental Commitment Agreement and Second Amendment (the "Second Amendment") to the Credit Agreement. The Second Amendment provided for, among other things, (i) the refinancing and repricing of the existing tranche B-2 term loans ("Term Loan B-2") remaining after the repayment with new tranche B-4 term loans in an aggregate principal amount of $717 million ("Term Loan B-4"), (ii) the refinancing and repricing of existing tranche B-3 term loans ("Term Loan B-3") remaining after the repayment with new tranche B-5 term loans in an aggregate principal amount of $1.05 billion ("Term Loan B-5") and (iii) a $350 million senior secured revolving credit facility (the "revolving credit facility"). A portion of the proceeds received from the issuance of the senior notes was used to repay a portion of Term Loan B-2 and Term Loan B-3, as well as the outstanding balance on the 2016 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 $27.5 million in the second quarter of 2017. The loss was a result of the write-off of unamortized debt issue costs and debt discounts associated with Term Loan B-2 and Term Loan B-3. We capitalized approximately $7.8 million of debt issuance costs in connection with the Second Amendment.

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 "2016 revolving credit facility"), which replaced the previously existing revolving credit facility (the "2014/2015 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 second revolving credit facility. No early termination penalties were incurred by the Company; however, we

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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 2014/2015 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 $90 million is available for swing line loans.

Both Term Loan B-4 and Term Loan B-5 are payable in quarterly installments equal to 0.25% of their respective original aggregate principal amounts. Such payments commenced on September 30, 2017, 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 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 $4.8 million and $7.0 million of Term Loan B-4 and Term Loan B-5, respectively, for the year ended December 31, 2018 . 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-4 and Term Loan B-5 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, 2018 .

As set forth in the Credit Agreement, Term Loan B-4 bears interest at Adjusted LIBOR (as defined in the Credit Agreement) plus 2.25% , Term Loan B-5 at Adjusted LIBOR plus 2.50% and revolving loan borrowings at Adjusted LIBOR plus 2.0% . However, for specified types of borrowings, the Company may elect to make Term Loan B-4 borrowings at a Base Rate (as defined in the Credit Agreement) plus 1.25% , Term Loan B-5 at a Base Rate plus 1.50% and revolving loan borrowings at a Base Rate plus 1.0% . The rates on Term Loan B-4 and Term Loan B-5 were 5.06% and 5.31% at December 31, 2018 , respectively. In addition, if the Company's Consolidated Senior Secured Leverage Ratio (as defined in the Credit Agreement), which is based on a net debt calculation, increases to levels specified in the Credit Agreement, the applicable interest rate on the revolving credit facility will step up by 25 basis points. The Company also pays a commitment fee of 30 to 35 basis points, payable quarterly, on the average daily unused amount of the revolving credit facility based on the Company's Consolidated Senior Secured Leverage Ratio as described above.

There were no borrowings on the revolving credit facility at December 31, 2018 or 2017 . In addition, we had related outstanding letters of credit in the aggregate amount of $32.9 million and $42.8 million at December 31, 2018 and 2017 , respectively, which reduce the amount available for borrowings under the respective revolving credit facility.

Senior Notes

On May 31, 2017, we issued $950 million of 5.125% senior notes due June 1, 2025. The Company pays interest on the senior notes semi-annually in arrears on June 1 and December 1 of each year, which commenced on December 1, 2017. We may redeem the senior notes, in whole or in part, at any time prior to June 1, 2020 at a redemption price equal to 100% of the principal amount plus a make-whole premium and thereafter at a premium that declines ratably to par in 2023. We capitalized approximately $14.7 million of debt issuance costs in connection with the senior notes. The senior notes are guaranteed by the Subsidiary Guarantors.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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, 2018 or 2017 . There were related letters of credit outstanding totaling approximately C$1.0 million at December 31, 2018 and 2017 , 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.

Future Principal Payments

At December 31, 2018 , aggregate future principal payments on long-term debt are as follows ( in millions ):



2019	$	13.1
2020	17.7
2021	702.4
2022	10.5
2023	992.2
Thereafter	950.0
	$	2,685.9

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 August 2017, we entered into two interest rate caps with an aggregate notional amount of $800 million to manage our exposure to interest rate movements on our variable rate Credit Facility when three-month LIBOR exceeds 2.0% . The interest rate cap agreements each had an effective date of September 30, 2017 and each mature on September 30, 2019. We paid an aggregate amount of approximately $1.0 million for the caps in August 2017.

•

In March 2017, we entered into two interest rate caps 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 2.0% . The interest rate cap agreements each had an effective date of March 31, 2017 and each mature on March 31, 2019. We paid an aggregate amount of approximately $0.7 million for the caps in April 2017.

•

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 when three-month LIBOR (i) exceeded 2.0% between August 19, 2015 (the effective date) and September 29, 2016 and (ii) exceeded 1.75% between September 30, 2016 and August 19, 2017 (the maturity date).


•	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 exceeded 1.5% . The interest rate cap agreements each had an effective date of April 16, 2015 and each matured on March 31, 2017.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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, 2018

December 31, 2017

Derivatives Not Designated as Hedging Instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

2017 Interest rate caps

Other assets

5.2

Other assets

2.6

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		2018		2017		2016
2017 Interest rate caps	Interest expense	$	5.8	$	0.8	N/A
2015 Interest rate caps	Interest expense	N/A		—		$	(0.7	)

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, 2018 and 2017 , the estimated fair value of our long-term debt amounted to $2,537.9 million and $2,735.1 million , respectively. The estimates of fair value were based on broker-dealer quotes for our debt as of December 31, 2018 and 2017 . The estimates presented on long-term financial instruments are not necessarily indicative of the amounts that would be realized in a current market exchange.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

Note 13—Leasing Agreements

We lease property, computer equipment and software, automobiles, trucks and trailers, pursuant to operating lease agreements with terms expiring through 2038. 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.

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, 2018 are as follows ( in millions ):



	Operating Leases		Capital Leases
2019	$	147.9	$	27.5
2020	131.2		22.0
2021	123.5		9.3
2022	114.2		0.1
2023	103.9		0.1
Thereafter	780.2		—
	$	1,400.9	$	59.0
Less: interest portion of capital leases			3.4
Total			$	55.6

Total lease expense for the years ended December 31, 2018 , 2017 and 2016 was $183.5 million , $163.5 million and $134.8 million , respectively.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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,
	2018			2017			2016
Income before income taxes:
Domestic	$	340.9		$	290.4		$	265.8
Foreign	94.8			107.6			89.5
Total	$	435.7		$	398.0		$	355.3
Income tax expense (benefit):
Current:
Federal	$	59.8		$	89.1		$	100.1
Foreign	32.0			30.3			22.9
State	15.8			10.1			14.1
Total current provision	107.6			129.5			137.1
Deferred:
Federal	9.1			(96.1		)	(1.6		)
Foreign	(6.8		)	(3.6		)	(2.4		)
State	(2.2		)	6.2			(0.2		)
Total deferred provision	0.1			(93.5		)	(4.2		)
Income tax expense	$	107.7		$	36.0		$	132.9

