K Kar Auctions Services Inc., IPO: A Criminal History or a Money Tree for Three?

I IPO should serve James Hallett, Michael Hockett and John Fuller well. On November 30, 2009 KAR Auction Services Inc. (KAR) announced the commencement of an Initial Public Offering of 23,000,000 shares of common stock estimated at $ $15.00 to $17.00 per share. Just last month, KAR Auctions changed its name from KAR Holdings, Inc., (before that it was ALLETE in 2007). KAR's CEO James Hallett recently said, “This name m more accurately reflects the businesses…” Or, this may be just a better way to hide previous dealings of past companies to confuse investors. Below is an outline of James Hallett and KAR to better i illustrate the business model. Hallett became CEO of ADESA U.S. after leaving ADESA Canada in 1996 to replace ousted David Michael Hockett (a.k.a Mike Hockett or D. Michael Hockett). Luckily he and two other executives were paid $44 million for leaving, which MP&L later sued to recover when Hockett failed to live up to any of his promises not to compete. Hockett agreed that he would not engage or be interested in (a) the vehicle redistribution business; (b) the vehicle auction business; or (c) the d dealer floorplan financing business. Hockett had his hands in all three before he left ADESA and still does business in each one these. Hockett got MP&L's cake, ate it, and then used a portion of it to start a separate business that cut into MP&L's bakery. ADESA, AFC and D. Michael Hockett In 1992 Mike Hockett and Gary Pedigo formed ADESA (Auto Dealers Exchange Services of America) Corp., basing it in Indianapolis. Hockett was named president and CEO. In April 1992 two million shares of stock were sold at $11.50 each. Hockett r retained a 56 percent interest. In 1993, Hockett founded a new auction division: ADESA Canada. He helped merge the salvage industry with the whole car industry by acquiring the Impact Salvage Auction chain. In January 1994 ADESA acquired Automotive Finance Corporation (AFC). Mike Hockett was also part owner of CITA Inc. with John E. Fuller which was founded in 1987. CITA provided floorplan financing to dealers and was renamed Automotive Finance Corporation in December 1993, a month before being bought by ADESA. In January 1995 Minnesota Power & Light (MP&L), an electric utility company, bought 80 percent of ADESA's stock for $162 million. ADESA management, who held most of the remainder, would remain in charge. In August 1996, Minnesota Power and Light Co. instigated a management shakedown at ADESA resulting in the resignation of ADESA founder and CEO Michael Hockett. ADESA executive James Hallett was selected to replace Hockett. Michael Hockett took a stock buyout, along with two other officials of ADESA $44 million. Under the 1996 Agreement, Hockett specifically agreed that for three years he would not engage or be interested in (a) the vehicle redistribution business; (b) the vehicle auction business; or (c) the dealer floorplan financing business.

L Litigation On 10/15/1996 Minnesota Power & Light sued Michael Hockett, his wife Judy, and his sons Brian Scott Hockett, Jason Hockett and Michael Hockett, Jr. in Indiana Federal Court for breach of contract (IP96-C-1463-D/F). Minnesota Power alleged that Hockett had engaged in the auto transport business conducted by F & J Auto Transport, Inc., which was a subsidiary of Alphamega, an Alabama corporation, with which Hockett was involved or had financed. F & J allegedly competed with Great Rigs, Inc., an Alabama corporation that was a wholly owned subsidiary of ADESA Corp. Second, Hockett had assisted others in forming Alphamega. In a separate case with the SEC, Judy Hockett, the wife of ADESA CEO Michael Hockett in 1997 agreed to pay $60,600 to settle Securities and Exchange Commission charges that she tipped off her brother before Minnesota Power & Light bought 80 percent of Adesa for $162 million. By trading on the information, the brother made $25,500 in illegal profits, the SEC said. SECURITIES AND EXCHANGE COMMISSION V. JUDY HOCKETT, GAYLE RAISOR, AND KEVIN R RAISOR, Civil Action No. IP97-870-C-D/F (S.D.In. May 29, 1997). In 2001, Michael D. Hockett, son of ADESA founder D. Michael Hockett, was sentenced for bribery in a federal court in Virginia. He served five months in jail, 150 days of home detention and was ordered to pay a $20,000 fine. The junior Michael Hockett was one of three men implicated in a bizarre plot to blackmail a Suffolk City, Va., councilor into dropping his opposition to a zoning issue. The scheme involved an attempt to get photos of the councilor with an exotic dancer who showed up at his insurance office. The plot unraveled when the c councilor threw the woman out. Earlier this year BRIAN SCOTT HOCKETT, of Indianapolis, was charged with bank fraud, following an investigation by the FBI. The allegations were that from January 2003 through May 2006, HOCKETT was the owner of Family Management Corp., which did business in the Indianapolis area as Fleetmax, a wholesaler of used motor vehicles. In early 2002, HOCKETT established a line of credit for Fleetmax with National City Bank and Fifth Third Bank to provide working capital for F Fleetmax. HOCKETT concealed his diversion of the line of credit from the banks by falsifying reports he filed with the banks, called “borrowing base certificates,” to show that Fleetmax had more assets securing the line of credit than was actually available. Reports to the banks showed that Fleetmax had approximately $12 million in assets available as security, when in fact there was only $750,000. After the banks discovered the fraud, and all of Fleetmax’s assets were sold, the banks lost a approximately $2.4 million as a result of HOCKETT’s fraud. The elder Mike Hockett is currently founder and CEO of Auction Broadcasting Company, which over the last couple of years has been selling its used car a auctions to ADESA’s present CEO James Hallett. J JAMES HALLETT HISTORY In 1996, James Hallett, the head of Adesa Canada, was named president and CEO of A ADESA replacing ousted founder Mike Hockett In October 2003 the firm's parent, now known as ALLETE, Inc., announced that it would spin off ADESA as a separate entity. One share of ADESA stock would be

