Hometown Auto Retailers reached a settlement with the former owner of its Toyota of Newburgh operations, Richard Gaillard, that eliminates Hometown's obligation to issue 1.8 million additional shares of Hometown common stock to the former owner.

Under terms of the original "buy/sell" agreement between the two parties, Hometown was obligated to issue the 1.8 million new shares (or cash equal to the value of those shares) to Mr. Gaillard, who is now general manager of the store, if Hometown's common stock had not reached a value of $10 per share by April 2001. Additionally, the former owner had made certain assurances to Hometown regarding the value of certain assets of Toyota of Newburgh.

Since neither condition was met by either party, both parties have agreed that: Hometown will issue 200,000 additional shares of Hometown common stock to Mr. Gaillard, will pay an additional fixed purchase price of $240,000, will pay him 20% of the dealership's pre-tax profit in excess of approximately $57,000 per month during the 21 months commencing April 2001, and all additional cash payments from Hometown to the former dealer shall be paid in monthly installments through January 2003.

As a result of this new settlement agreement, Hometown no longer has to issue 1.8 million new shares to Mr. Gaillard. The shares had been treated as dilutive shares in calculating Hometown's fully diluted earnings in the quarter ended March 31, 2001.

"We are pleased to have reached this settlement," says Corey Shaker, president and chief executive officer of Hometown. "We believe that it represents a fair solution for both sides and eliminates the risk of substantial dilution to Hometown stockholders."