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,
	2018		2017		2016
Statutory rate	21.0	%	35.0	%	35.0	%
State and local income taxes, net	2.8	%	2.3	%	2.4	%
Reserves for tax exposures	—	%	(0.1	)%	(0.2	)%
Change in valuation allowance	0.1	%	(0.6	)%	0.6	%
International operations	2.1	%	(3.1	)%	(0.8	)%
Stock-based compensation	(1.9	)%	(1.6	)%	—	%
Impact of law and rate change	(0.6	)%	(23.2	)%	—	%
Excess officer's compensation	0.3	%	—	%	—	%
Transaction costs	0.5	%	—	%	—	%
Other, net	0.4	%	0.3	%	0.4	%
Effective rate	24.7	%	9.0	%	37.4	%

On December 22, 2017, U.S. tax reform (Tax Cuts and Jobs Act of 2017) was enacted. The law includes significant changes to the U.S. corporate income tax system, including a Federal corporate income tax rate reduction from 35 percent to 21 percent effective for tax years beginning after December 31, 2017. As a result, for the year ended December 31, 2017, the Company recorded a deferred income tax benefit of $102.7 million related to the remeasurement of its deferred tax assets and liabilities. In addition, the law imposed a one-time deemed repatriation transition tax on the accumulated unrepatriated and untaxed earnings of our foreign subsidiaries. This resulted in the Company recording a current tax expense of $11.1 million for the year ended December 31, 2017.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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, 2018 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 ):



	2018			2017
Gross deferred tax assets:
Allowances for trade and finance receivables	$	6.1		$	5.8
Accruals and liabilities	62.8			50.5
Employee benefits and compensation	18.7			22.7
Net operating loss carryforwards	45.5			38.7
Investment basis difference	(2.1		)	(2.1		)
Other	6.6			9.6
Total deferred tax assets	137.6			125.2
Deferred tax asset valuation allowance	(29.9		)	(28.1		)
Total	107.7			97.1
Gross deferred tax liabilities:
Property and equipment	(112.1		)	(94.3		)
Goodwill and intangible assets	(167.5		)	(179.6		)
Other	(16.5		)	(15.9		)
Total	(296.1		)	(289.8		)
Net deferred tax liabilities	$	(188.4	)	$	(192.7	)

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



2019	$	0.4
2020	0.7
2021	0.6
2022	0.2
2023	0.3
2024 to 2038	43.3
	$	45.5

Permanently reinvested undistributed earnings of our foreign subsidiaries were approximately $350.8 million at December 31, 2018 . 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, state and local income tax expense and withholding tax expense would need to be recognized, 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 $67.2 million , $81.5 million and $79.2 million in 2018 , 2017 and 2016 , respectively. State and foreign income taxes paid by us, net of refunds, totaled $54.7 million , $44.5 million and $42.4 million in 2018 , 2017 and 2016 , respectively.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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,
	2018			2017
Balance at beginning of period	$	11.7		$	14.0
Increase in prior year tax positions	—			0.2
Decrease in prior year tax positions	(0.7		)	—
Increase in current year tax positions	1.8			1.6
Lapse in statute of limitations	(2.4		)	(4.1		)
Balance at end of period	$	10.4		$	11.7

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $7.5 million and $7.8 million at December 31, 2018 and 2017 .

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 $1.2 million and $2.4 million in 2018 and 2017 , 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 2012.

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 $1.8 million to $2.4 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, 2018 , 2017 and 2016 we contributed $16.9 million , $15.5 million and $13.0 million , respectively.

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Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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. There were no liabilities for environmental matters included in "Other accrued expenses" at December 31, 2018 and there were $0.1 million at December 31, 2017 . 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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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

that the Elliott Bay Trustee Council were beginning to conduct an injury assessment for natural resource damages in the LDW. The Notice of Intent indicated that the decision of the trustees to proceed with this natural resources injury assessment followed a pre-assessment screen performed by the trustees. Shortly thereafter, in a letter dated August 16, 2016, EPA issued a status update to the PRPs at the LDW Site. The letter stated that EPA expected 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. The EPA previously anticipated that the pre-design work would be completed sometime during 2018, and the Company is not aware of any further information regarding that schedule. Accordingly, RD/RA negotiations with all PRPs may begin sometime in 2019. At this time, the Company has not received any further notices from the EPA and 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,
	2018			2017
Foreign currency translation loss	$	(61.4	)	$	(25.3	)
Unrealized gain on postretirement benefit obligation, net of tax	0.1			0.1
Accumulated other comprehensive loss	$	(61.3	)	$	(25.2	)

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 October 2017, the ADESA Auctions segment includes TradeRev, an online automotive remarketing system where dealers can launch and participate in real-time vehicle auctions at any time. 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). 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.

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

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 as of and for the year ended December 31, 2018 (in millions) :



	ADESA Auctions			IAA			AFC			Holding Company			Consolidated
Operating revenues	$	2,101.9		$	1,326.8		$	340.9		$	—		$	3,769.6
Operating expenses
Cost of services (exclusive of depreciation and amortization)	1,230.8			821.2			90.7			—			2,142.7
Selling, general and administrative	435.8			114.3			30.7			152.0			732.8
Depreciation and amortization	127.5			97.4			16.0			29.0			269.9
Total operating expenses	1,794.1			1,032.9			137.4			181.0			3,145.4
Operating profit (loss)	307.8			293.9			203.5			(181.0		)	624.2
Interest expense	2.2			—			59.6			130.2			192.0
Other (income) expense, net	(1.9		)	(0.5		)	(0.3		)	(0.8		)	(3.5		)
Intercompany expense (income)	35.1			37.9			(3.2		)	(69.8		)	—
Income (loss) before income taxes	272.4			256.5			147.4			(240.6		)	435.7
Income taxes	69.1			64.2			35.4			(61.0		)	107.7
Net income (loss)	$	203.3		$	192.3		$	112.0		$	(179.6	)	$	328.0
Total assets	$	3,097.7		$	1,506.9		$	2,446.1		$	155.5		$	7,206.2
Capital expenditures	$	95.1		$	65.3		$	7.1		$	30.5		$	198.0

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

Financial information regarding our reportable segments is set forth below as of and for the year ended December 31, 2017 (in millions) :



	ADESA Auctions			IAA			AFC			Holding Company			Consolidated
Operating revenues	$	1,937.5		$	1,219.2		$	301.3		$	—		$	3,458.0
Operating expenses
Cost of services (exclusive of depreciation and amortization)	1,123.9			778.1			85.2			—			1,987.2
Selling, general and administrative	360.0			107.1			30.9			142.2			640.2
Depreciation and amortization	113.1			93.1			31.3			27.1			264.6
Total operating expenses	1,597.0			978.3			147.4			169.3			2,892.0
Operating profit (loss)	340.5			240.9			153.9			(169.3		)	566.0
Interest expense	1.2			—			43.6			119.2			164.0
Other (income) expense, net	(0.3		)	(0.9		)	—			(0.7		)	(1.9		)
Loss on extinguishment of debt	—			—			—			27.5			27.5
Gain on previously held equity interest value	(21.6		)	—			—			—			(21.6		)
Intercompany expense (income)	47.4			37.8			(20.2		)	(65.0		)	—
Income (loss) before income taxes	313.8			204.0			130.5			(250.3		)	398.0
Income taxes	52.9			38.0			26.6			(81.5		)	36.0
Net income (loss)	$	260.9		$	166.0		$	103.9		$	(168.8	)	$	362.0
Total assets	$	3,132.3		$	1,438.4		$	2,315.6		$	98.0		$	6,984.3
Capital expenditures	$	66.9		$	51.6		$	6.1		$	27.6		$	152.2

Financial information regarding our reportable segments is set forth below as of and 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, 2018, 2017 and 2016

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,
	2018		2017		2016
Operating revenues
U.S.	$	3,263.4	$	3,010.3	$	2,737.6
Foreign	506.2		447.7		412.5
	$	3,769.6	$	3,458.0	$	3,150.1



	December 31,
	2018		2017
Long-lived assets
U.S.	$	3,533.7	$	3,452.4
Foreign	358.3		394.5
	$	3,892.0	$	3,846.9

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, 2018, 2017 and 2016

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.