issued for each share owned in ALLETE. The move was taken to increase shareholder v value, as ADESA now accounted for almost two-thirds of ALLETE's revenues. In December 2003, the SEC initiated an informal inquiry relating to ALLETE’s internal audit function and the internal financial reporting of ALLETE (ADESA’s former parent), ADESA, AFC, a wholly owned subsidiary of ADESA, and the loan loss m methodology at AFC. In June 2004 the spinoff from ALLETE got underway with the sale of 6.25 million shares of stock on the New York Stock Exchange. The remaining 93 percent of the firm's shares were distributed to ALLETE shareholders in September. ADESA had by now also issued $125 million in bonds, as well as securing $525 million in loan c commitments from a total of 29 banks. Sean Hallett, the son of CEO James Hallett, had three separate lines of credit with AFC and an outstanding loan through a related entity. As of December 31, 2004, the total amount owed to AFC was $1.7 million. As of December 31, 2004, Sean Hallett and his related businesses were in default on those obligations. All three c credit lines were then closed. ADESA pursued legal action to collect these amounts. AFC and Automotive Finance Canada, Inc. (the "AFC Entities") filed their Statement of Claim in the Ontario Superior Court of Justice on or about November 8, 2004 wherein it was alleged that Sean Hallett and his related companies (the "Hallett Entities") had defaulted on their outstanding obligations to AFC (Ontario Superior Court of Justice; Case File N No. 04-CV-278564CM2). In December, 2004, Sean Hallett filed his Statement of Defense and Counterclaim against AFC, AFCI, ADESA, Inc., ADESA Canada and ADESA Auctions Canada alleging that there was no outstanding obligation and that the named counterclaim defendants owed approximately $6 million to Hallett in compensatory and punitive damages. On March 4, 2005 the parties met in Toronto, Canada and participated in a m mandatory mediation session in an effort to resolve the litigation. In May 2005 James Hallett was fired by ADESA with new CEO Dave Gartzke taking on Hallett's former duties as president of ADESA. Hallett became president of C Columbus Fair Auto Auction, in Columbus, Ohio the same year. In the summer of 2005, ADESA and AFC sued Dealer Services Corporation ("DSC"), founded by ADESA veterans Mike Hockett and John Fuller. DSC filed a counterclaim against AFC Finance and ADESA Inc. (NYSE: KAR), claiming that AFC engaged in anticompetitive behavior. The counterclaim alleged that AFC engaged in unfair competition and interfered with DSC's business relationships by refusing to enter into a blanket intercompany creditor agreement with DSC, and knowingly filing frivolous, baseless claims against DSC in bad faith. DSC sought $25 million for punitive and other damages. The lawsuits were filed Hamilton Superior Court, I Indiana. HALLET RETURNS TO ADESA in 2007 James Hallett was announced February 1, 2007 as president and CEO of ADESA after being terminated two years ago by new management at ADESA. The private equity firm that is purchasing ADESA is taking the company private (KAR symbol NYSE). Hallett apparently helped orchestrate a new ownership deal consisting of KELSO & Company, GS Capitol Partner (affiliate of Goldman Sachs), ValuACt Capitol and Parthenon C Capitol. James Hallett quickly began buying auctions from former ADESA CEO Mike Hockett. Hallett said he always considered Mike Hockett, CEO of ABC Auctions, to be a

visionary, much like himself. Now James Hallett is ready for KAR AUCTIONS to go public again. In an amended S-1, KAR Holdings (the HoldCo for Adesa) disclosed the details of its upcoming IPO. The company, with Goldman as lead underwriter (with upcoming Buy recommendations to follow the IPO courtesy of 10 co-managers to secure an even better price for Goldman to dump remaining shares), will sell 23 million shares between $15 and $17/share. MR. JOHN E. FULLER Not a lot of intelligence on Mr. Fuller. Other than he was a Marine sergeant and got hurt on the job as a fireman, his industry knowledge appears to be riding the coattails of Mike Hockett. He is the president of Dealer However, in October 2009 Mike was originally listed in 2005 name appears to have vanished Services Corporation and claims he was the founder. Hockett claimed that HE is the founder. Mike Hockett as a DSC Director on many state filings, yet his in all current filings in 2009.

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