2018 Quarter Ended	March 31			June 30			Sept. 30			Dec. 31
Operating revenues	$	950.5		$	956.6		$	933.5		$	929.0
Operating expenses
Cost of services (exclusive of depreciation and amortization)	535.0			531.3			533.2			543.2
Selling, general, and administrative	187.4			182.8			186.0			176.6
Depreciation and amortization	70.3			66.9			65.6			67.1
Total operating expenses	792.7			781.0			784.8			786.9
Operating profit	157.8			175.6			148.7			142.1
Interest expense	41.5			48.5			49.2			52.8
Other (income) expense, net	(0.1		)	(1.3		)	(3.1		)	1.0
Income before income taxes	116.4			128.4			102.6			88.3
Income taxes	26.4			35.2			25.1			21.0
Net income	$	90.0		$	93.2		$	77.5		$	67.3
Basic net income per share of common stock	$	0.67		$	0.69		$	0.58		$	0.50
Diluted net income per share of common stock	$	0.66		$	0.69		$	0.57		$	0.50



2017 Quarter Ended	March 31			June 30			Sept. 30			Dec. 31
Operating revenues	$	866.6		$	858.0		$	843.0		$	890.4
Operating expenses
Cost of services (exclusive of depreciation and amortization)	501.2			481.7			479.2			525.1
Selling, general, and administrative	157.4			154.6			155.7			172.5
Depreciation and amortization	64.5			64.5			66.2			69.4
Total operating expenses	723.1			700.8			701.1			767.0
Operating profit	143.5			157.2			141.9			123.4
Interest expense	40.3			40.1			41.5			42.1
Other (income) expense, net	(0.1		)	(1.5		)	(0.1		)	(0.2		)
Loss on extinguishment of debt	—			27.5			—			—
Gain on previously held equity interest value	—			—			—			(21.6		)
Income before income taxes	103.3			91.1			100.5			103.1
Income taxes	34.1			33.9			37.7			(69.7		)
Net income	$	69.2		$	57.2		$	62.8		$	172.8
Basic net income per share of common stock	$	0.51		$	0.42		$	0.46		$	1.28
Diluted net income per share of common stock	$	0.50		$	0.41		$	0.46		$	1.27

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KAR Auction Services, Inc.

Notes to Consolidated Financial Statements (Continued)

December 31, 2018, 2017 and 2016

Note 20—Subsequent Events

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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, 2018 , that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

On February 18, 2019, as part of a leadership restructuring at the Company, Donald S. Gottwald ceased serving as the Company’s Chief Operating Officer. In addition, on February 18, 2019, the Company appointed Mr. Gottwald to serve in the newly created role of President of Digital, Data and Mobility Solutions, effective immediately. Mr. Gottwald will continue to serve as the Company’s Chief Strategy Officer.

In connection with the leadership restructuring, on February 20, 2019, the Company also entered into an amendment to Mr. Gottwald's Employment Agreement dated March 24, 2014, as amended as of July 18, 2017. The amendment provides that (i) Mr. Gottwald will serve in his new role, (ii) his annual base salary will be $500,000 and (iii) the foregoing changes will constitute "Good Reason" under his Employment Agreement if on or before December 31, 2019, Mr. Gottwald provides notice that he is claiming "Good Reason" and he agrees to enter into a transition services agreement with the Company.

The foregoing description of the amendment to the Employment Agreement with Mr. Gottwald does not purport to be complete and is qualified in its entirety by reference to the full text of the referenced agreement, a copy of which is filed hereto as Exhibit 10.5c.

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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 2019

Annual Meeting of Stockholders and such information will be incorporated by reference herein. Our executive officers are as follows:



Name	Age	Position
James P. Hallett	65	Chief Executive Officer and Chairman of the Board of Directors
Thomas J. Fisher	44	Executive Vice President and Chief Information Officer
Donald S. Gottwald	52	Chief Strategy Officer and President of Digital, Data and Mobility Solutions
John C. Hammer	48	President of ADESA
Peter J. Kelly	50	President
John W. Kett	55	Chief Executive Officer and President of IAA
Eric M. Loughmiller	59	Executive Vice President and Chief Financial Officer
James E. Money	56	President of AFC
Rebecca C. Polak	48	Chief Legal Officer and Secretary for KAR and President of TradeRev
Lisa A. Price	44	Executive Vice President of Human Resources
Benjamin Skuy	56	Executive Vice President of International Markets and Strategic Initiatives

James P. Hallett, 65, 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.

Thomas J. Fisher, 44, Executive Vice President and Chief Information Officer. Mr. Fisher has served as the Company's Executive Vice President and Chief Information Officer since April 2017. Mr. Fisher was the Senior Vice President of Cloud Operations and General Manager, Indianapolis, of Genesys Telecommunications Laboratories, Inc. ("Genesys") from December 2016 to March 2017. Mr. Fisher was the Chief Services Officer at Interactive Intelligence Group, Inc. (which was acquired by Genesys) from January 2014 to December 2016 and also held other roles including Vice President of Global Sales Operations from May 2012 to January 2014, Senior Director of Solutions Engineering from January 2011 to May 2012 and Director of Systems Engineering from January 2005 to January 2011.

Donald S. Gottwald, 52, Chief Strategy Officer and President of Digital, Data and Mobility Solutions. Mr. Gottwald has been the Chief Strategy Officer since July 2017 and the President of Digital, Data and Mobility Solutions since February 2019. Mr. Gottwald previously served as the Chief Operating Officer from March 2014 to February 2019. Prior to that, Mr. Gottwald 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.

John C. Hammer, 48, President of ADESA. Mr. Hammer has been the President of ADESA since February 2018. Prior to ADESA, Mr. Hammer was Chief Executive Officer of U.S. Auto Sales, Inc. and U.S. Auto Finance, Inc. from June 2016 to February 2018, and Chief Executive Officer of Cruz Auto, LLC from June 2017 to February 2018. Mr. Hammer previously served as Chief Executive Officer and President of AFC from March 2014 to June 2016. Mr. Hammer joined AFC in April 2009 as Chief Operating Officer, and assumed the role of President of AFC in May 2013. Prior to AFC, Mr. Hammer held senior

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management roles for more than a decade at various subsidiaries of GMAC Financial Services. He has also served as a general manager at AutoNation and held management roles at Mercedes Benz Credit Corp. Mr. Hammer has 25 years of experience in the automotive industry.

Peter J. Kelly, 50, President. Mr. Kelly has been President since January 2019. Previously, Mr. Kelly served as the President of Digital Services from December 2014 to January 2019 and the Chief Technology Officer from June 2013 to January 2019. Mr. Kelly was the President and Chief Executive Officer of Openlane from February 2011 to June 2013. Prior to that, Mr. Kelly was President and Chief Financial Officer of Openlane from February 2010 to February 2011. Mr. Kelly was a co-founder of Openlane in 1999 and served in a number of executive roles at Openlane from 1999 to 2010.

John W. Kett, 55, 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.

Eric M. Loughmiller, 59, 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, 56, 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, 48, Chief Legal Officer and Secretary for KAR and President of TradeRev. Ms. Polak has been Chief Legal Officer for KAR and President of TradeRev since October 2017 and Secretary for KAR since April 2007. Ms. Polak previously served as Executive Vice President and General Counsel for KAR from April 2007 to October 2017, 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, 44, 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, 56, 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.

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

2019 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 2019 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 2019 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, 2018 .



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)	2,251,799	$	24.21	5,700,085
Equity compensation plans not approved by security holders	—	—		—
Total	2,251,799	$	24.21	5,700,085

(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 700,616 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) 5,329,347 shares of common stock that may be issued under the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan; and (b) 370,738 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 2019 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 2019 Annual Meeting of Stockholders to be filed with the SEC as set forth under the caption "Documents Incorporated by Reference."

117

Table of Contents

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 index below 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."

EXHIBIT INDEX

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

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

Indenture, dated as of May 31, 2017, among KAR Auction Services, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee, including the form of the Notes

8-K

001-34568

4.1

5/31/2017

4.2

Form of common stock certificate

S-1/A

333-161907

4.15

12/10/2009

118

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

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

10.1c

Incremental Commitment Agreement and Second Amendment, dated as of May 31, 2017, among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, the guarantors party thereto and the several lenders party thereto

8-K

001-34568

10.1

5/31/2017

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

10.5a

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

10.5b

Amendment to Employment Agreement, dated February 19, 2018, between KAR Auction Services, Inc. and Don Gottwald

10-K

001-34568

10.5b

2/21/2018

10.5c

Amendment No. 2 to Employment Agreement, dated February 20, 2019, between KAR Auction Services, Inc. and Don Gottwald

10.6

Employment Agreement, dated December 17, 2013, between KAR Auction Services, Inc. and Eric Loughmiller

8-K

001-34568

10.5

12/17/2013

10.7

Employment Agreement, dated January 25, 2018, between KAR Auction Services, Inc. and John C. Hammer

10.8a

Employment Agreement, dated December 17, 2013, between KAR Auction Services, Inc. and Rebecca Polak

10-K

001-34568

10.13

2/19/2014

10.8b

Amendment to Employment Agreement, dated February 19, 2018, between KAR Auction Services, Inc. and Rebecca Polak

10-K

001-34568

10.8b

2/21/2018

10.9a

Employment Agreement, dated December 17, 2013, between KAR Auction Services, Inc. and Peter Kelly

10-K

001-34568

10.9a

2/24/2017

10.9b

Amendment to Employment Agreement, dated December 31, 2014, between KAR Auction Services, Inc. and Peter Kelly

10-K

001-34568

10.9b

2/24/2017

119

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

10.9c

Amendment No. 2 to Employment Agreement, dated January 8, 2019, between KAR Auction Services, Inc. and Peter Kelly

10.10

KAR Auction Services, Inc. Annual Incentive Plan Summary of Terms for Plan Year 2016

10-Q

001-34568

10.13

5/4/2016

10.11

KAR Auction Services, Inc. Annual Incentive Program Summary of Terms 2017

10-K

001-34568

10.13

2/24/2017

10.12

KAR Auction Services, Inc. Annual Incentive Program Summary of Terms 2018

10-K

001-34568

10.12

2/21/2018

10.13

KAR Auction Services, Inc. Annual Incentive Program Summary of Terms 2019

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

Eighth Amended and Restated Receivables Purchase Agreement, dated December 18, 2018, among AFC Funding Corporation, Automotive Finance Corporation, the entities from time to time parties hereto as Purchasers or Purchaser Agents and Bank of Montreal

10.16a

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-K

001-34568

10.16

2/24/2017

10.16b

Amending Agreement No. 1 to Fourth Amended and Restated Receivables Purchase Agreement, dated January 30, 2017, between Automotive Finance Canada Inc., KAR Auction Services, Inc. and BNY Trust Company of Canada

10-Q

001-34568

10.16b

5/10/2017

10.16c

Amending Agreement No. 2 to Fourth Amended and Restated Receivables Purchase Agreement, dated December 18, 2018, 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

120

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

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

121

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

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

10.27d

Amendment No. 3 to KAR Auction Services, Inc. Employee Stock Purchase Plan dated July 31, 2018

10-Q

001-34568

10.26d

11/7/2018

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-K

001-34568

10.33

2/24/2017

10.34

Form of 2018 Restricted Stock Unit Award Agreement for Section 16 Officers

10-K

001-34568

10.33

2/21/2018

10.35

Form of 2019 Restricted Stock Unit Award Agreement for Section 16 Officers

10.36

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

10.37

Form of Performance-Based Restricted Stock Unit Agreement (Cumulative Adjusted Net Income Per Share)

8-K

001-34568

10.1

3/3/2014

10.38

Form of 2015 Performance-Based Restricted Stock Unit Agreement (Cumulative Adjusted Net Income Per Share)

10-Q

001-34568

10.32

5/6/2015

10.39

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

10.40

Form of 2017, 2018 and 2019 Performance-Based Restricted Stock Unit Agreement (Cumulative Operating Adjusted Net Income Per Share)

10-K

001-34568

10.38

2/24/2017

21.1

Subsidiaries of KAR Auction Services, Inc.

23.1

Consent of KPMG LLP, Independent Registered Public Accounting Firm

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

122

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

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.

123

Table of Contents

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 21, 2019

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 21, 2019
James P. Hallett	(Principal Executive Officer)

/s/ ERIC M. LOUGHMILLER	Chief Financial Officer	February 21, 2019
Eric M. Loughmiller	(Principal Financial and Accounting Officer)

/s/ TODD F. BOURELL	Director	February 21, 2019
Todd F. Bourell	Director	February 21, 2019

/s/ DONNA R. ECTON	Director	February 21, 2019
Donna R. Ecton	Director	February 21, 2019

/s/ MARK E. HILL	Director	February 21, 2019
Mark E. Hill	Director	February 21, 2019

/s/ J. MARK HOWELL	Director	February 21, 2019
J. Mark Howell	Director	February 21, 2019

/s/ LYNN JOLLIFFE	Director	February 21, 2019
Lynn Jolliffe	Director	February 21, 2019

/s/ MICHAEL T. KESTNER	Director	February 21, 2019
Michael T. Kestner	Director	February 21, 2019

/s/ JOHN P. LARSON	Lead Independent Director	February 21, 2019
John P. Larson	Lead Independent Director	February 21, 2019

/s/ STEPHEN E. SMITH	Director	February 21, 2019
Stephen E. Smith	Director	February 21, 2019

124

EXHIBIT 10.7

EMPLOYMENT AGREEMENT

This Employment Agreement (this “ Agreement ”), dated and effective January 25, 2018 (“ Effective Date ”), is entered into by and between KAR Auction Services, Inc. (“ Employer ”) and John C. Hammer (“ Employee ”).

RECITALS

A. Employer desires to employ Employee as President of ADESA, Inc., 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 President of ADESA, Inc. 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 $500,000 (“ 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-Competition . 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 within the United States or Canada perform for or on behalf of any Competitor (as defined below), the same or similar services as those that the Employee performed for Employer during Employee’s employment with Employer. In addition, Employee shall not, 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, within the United States or Canada, engage in, own, operate, or control any Competitor. For purposes of this Agreement, “ Competitor ” means any person or entity engaged in the business of wholesale, retail or consumer vehicle remarketing activities, including but not limited to vehicle auctions (whole car or salvage), online services, or dealer floor plan financing within the United States or Canada, provided that Employer (either directly or indirectly through its controlled subsidiaries) is engaged in such businesses.

(e) 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 payment. 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.

(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.	John C. Hammer



By: /s/ James P. Hallett	/s/ John C. Hammer

Printed: James P. Hallett

Title: Chief Executive Officer

EXHIBIT 10.13

KAR Auction Services, Inc.

Annual Incentive Program

Summary of Terms

2019

KAR Auction Services, Inc. Annual Incentive Program

Summary of Terms

The following is a summary of the 2019 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

The Program is effective January 1, 2019. 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.

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 7/1/2019. 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 7/1/2019 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, 2020.

Discretionary Adjustment of Awards

The Committee retains discretion to adjust payouts up or down on a case-by-case basis. Individual award payouts may be adjusted downward or eliminated entirely due to personal performance of job responsibilities and/or noncompliance with corporate policy or controls .

In addition, consistent with the terms of the Omnibus Plan, 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 participate 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, 2020. 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 may, 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 2019. 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, 2019, 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, 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.

EIGHTH AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT

dated as of December 18, 2018

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

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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 Amounts	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 JURSIDICTION	31
Section 6.8	Execution in Counterparts	31
Section 6.9	Survival of Termination	31
Section 6.10	WAIVER OF JURY TIRAL	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	VII1

SCHEDULE I	[RESERVED]	I-1
SCHEDULE II	DEPOSTI 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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EIGHTH AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT

This EIGHTH 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, as of December 20, 2016 and as of December 18, 2018 (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 Seventh Amended and Restated Receivables Purchase Agreement, dated as of December 20, 2016 (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

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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) 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, Bank of Montreal, Fifth Third Bank, Thunder Bay Funding, LLC, PNC Bank, National Association, Chariot Funding, LLC and SunTrust Bank (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



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to reduce any applicable unfulfilled purchase amounts of that Deferring 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, each 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. Notwithstanding the foregoing, with respect to any Purchaser Group, each Note Issuer in such Purchaser Group may, in its sole discretion, make available to its Purchaser Agent all or a portion of the pro rata share of such purchase allocated to such Note Issuer’s Purchaser Group. If a Note Issuer elects not to fund its Purchaser Group’s portion in full, such Note Issuer’s related Purchasers with Maximum Commitments 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 any such shortfall on such date of purchase.

(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



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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.

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:



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(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;

(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



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(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 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



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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 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.



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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 18, 2018 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 ”).

(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 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,



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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 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



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Purchaser Agent (if any), by such Affected Person and shall be conclusive and binding for all purposes, absent manifest error.

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);



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(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 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



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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 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)



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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 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 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



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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 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



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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);

(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);

(vi) the commingling of Collections of Pool Receivables at any time with other funds; or



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(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.

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.



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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 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. 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 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



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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.

(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



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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.

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



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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.

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.



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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.

ARTICLE V.

THE AGENTS



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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 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,



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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.



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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 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.



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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 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



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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 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.



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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



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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 and from any such Liquidity Bank to a Purchaser hereunder, (iii) any Program Support Provider (or any Person who upon such assignment would be a Program Support Provider) of such Purchaser or (iv) to any other Purchaser in such Purchaser’s Purchaser Group. 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. 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



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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 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 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 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.



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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 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



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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 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.



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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,



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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 500
    Carmel, Indiana 46032
    Attention: Amy Wirges
    Telephone: 317-843- 4795
    Facsimile: 317- 360-3766
    E-mail: awirges@autofinance.com



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BMO CAPITAL MARKETS CORP. ,

as Purchaser Agent for Fairway Finance
    Company, LLC and Bank of Montreal

    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



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BANK OF MONTREAL ,

as a Purchaser

By: /s/ Karen Louie

Name: Karen Louie
Title: Director

Bank of Montreal
115 S. LaSalle, 25th Floor West
Chicago, Illinois 60603
Attention: Karen Louie
Telephone: (312) 293-4410
Facsimile: (312) 293-4948
E-mail: karen.louie@bmo.com

Maximum Commitment:

$[*]



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PNC BANK, NATIONAL ASSOCIATION ,

as Purchaser and Purchaser Agent for itself

By: /s/ Lawrence Boller

Name: Lawrence Boller
Title: SeniorVice 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:

$[*]



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THUNDER BAY FUNDING, LLC , as a Purchaser

By: Royal Bank of Canada,
its attorney-in-fact

By: /s/ Sofia Shields

Name: Sofia Shields
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
RBCUS@gssnyc.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

Maximum Commitment:
$[*]



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ROYAL BANK OF CANADA , as Purchaser Agent for Thunder Bay Funding, LLC

By: /s/ Sofia Shields

Name: Sofia Shields
Title: Authorized Signatory

By: /s/ Usa Wang

Name: Usa Wang
Title: Authorized Signatory

Royal Bank Plaza, North Tower

200 Bay Street

2nd Floor

Toronto Ontario M5J2W7

Attn: Securitization Finance

Telephone: (416)-842-3842

Email: conduit.management@rbccm.com

with a copy to

Royal Bank of Canada

Two Little Falls Center

2751 Centerville Road, Suite 212

Wilmington, DE 19808

Telephone : (302)-892-5903

Email : conduit.management@rbccm.com



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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.Securitization.Bancorp@53.com

ABF.Reporting@53.com

Maximum Commitment
$[*]

SUNTRUST BANK, as Purchaser and as Purchaser Agent for itself

By: /s/ Emily Shields

Name: Emily Shields
Title: First Vice President

3333 Peachtree Road
10 ^th Floor East

Atlanta, Georgia 30326

Attn: Emily Shields

Tel: (404) 926-5489
Fax: (404) 926-5100

Email: Emily.shields@suntrust.com

Maximum Commitment
$[*]



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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, 16th Floor

Chicago, IL 60603

Attention: Alan English
Tel: (312) 732-7985
Fax: (312) 377-0490

Email: alan.p.english@jpmorgan.com ; evanmaschmeyer@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, 16th Floor

Chicago, IL 60603

Attention: Alan English
Tel: (312) 732-7985
Fax: (312) 377-0490

Email: alan.p.english@jpmorgan.com ; evan.maschmeyer@jpmorgan.com ; cameron.milligan@jpmorgan.com ; ABS.Treasury.Dept@jpmorgan.com



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BANK OF MONTREAL, as Agent

By: /s/ Karen Louie

Name: Christopher L. Clark
Title: Director

Bank of Montreal
115 S. LaSalle, 25th Floor West
Chicago, Illinois 60603
Attention: Karen Louie
Telephone: (312) 293-4410
Facsimile: (312) 293-4948
Email: Karen.louie@bmo.com



	S-9	Eighth 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/ James P. Hallett
Name: James P. Hallett
Title: Chief Executive Officer



	S-10	Eighth 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 14 ^th day of December , 2018 .



/s/ Francesca C. York Signature	My Commission Expires: 12-05-24
/s/ 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 14 ^th day of December , 2018.



/s/ Francesca C. York Signature	My Commission Expires: 12-05-24
/s/ Francesca C. York Printed Name	My County of Residence: Hamilton



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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.

“ Beneficial Ownership Certification ” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation in a form as agreed to by the Agent.

“ Beneficial Ownership Regulation ” means 31 C.F.R. § 1010.230.



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“ 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 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 [*] 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 18, 2018.

“ 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



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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.

“ 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



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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) 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.



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“ 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 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 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.



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“ 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.

“ 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 , however , personal guarantees of a United States resident Obligor are permitted to be provided by Canadian residents, and provided further , a co-signer or co-guarantor may be a resident of a country other than the United States or Canada if there is at least one personal guaranty from a United States resident;

(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 or retention of ownership 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;



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(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 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 any other state where the Obligor is required to hold the certificate of title or certificate of origin), 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



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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;

(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.



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“ 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.

“ 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



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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.

“ 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



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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 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, and as amended by the Incremental Commitment Agreement and Second Amendment dated as of May 31, 2017, 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 ,



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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 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



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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 [*]

“ 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) $1,700,000,000 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



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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 (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.

“ Notes ” means, 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.

“ 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.



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“ 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.

“ 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.


LR	= 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



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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.

= the amount on deposit in the Liquidation Account (other than amounts transferred thereto from the Deposit Accounts to pay 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,



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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 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



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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 means and includes any Liquidity Bank and any other or additional Person (other than any customer of a Purchaser) 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 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 securitization program.

“ 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, Bank of Montreal, Fifth Third Bank, Thunder Bay Funding, LLC, PNC Bank, National Association, Chariot Funding LLC, SunTrust Bank 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 for which such Purchaser Agent acts hereunder. A Purchaser Group may contain Purchasers with Maximum Commitments and Purchasers without Maximum Commitments. The Purchaser Agent of each Purchaser Group may allocate Investments to be made by the Purchasers in any Purchaser Group in its sole discretion with the agreement of such Purchasers.

“ 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.



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“ 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.

“ Regulatory Change ” has the meaning set forth in Section 1.8 .

“ 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.



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“ 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.

“ 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 .



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“ 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:

(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.



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“ 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 28, 2022, 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 .

“ 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.



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“ United States ” or “ U.S. ” means the United States of America.

“ 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:

(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.



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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



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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 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



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and (ii) the Seller is not subject to any order, judgment, decree, injunction, stipulation 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.



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(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.

(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



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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) 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.



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(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 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



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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.

(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 the Agent (for the benefit of the Secured Parties), including, without limitation, taking such action to



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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; provided , however , that the Agent shall not be reimbursed for more than two such examinations in any year (including any examinations



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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 chief financial officer of such Person and (II) as soon as available, but in any event not later than 45 days after the



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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



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or event and the action that the Seller has taken and proposes to take with respect thereto;

(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



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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 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;

(xv) promptly after any changes, the current list of Excluded Receivables; and

(xvi) promptly following any changes in the ownership of the Borrower or AFC which shall require the delivery of a Beneficial Ownership Certification under the Beneficial Ownership Regulation or update to any of the information provided in any Beneficial Ownership Certification, an updated Beneficial Ownership Certification.

(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;



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(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. 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;



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(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;

(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



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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.

(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



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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.

(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



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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 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,



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$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

(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



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(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 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



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(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 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

On file with the Agent



	EX-VI-1

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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 possession the original copies of such instruments or tangible chattel paper that constitute or evidence the Pool Receivables, and



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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.



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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 paragraph) as may be



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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).



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SCHEDULE I

[RESERVED]



	SCH-I-1

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SCHEDULE II

DEPOSIT BANKS AND DEPOSIT ACCOUNTS



Deposit Bank	Deposit Account
[*]	[*]
[*]	[*]
[*]	[*]



	SCH-II-1

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SCHEDULE III

NET RECEIVABLES POOL BALANCE CALCULATIONS

On file with the Agent



	SCH-III-1

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SCHEDULE IV

[RESERVED]



	SCH-IV-1

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SCHEDULE V

TAX MATTERS

None.



	SCH-V-1

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SCHEDULE VI

COMPETITOR FINANCIAL INSTITUTIONS

[*]



	SCH-VI-1

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ANNEX A

FORM OF PURCHASE NOTICE

See Attached



	Annex A-1

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PURCHASE/PAYDOWN REQUEST

For Settlement on: [*]

TRANSACTION

AMOUNT

CLIENT NAME: AFC FUNDING CORPORATION CURRENT OUTSTANDINGS: [*]

PURCHASE / INCREASE: $0.00

PAYDOWN: $0.00



	PURCHASE AMOUNT	PAYDOWN AMOUNT	CURRENT OUSTANDINGS	REQUESTED OUTSTANDINGS	MAXIMUM LIMIT
BK OF MONTREAL	[*]	[*]	[*]	[*]	[*]
FAIRWAY	[*]	[*]	[*]	[*]	[*]
CHARIOT	[*]	[*]	[*]	[*]	[*]
FIFTH THIRD	[*]	[*]	[*]	[*]	[*]
PNC	[*]	[*]	[*]	[*]	[*]
THUNDER BAY	[*]	[*]	[*]	[*]	[*]
TOTALS	[*]	[*]	[*]	[*]	$1,700,000,000.00

Paydowns



BMO	FAIRWAY	CHARIOT	FIFTH THIRD	PNC	THUNDERBAY



[*]	[*]	[*]	[*]	[*]	[*]

Purchases / Increases

AFC

[*]



	Annex A-2

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ANNEX B

FORM OF SERVICER REPORT

[As agreed to by the Agent and the Seller or the Servicer]



	Annex B-1

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ANNEX C

FORM OF JOINDER AGREEMENT

See Attached.



	Annex C-1

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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 Eighth Amended and Restated Receivables Purchase Agreement, dated as of December 18, 2018 (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.

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Upon execution and delivery of this Agreement by the Seller, each of the [______________] Purchaser, [______________] Purchaser Agent and the Agent, satisfaction of 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



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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)



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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 10.35

KAR Auction Services, Inc.

2009 OMNIBUS STOCK AND INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

2019 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 [___________], 2019 (the “Grant Date”), subject to the terms and conditions of the Plan and this Agreement. The Restricted Stock Units shall vest 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 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.

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, but in no event later than sixty (60) days following that date on which the applicable shares became vested.

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 immediately upon the date of such termination of employment.

(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), then all unvested Restricted Stock Units that would have vested in the 12 months following his or her termination date will immediately vest upon such Retirement or Early Retirement Date, 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, 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 (determined without regard to whether such event is a “change in control event” with respect to the Company for purposes of Code Section 409A(a)(2)(A)(v)) 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, 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 such 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 sixty (60) days following the date that 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 such 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 sixty (60) days following the date that such Change in Control occurs). Notwithstanding the prior sentence, to the extent that the Recipient is a “Deferred Compensation Recipient” (as defined below), then (a) if such Change in Control is not a “change in control event” with respect to the Company for purposes of Code Section 409A(a)(2)(A)(v), then the Restricted Stock Units that vest in accordance with the previous sentence shall not be paid as described in the immediately preceding sentence, and shall instead be paid upon the earlier of (i) at the first available subsequent payment date described in this Agreement, determined as though such Recipient’s employment with the Company or its Affiliates continued until that time, or (ii) within sixty (60) days following the Recipient’s “separation from service” within the meaning of Code Section 409A, or (b) if such Change in Control is a “change in control event” with respect to the Company for purposes of Code Section 409A(a)(2)(A)(v), that any Restricted Stock Units that are no longer subject to a “substantial risk of forfeiture” for purposes of Code Section 409A shall be paid as soon as administratively feasible thereafter (but in no event later than sixty (60) days following the date that such Change in Control occurs). For purposes of this Agreement, “Deferred Compensation Recipient” means a Recipient, as determined on the Grant Date, who (a) is or will become eligible for Retirement or reach his or her Retirement Eligibility Date at a time when the attainment of such status will result in the Restricted Stock Units being treated as “nonqualified deferred compensation” for purposes of Code Section 409A, or (b) otherwise is entitled to special vesting terms such that the Restricted Stock Units will be treated as “nonqualified deferred compensation” for purposes of Code Section 409A.

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 calendar quarter with interest, compounded quarterly, 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 Wall Street Journal at the close of business of each calendar quarter. 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 [________], 2019.



_______________________________	KAR AUCTION SERVICES, INC. By: _______________________________
[NAME]	Its: _______________________________

EXHIBIT 10.16c

AMENDING AGREEMENT NO. 2 TO FOURTH AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT

THIS AGREEMENT made as of the 18 ^th day of December, 2018,

B E T W E E N:

AUTOMOTIVE FINANCE CANADA INC.,
a corporation incorporated under the laws of the Province of Ontario,

(hereinafter called the " Seller " and the " Servicer "),

- and -

KAR AUCTION SERVICES, INC.,
a corporation incorporated under the laws of Delaware,

(hereinafter called " KAR "),

- and -

BNY TRUST COMPANY OF CANADA,
a trust company incorporated under the laws of Canada 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, without personal liability, as purchaser,

(in such capacity, hereinafter called the " Purchaser ").

WHEREAS the Seller, KAR and the Purchaser entered into a fourth amended and restated receivables purchase agreement dated as of December 20, 2016, as amended on January 30, 2017 (as amended, the " RPA ");

AND WHEREAS, in accordance with the terms of Section 10.4 of the RPA, the Seller, KAR and the Purchaser wish to amend the RPA in the manner set out in this amending agreement (the " Agreement ");

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NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and 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:


1.	Interpretation


1.1	All words and expressions defined in the RPA and not otherwise defined in this Agreement (including the recitals hereto) shall have the respective meanings given to them in the RPA.


2.	Amendments to the RPA


2.1	Section 1.1 of the RPA is hereby amended as follows:


(a)	the defined term " Cash Reserve Event " is hereby deleted in its entirety and the following substituted therefor:

"" 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 [*], or [*]; provided, however, that following each occurrence of a Cash Reserve Event, such trigger shall remain in effect until [*]";


(b)	the defined term " CDOR " is hereby deleted in its entirety and the following substituted therefor:

"" Three-Month 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 3-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);”;


(c)	the defined term " Eligible Receivable " is hereby amended by deleting subsection (a) in its entirety and the following substituted therefor:

"(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 co-guarantor who is a resident of another country (provided there is at least one personal guaranty from a Canadian resident), (ii) is not the Government of Canada or any agency or instrumentality

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thereof or any federal crown corporation, and (iii) is not any provincial or territorial government or agency thereof;";


(d)	the defined term " Financed Vehicle " is hereby deleted in its entirety and the following substituted therefor:

"" Financed Vehicle " means [*]


(e)	the defined term " KAR Credit Facility " is hereby deleted in its entirety and the following substituted therefor:

"" 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, and as amended by the Incremental Commitment Agreement and Second Amendment dated as of May 31, 2017, 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;";


(f)	the defined term " Program Fee Side Letter " is hereby deleted in its entirety and the following substituted therefor:

"" Program Fee Side Letter " means the letter agreement between the Seller and the Securitization Agent dated December 18, 2018 as the same may be amended, varied or replaced from time to time;";


(g)	the defined term " Program Limit " is hereby amended by deleting the words "$125 million" therein and replacing them with "$175 million";


(h)	the defined term " Salvage Vehicle " is hereby deleted in its entirety and the following substituted therefor:

"" 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 [*];


(i)	the defined term " Termination Date " is hereby amended by deleting the words "January 31, 2020" therein and replacing them with "January 28, 2022"; and


(j)	the defined term " Tranche Rate " is hereby deleted in its entirety and the following substituted therefor:

"" 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, [*].


2.2	Section 6.1 of the RPA is hereby amended by deleting subsection (bb) in its entirety and the following substituted therefor:

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"(bb) the average Payment Rate for [*] is less than [*], or [*] is less than [*]


3.	Other Documents


3.1	Any reference to the RPA made in any documents delivered pursuant thereto or in connection therewith shall be deemed to refer to the RPA as amended, extended, modified, renewed or supplemented from time to time, unless the context otherwise requires.


4.	Miscellaneous


4.1	As amended by this Agreement, the RPA is in all respects ratified and confirmed and continues in full force and effect, and the RPA as amended by this Agreement shall be read, taken and construed as one and the same instrument.


4.2	This Agreement shall enure to the benefit of and be binding upon the parties and their respective successors and permitted assigns.


4.3	This Agreement may be executed in one or more counterparts each of which shall be deemed an original and all of which when, taken together, shall constitute one and the same instrument.


4.4	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.

[Signature page follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized signatories, as of the date first written above.



AUTOMOTIVE FINANCE CANADA INC.


By:	/s/ Amy Wirges
	Name: Amy Wirges Title: Vice President of Finance; Treasurer



KAR AUCTION SERVICES, INC.


By:	/s/ James P. Hallett
	Name: James P. Hallett Title: Chief Executive Officer



BNY TRUST COMPANY OF CANADA , in its capacity as trustee of PRECISION TRUST , without personal liability, by its Securitization Agent BMO NESBITT BURNS INC.


By:	/s/ Terry J. Ritchie
	Name: Terry Ritchie Title: Managing Director
By:	/s/ Kevin Brown
	Name: Kevin Brown Title: Director

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EXHIBIT 10.5c

AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT

This Amendment No. 2 to Employment Agreement (this “Amendment”), dated this 20th day of February, 2019, is effective as of February 18, 2019 (the “Effective Date”), except as specifically set forth below. This Amendment is entered into by and between KAR Auction Services, Inc. (“Employer”) and Don Gottwald (“Employee”). This Amendment amends the March 24, 2014 Employment Agreement, as amended effective as of July 18, 2017 (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 appointing Employee to the position of President of Digital, Data and Mobility Solutions and removing him from the position of Chief Operating Officer;

B. Employee desires to take on the role as President of Digital, Data and Mobility Solutions.

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. The first sentence of Paragraph 2 of the Agreement, which currently reads:

Title and Duties. During the Employment Period, Employee shall serve as the Chief Operating Officer and Chief Strategy 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” ).

Shall now be amended to read:

Title and Duties. During the Employment Period, Employee shall serve as the Chief Strategy Officer and President of Digital, Data and Mobility Solutions 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” ).

2. The first sentence of Paragraph 3(a) of the Agreement, which currently reads:

Base Salary . During the Employment Period, Employee shall be paid an annual base salary of $550,000 ( “Base Salary” ), less withholdings and deductions required by law or requested by Employee.

Shall now be amended, effective January 28, 2019, to read:

Base Salary . During the Employment Period, Employee shall be paid an annual base salary of $500,000 ( “Base Salary” ), less withholdings and deductions required by law or requested by Employee.

3. The following language shall be added to the end of Paragraph 7(b) of the Agreement:

Nothing in this Agreement prevents Employee from providing, without prior notice to Employer, information to governmental or administrative authorities regarding possible violations of law or otherwise testifying or participating in any investigation or proceeding by any governmental or administrative authorities regarding possible violations of law, and for purpose of clarity, Employee is not prohibited from providing information voluntarily to the Securities and Exchange Commission pursuant to Section 21F of the Securities Exchange Act of 1934, as amended.

4. A new Paragraph 7(f), which will read as follows, shall be added to the Agreement:

(f) U.S. Defend Trade Secrets Act Notice of Immunity . The U.S. Defend Trade Secrets Act of 2016 ( “DTSA” ) provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, the DTSA provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal and (y) does not disclose the trade secret, except pursuant to court order.

5. The parties hereby agree that the changes outlined in Paragraph 1 and Paragraph 2 of this Amendment (individually or together) will constitute a “Good Reason” for termination, but only if Employee complies with both of the following requirements on or before December 31, 2019:

(a) Employee provides notice of “Good Reason” for termination to Employer; and

(b) Employee agrees to provide reasonably acceptable transition services for thirty (30) days.

If Employee provides notice of “Good Reason” for termination in compliance with Section 5(a) and 5(b) of this Amendment and otherwise complies with Section 4(c) of the Agreement or if Employer terminates Employee’s employment without Cause on or prior to December 31, 2019, Employee shall be entitled to severance benefits under Section 5 of the Agreement based on Employee’s Base Salary and target bonus amount in effect as of December 31, 2018. For the avoidance of doubt, on and after January 1, 2020, the changes outlined in Paragraphs 1 and 2 of this Amendment will not constitute a “Good Reason” for termination, and any future “Good Reason” for termination shall only be determined based on changes made following the date of this Amendment.

6. 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.

7. 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.

8. 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/ James P. Hallett	/s/ Don Gottwald
Printed: James P. Hallett
Title: Chief Executive Officer

EXHIBIT 10.9c

AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT

This Amendment No. 2 to Employment Agreement (this “Amendment”), dated this 8th day of January, 2019, is effective as of January 7, 2019 (the “Effective Date”). This Amendment is entered into by and between KAR Auction Services, Inc. (“Employer”) and Peter Kelly (“Employee”). This Amendment amends the December 17, 2013 Employment Agreement, as amended on December 31, 2014 (the “Agreement”) between Employer and Employee pursuant to Paragraph 10(d) of the Agreement and is effective as of the Effective Date.

RECITALS

A. Employer desires to change its senior management structure by adding a President position; and

B. Employer desires for Employee to fill this new position.

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 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.

Shall now be amended to read:

Title and Duties. During the Employment Period, Employee shall serve as the President of Employer reporting to Employer’s Chief Executive Officer. Employee 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. From August 15, 2019 through the end of the Employment Period, Employee shall perform his duties from Employer’s location in Carmel, Indiana, subject to reasonable travel requirements related to Employee’s job responsibilities.

2. The first sentence of Paragraph 3(a) of the Agreement, which currently reads:

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.

Shall now be amended to read:

Base Salary . During the Employment Period, Employee shall be paid an annual base salary of $600,000 ( “Base Salary” ), less withholdings and deductions required by law or requested by Employee.

3. A new Paragraph 3(h), which will read as follows, shall be added to the Agreement:

(h) Relocation Expenses . Employee shall be eligible for reimbursement of qualified expenses associated with his relocation to Carmel, Indiana in accordance with Employer’s Executive Mobility Policy.

4. The following language shall be added to the end of Paragraph 7(b) of the Agreement:

5. A new Paragraph 7(e), which will read as follows, shall be added to the Agreement:

(e) U.S. Defend Trade Secrets Act Notice of Immunity . The U.S. Defend Trade Secrets Act of 2016 ( “DTSA” ) provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In

addition, the DTSA provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (x) files any document containing the trade secret under seal and (y) does not disclose the trade secret, except pursuant to court order.

6. Employee agrees that the change to his position outlined in Paragraph 1 of this Amendment does not constitute a “Good Reason” for termination of the Agreement by Employee as that term is defined in Paragraph 4(c) of the Agreement.

7. 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.

8. 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.

9. 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/ James P. Hallett	/s/ Peter Kelly

Printed: James P. Hallett

Title: Chief Executive Officer

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, 2018 :



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
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
HBC Vehicle Services Limited		United Kingdom
Preferred Warranties, Inc.		Pennsylvania
Preferred Nationwide Reinsurance Company, Ltd.		Turks and Caicos
Preferred Warranties of Florida, Inc.		Florida



Name		State or Jurisdiction of Incorporation or Organization
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
CarCo Technologies, Inc.		Illinois
KAR UK Holdings Limited		United Kingdom
Nth Gen Software, Inc.		Ontario
Nth Gen Software LLC		Florida
TradeRev USA LLC		Florida
TradeRev Motors Inc.		Ontario
Nth Gen Software UK Limited		United Kingdom
TradeRev Technologies Inc.		Ontario
111 Remarketing, LLC		Arizona
IAA Spinco Inc.		Delaware
STRATIM Systems Incorporated		Delaware
STRATIM Essentials, Inc.		Delaware
STRATIM Platforms, Inc.		Delaware
STRATIM Essentials Storage, Inc.		California
STRATIM Essentials Transportation, Inc.		Delaware
ZIRX Transportation Services, Inc.		California
ZIRX Enterprise Services, Inc.		Delaware
Clearplan, LLC		Delaware
ADESA Germany GmbH		Germany

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 21, 2019 , with respect to the consolidated balance sheets of KAR Auction Services, Inc. and subsidiaries as of December 31, 2018 and 2017 , 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, 2018 , and the effectiveness of internal control over financial reporting as of December 31, 2018 , which report appears in the December 31, 2018 annual report on Form 10-K of KAR Auction Services, Inc.

Our audit report on internal control over financial reporting as of December 31, 2018 , contains an explanatory paragraph that states that management has excluded from its assessment of internal control over financial reporting as of December 31, 2018 , the internal control over financial reporting associated with STRATIM and Clearplan ("2018 acquisitions") total assets of 0.6% and total revenues of 0.1% included in the consolidated financial statements of KAR Auction Services, Inc. and subsidiaries as of and for the year ended December 31, 2018 . 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 2018 acquisitions.

/s/ KPMG LLP

Indianapolis, Indiana

February 21, 2019

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 21, 2019

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 21, 2019

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, 2018 , 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 21, 2019

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, 2018 , 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 21, 2019